Whether you’re starting out on your buy-to-let journey or have several decades of experience behind you, most property investors would agree that avoiding costly mistakes is the key to turning a profit in this increasingly competitive market.
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These are five common pitfalls that every landlord needs to avoid.
1. Forgetting you run a business
Although it may not always feel like it, being a landlord means running a business, and you need to keep that in mind when making financial decisions.
Don’t spend money where you don’t need to. Every penny you spend over-budget eats into your profits - and after all, making money is the whole point of investing in property.
This is perhaps easier said than done with everything that needs to be spent on buying and maintaining a buy-to-let property, from letting agent fees to yearly gas checks.
However, if you’re thinking of giving your buy-to-let property a makeover, think about what you really need to do to make it attractive to tenants, and try not to go above and beyond.
2. Losing track of your finances
There are so many things to keep in your head when you’re a landlord that it can be quite easy to lose track of what you’re spending. If you don’t have accurate records of your finances then it’s going to be a lot harder to know if you’re losing money.
One practical way of staying on-budget is to keep a financial spreadsheet with a column of incomings and a column of outgoings. You need to include all items, from the tenant’s rent that you receive to the buildings insurance you pay.
You can then see at a glance where you are going right - or wrong - with your financial investment. For example, if you’re over-budget, you may decide to postpone work on your property, find a cheaper letting agent or perhaps increase your rent.
3. Being unfamiliar with your paperwork
It is important to know your rights and responsibilities as a landlord, as you could end up in breach of the contract that you have with your tenant if you fail to stick to your side of the bargain.
If you’re in any doubt, always refer to the tenancy agreement, which you should always read through carefully before signing. It also means that you won’t spend time and money on items that your tenant is asking for if they’re not in the contract.
4. Not planning ahead
You may be tempted to breathe a sigh of relief and forget your investment once you’ve bought your property and installed a tenant.
But you’ll need to keep an eye on things, whether it’s remembering to organise your annual gas check or meeting your tenant annually or every six months to check on the property and ensure they are not causing any damage.
Your investment needs looking after beyond just signing the contract with your tenant, so make sure you keep on top of your responsibilities and check things are running smoothly.
5. Ignoring insurance
Unfortunately there are a number of risks that come with owning a rental property, from damage by tenants to fire or flooding.
While it’s easy to budget for insurance, either annually or per month, it’s a lot harder to predict whether or not your property will suffer serious damage, or how much that will cost – in lost earnings and reputational damage, as well as repairs.
Having a comprehensive, tailored landlord insurance policy in place can protect you against such risks, and spending money now on a good policy could save you an awful lot in the long run.