Whether you have one, two or 100 properties, it’s important to treat buy to let as a business. That means having a plan and an exit strategy, understanding your responsibilities, and keeping on top of the financial side of things.
Like any business manager, it is essential that you draw up a budget and stick to it as closely as possible. You need to know exactly what your current and projected income (rent) will be, and your outgoings. The latter of course does not just involve your monthly mortgage repayments but also your other costs such as upkeep, marketing, letting agents’ fees and so on. You should factor in a margin to cover rental voids and emergencies such as broken boilers, and be aware of your tax position, as there are expenses which you can set o against your income.
The government announced in the Summer Budget in July that landlords will be restricted to only claiming basic rate tax relief on mortgage interest payments, rather than a maximum of 45% which is the current law. The new rule will be phased in over the next four years so work this into your forward projections.
Calculating the rental yield of a property can also help you assess its profitability. To calculate a property’s gross rental yield divide the annual rent by the purchase price then multiply the result by 100 (to get a percentage). Re-do the calculation including all your costs to arrive at the net yield.
The other way landlords make money is capital growth, although you usually have to sell or remortgage a property to take advantage of price gains. Having each property valued by an estate agent each year can tell you which properties are gaining value and could be remortgaged to generate funds for re-investment.
Expand your portfolio
For those considering expanding their rental portfolio, Residential Landlords Association (RLA) chairman Alan Ward advises thoroughly researching any potential property.
“Do your homework – despite high demand for rental, it isn’t universal and you should get a feel for the area and property yourself. This can be dicult if you are buying miles away from your own home,” he says. “If you are going to self-manage, build a team of reliable tradesmen who will respond promptly to service requests. Your tenants are paying you for a package which includes property maintenance.”
But before you plough any spare cash into your portfolio, remember it’s vital to keep an easily accessible cash lump sum to cover void periods or maintenance costs. Remortgaging can be a good way to cut the costs of running your buy-to-let business. Could you save money by refinancing to a lower rate?
If you use a letting agent, do a thorough background check and read their terms and conditions before signing a contract. Pay close attention to how much agents charge both you and your tenants for simple admin tasks such as signing a tenancy contract or running credit checks. All agents should be a member of an approved redress scheme, either The Property Ombudsman, Ombudsman Services or the Property Redress Scheme. “The majority of landlords juggle a day job with their property commitments so it’s important to understand that buy to let requires active management with a lot of risk involved,” says Carolyn Uphill, chairman of the National Landlords Association (NLA). “Above all, make sure you do your research and get advice; speak to local letting and estate agents who can provide invaluable market intelligence, and join a professional landlord association like the NLA which can oer you all the tools and services you need to make a success of it all.”
Renting out a dangerous property could endanger both your tenants’ life and your finances.
What not to do as a landlord
- Ignore your tenants’ repair or maintenance requests.
- Increase the rent to an unreasonable level.
- Visit the property without agreeing a time with your tenants.
- Treat the property as your home – it’s the tenants’ home.
- Evict tenants without issuing the correct notices and following the legal procedures set out in the Housing Act 1988.
Tenants unhappy with the state of a property can ask the council to inspect it. Under the Housing Act 2004, environmental health ocers will use the Housing Health and Safety Rating System (HHSRS) to score various hazards.
An inspection can result in a hazard awareness notice, improvement notice or prohibition order. Ignore these at your peril – prosecution could result in a fine of up to £5,000. Larger fines can be levied for gas and fire safety oences, or if the property is a House in Multiple Occupation (HMO), landlords can be fined up to £20,000 just for not having a HMO licence.
But financial penalties shouldn’t be a landlord’s primary concern when it comes to health and safety: keeping your tenants safe should be your priority.
“You’re setting up a business which provides someone else with a home, and they have a right to expect a service provided to a professional and safe standard in return for their money,” says Uphill.
As well as health and safety, landlords have a myriad of other rules to stick to. These include protecting the tenant’s deposit in a recognised scheme, having an energy performance certificate for each property, and meeting all the responsibilities set out in the tenancy contract.
The tenants’ view
So, what do tenants think makes a good landlord? A survey by comparison website MakeItCheaper.com found more than two-thirds of tenants most valued landlords who fix the issues they’re responsible for.
Worryingly, the survey found one in five tenants are too scared to ask their landlord for help with something. So when new renters move in, make sure they have your, or your agent’s, contact details and encourage them to call if they have any problems.
Betsy Dillner, director of Generation Rent, says the main thing for landlords to remember is that your property is your tenants’ home. “Think about what you like about living in your own home and the connection to your community then give the same consideration to your tenants,” she says. “They need stability and comfort, and that means showing a willingness to make repairs, allowing them to decorate, and not putting the rent up without a very good reason.”
THE VOICE OF EXPERIENCE
Vanessa Warwick and her husband Nick have been involved in property since April 2004 when they attended a property investment seminar. Just a few weeks later they bought their line discussion forum PropertyTribes.com where landlords can “Before you start your property journey, you need to have the end in mind,” says Vanessa. “What are you hoping to learning about property and understanding what it takes to be property could turn out to be a liability rather than an asset.” Vanessa advises landlords to go through an intense due diligence process before acquiring any investment property or “Providing a safe and compliant property should be your number one priority – remember you’re providing a service and there are more than 100 rules and regulations you must adhere to. Personally I wouldn’t rent out a property I wouldn’t live in myself. I take time to understand the property from all angles, and how it would suit my tenant demographic and meet their needs. as redundancy, bereavement, family crisis, and mental health business and treating tenants with respect and empathy is what all ethical landlords should strive to do so that tenants have a positive experience of living in the private rented sector.”