22-07-2008
Is your buy-to-let a money pit?
By Gee Sahota
Letting out a rental property is very different to owning and living in a property. In your own home you fix broken appliances or furniture and deal with problems as they appear, but in a buy-to-let you are relying on your tenant to take responsibility for looking after the place and reporting any issues. Often they do not turn out to be quite as responsible as the landlord would like, and problems left unsolved will soon escalate – turning your money-spinning investment into a bottomless money pit.
As any smart landlord knows, good tenants and good management are essential to achieving the best from a buy-to-let. With a little bit of preparation at the start of each new tenancy and good customer care you can pave the way for a successful relationship with both your property and your tenants!
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Here are some essential pointers:
Looking after your property
Simple maintenance can save you thousands of pounds, and carrying out regular repairs will help you avoid the need to spend on unnecessary costs in the future. It’s important to look after your buy to let property as if it was your own home.
A key consideration when it comes to maintaining your property is to assess whether you should hire professional help to complete any maintenance or do it yourself. Weigh up the income you’d lose versus paying a professional to complete the job. And remember that management or maintenance costs can be offset against income from rent for tax purposes.
You could start with an annual plan which will help you organize maintenance works effectively, allowing you to inform tenants about any upcoming work in advance. Simple issues like ensuring your drains and gutters are clear, or cleaning soap powder from the washing machine can help prevent flooding and avoid any unnecessary costs.
Similarly, any gas and electricity appliances like your gas cooker or central heating should be professionally checked once a year by a Corgi registered gas or electricity engineer, who will issue a certificate to certify they are safe. Landlords should arrange this before allowing anyone into the property, as tenants are within their rights to ask for Corgi certificates. For more information about finding a Corgi registered engineer, log onto http://www.trustcorgi.com/Landlords.html
Another important concern if your tenants are due to move out is to update the inventory ready for a replacement. Remember, the more detail you include the better as it will help avoid any disputes when the tenant moves out.
Reviewing your insurance
Although, there is no law to say that landlords must have insurance, it would be foolish not to take out a policy, especially as tenants are still likely to take legal action against their landlords if they feel their rights have been violated.
As a landlord your policy will need to be specifically designed for letting and to cover several additional risks.
The good news is that as more people are letting out properties, the insurance policies have developed to cover almost every conceivable eventuality; from the building itself, the contents, legal costs, loss of rent if tenant doesn’t pay to public and occupier liabilities. You can log onto www.simplybusiness.co.uk to compare and buy the best policy for you.
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Reviewing the tenancy agreement
Your tenancy agreement should set out the arrangements for reviewing the rent of the property. Whether there is a stipulated clause for increasing rental rates in the contract which you want to put into effect, or the tenure term is due to finish and you want to review the rent, make sure to check out the local rent rates for similar properties to your own. This way you can ensure you are getting the maximum rent possible for your property without pricing your property out of the market.
However, landlords should be aware that there is a proposed overhaul of the existing assortment of tenancies and licences, which are currently under review. The Law Commission is undertaking a project to modify and simplify the law on housing tenure via a simple system of secure and standard contracts. This is due to come out later in the year.
Nevertheless, in the meantime, there is a formal procedure used to increase a tenant's rent and landlords must complete a notice for assured; assured shorthold and periodic tenancies. Officially entitled the ‘Landlord's Notice Proposing a New Rent Under an Assured Periodic Tenancy or Agricultural Occupancy’, this document can be obtained from law stationers or the Rent Assessment Panel.
New legislation
Don’t forget about the new legislation that the government introduced in 2007 that will affect how you manage your property moving forward.
April 2007 saw the introduction of the Tenancy Deposit Scheme, which changes the way in which deposits are handled between landlords and their tenants. If you previously managed to escape this in the first quarter of 2007, remember that you will now only be able to take a deposit as long as it is protected by a Tenancy Deposit Scheme. For more information on the best scheme to go for visit http://www.direct.gov.uk/en/TenancyDeposit/index.html.
If you need to prune your property portfolio you’ll now need to provide a Home Information Pack and Energy Performance Certificate which was extended to all properties from mid Dec 2007. The average cost of a pack is £300 to £350 and will provide key information ensuring the process becomes more certain, transparent and consumer-friendly.
Furthermore, upon selling your property you will be in for a healthier tax break as the Labour government are proposing 18% tax on Capital Gains.
Keeping your tenants happy
Finally, it’s imperative to maintain a good relationship with your tenants, so make sure to get regular feedback from them. Should an issue arise with the property, fix the problem at your earliest convenience.
By staying organized and keeping on top of all these matters, not only do you save yourself unnecessary headaches and a great deal of expenditure, but you ensure the best possible outcome for your investment.
