Despite the pandemic, Brexit and various tax and regulatory challenges, it’s still an excellent time to be a landlord thanks to robust and consistent rental demand, the current opportunities presenting themselves as a result of the stamp duty holiday, and favourable borrowing conditions.
Putting your money into buy-to-let can still be one of the most profitable uses of your cash, with excellent returns and strong capital growth over time both very possible in most parts of the UK.
That said, it’s not an easy thing to do, especially if you decide to take on management of your property portfolio yourself.
As a landlord, it’s vital that you have the right knowledge, strategy and long-term plan in place before taking any action.
With the help of private and commercial bank Arbuthnot Latham, we take a look at some of the things landlords need to get right to avoid stress, wasted time and ultimately money in the months and years ahead.
Planning for void periods
As a landlord, it is likely that you will experience some periods where your property is vacant. This typically occurs after one tenancy has ended and before you have been able to get new tenants in place. While you are advertising for new tenants, the property is sitting there empty, generating no income and costing you money.
In an ideal world, a new set of tenants would be in place immediately to replace the ones that have left, but it doesn’t always happen like that and you should never assume it will be that simple. On average, a rental property will be vacant for up to four weeks a year.
That might not sound like much, but that’s four weeks without rent while still having to pay your mortgage and various other costs.
You need to budget for this either by holding back a contingency sum in your bank account to cover this or by retaining the surplus rent, after mortgage and other costs, in the account to cover you when your property is unoccupied.
At a minimum, it is worth holding the equivalent of three month’s rent to help you through these potentially barren periods. If you’re lucky, you won’t need to use it, but it’s a great fallback option and safety blanket.
To ensure void periods are kept to a minimum, or don’t occur at all, it’s important you work closely with an experienced letting agent who can manage your property effectively and line up new tenants when required.
Keep an eye on the admin
Whether you’re a first-time landlord just starting out or a portfolio landlord with decades of experience, it’s crucial that you keep on top of your record keeping.
Not only will this help you to monitor income and outgoings, it’s also important for staying on top of administrative tasks, for example when insurance renewals are due. Having an evidence trail is also vital if you are unfortunate enough to be involved in a tenant dispute.
Again, an experienced agent can take on this job for you to keep any stress and hassle at bay.
Factor in unforeseen costs
As well as mortgage repayments, there are a number of other costs associated with a rental property, including insurance, maintenance and keeping up-to-date with legislation. This includes energy efficiency requirements, electrical safety and gas safety certification.
Once more, it’s wise to have a contingency fund on hand to cover this. Like with void periods, you should consider topping this up by retaining surplus rent in your bank account.
Conduct regular inspections
While this is more difficult during Covid times, carrying out regular inspections – or asking your letting agent to do this for you – means you can keep abreast of the condition of your property and whether it’s being adequately looked after. You can nip potentially very costly maintenance issues such as damp and clogged gutters in the bud early on.
In addition, it can help you to build up a good reputation with your tenants, something that is all-important in any successful tenancy.
At present, it’s important that any inspection is carried out in a fully Covid-secure way. If tenants don’t want to meet face-to-face, you can still get to know them through other means and work out if they are having any financial issues related to Covid that could affect their ability to pay rent. You can then come to some kind of arrangement that is suitable for all parties.
Pick the right location
One of the biggest mistakes landlords can make is picking the wrong location, for instance one with low tenant demand or really serious issues with anti-social behaviour.
Location, location, location is as important as ever – arguably more important as a result of Covid. When buying a property to let, it’s vital that you to get to know the area and its reputation before investing there. This might sound obvious, but due diligence can be all too easily overlooked.
If an area is very nice but also has very high rents it may not be right, as you could struggle to fill your home with tenants. London, despite being the country’s largest and most popular rental area, doesn’t actually score that highly when it comes to rental yields because of the initial costs of purchase. Areas on the outskirts of London and counties bordering it tend to do much better on this metric because of lower initial buy-in.
When considering an area, ask yourself whether tenants would want to live here. Is it close to green space, transport links and local amenities? Is it in a WiFi hotspot or a WiFi blackspot? Are you close to a university? HMOs (House of Multiple Occupancy) tend to be in high-demand in student areas and locations popular with young professionals, but could be of much less use in an area popular with families and older tenants.
Making sure you have the right cover
Another easy mistake to make is not having the correct insurance in place. Insurers look at a buy-to-let property differently to owner-occupied homes because of the higher risks at play. As a result, you’ll need specialist landlord cover to be considered for a mortgage, as standard household insurance is unlikely to cover your rental property.
It’s not just buildings cover you’ll need (and contents if you’re letting a furnished property), there are other types of insurance to consider to cover periods when your home is vacant or when serious damage is caused by your tenants.
Peace of mind can be achieved by having the right cover in place now, so you don’t face much larger costs in the future.
A good agent can point you in the right direction for the right kind of cover.
Manage tenant deposits correctly
Fines can be levied if you don’t deal with the tenant deposit correctly, with legislation particularly strict on this topic. You need to familiarise yourself with the procedures and paperwork concerning deposit protection, deposit taking and deposit return.
Inventories are crucial here (with both video and photographic evidence) to ensure you can compare the condition of the property before the tenancy started and when it comes to an end. You should provide a copy of the inventory – with a written list of all the contents included – to tenants before they move in as part of their tenancy agreement.
You can ensure all of the above things are kept on top of by partnering with an experienced, knowledgeable letting agent.
Here at Kings Lettings, we can help you to manage all aspects of your tenancy in a Covid-secure way, to make sure that everything goes off without a hitch.
Should you wish to discuss the above, please do not hesitate to contact your local Kings Lettings branch.
