The buy-to-let boom resulted in many people becoming landlords and investors in the belief that it was an easy way to make some quick cash. Buy a property, rent it out, collect the cash – what could possibly go wrong?
In reality, the life of a landlord can be difficult. Financial pressures, demanding tenants and the eternal problems associated with finding and managing the perfect buy-to-let property can all conspire to create a high-stress occupation. If you are a new landlord, one of the best ways to learn the ropes is to look at the problems suffered by other investors, and consider how you can avoid them.
So what are some of the most common mistakes made by landlords?
Not vetting tenants
Your tenants are the bedrock of your business. They are your customers; it is their rent on which you rely to ensure that you can pay your buy-to-let mortgage and meet your other outgoings.
At the same time, you place a significant amount of trust in your tenants. You must be confident that they will treat your property with respect, and that it will be in roughly the same state at the end of the tenancy as it was at the start. You must properly vet potential tenants in order to ensure that they will be able to pay the rent, and that their renting history is good.
You may find that you require the services of a letting agent to help you do this. They will be able to provide credit and reference checking facilities, which you may find difficult to take care of on your own.
Poor property choices
The property you buy is one of the most important choices you will make as a landlord. You should remember that expensive is not always better. Make sure you do your research first; find out about average rents, the type of tenants in the area and the general demand. Above all, don’t overstretch yourself financially; if you take too big a mortgage you may struggle to meet the repayments.
Many new buy-to-let landlords choose properties close to their homes. While this may be convenient, you may also be able to find a more suitable property by looking farther afield. That said, unless you intend to use a property management firm or lettings agent, it is probably unwise to buy a rental property in Aberdeen if you live in Southampton.
Over-reliance on lettings agents
Letting agents provide a range of useful services to landlords including tenant vetting, rent collection and, in some cases, property management. Many landlords could not do without them.
But for all their benefits, letting agents have some significant drawbacks. Their services come at a cost; it is not uncommon for an agent to charge in excess of £1,000 to find and vet a tenant. Furthermore, it is a sad fact that there are many unscrupulous agents out there. You should ensure that you do some research before making a decision, find out upfront about their fees for things like contract renewals and keep a tight rein on your agent’s expenses.
Not monitoring cashflow
As a landlord it is vital to remember that you are running a business, and you should treat your finances as such. A worryingly large proportion of landlords do not keep a close enough eye on their cashflow, presuming that they are doing enough if their rental income covers the mortgage.
You should keep detailed records of all income and expenditure and, where possible, record it in a spreadsheet that enables you to view key figures like profit and loss projections quickly. You should also review the performance of each of your properties on an annual basis. This will help you to make informed decisions about the make-up of your portfolio.
Skimping on the contract
The tenancy agreement is one of the most vital tools available to a landlord. It outlines the terms of your relationship with tenants, including when they will pay rent and under what circumstances the tenancy can be ended.
Given the importance of this contract, it is concerning that so many landlords skimp on it. A large number simply find a standard format agreement online – or, perhaps worse, just write it themselves. Although legal advice is not cheap, it is vital that you enlist professional help when drafting a tenancy agreement. Despite the initial outlay this can help to save you time, money and stress in the event of a disagreement at a later date.
Being a landlord is not always easy, despite what some may think. But, by learning from the mistakes of others and trying not to repeat them, you can help to make your own property investment as easy and stress-free as possible.
What mistakes have you made with your buy-to-let?
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