Top 10 common mistakes new landlords make.
Welcome to our guide to the top 10 things you should avoid as a new landlord.
1. Letting to a friend or family member.
No good deed goes unpunished….
Mixing business and pleasure is rarely a good idea and when it comes to your investment property it should definitely be avoided.
Friends and family tend to expect special treatment and often pay late, get into arrears or don’t look after the property due to bad feeling. If your paperwork and inventory were not water tight things will go from bad to worst and can end up in court.
2. Not registering the utilities and council tax.
Utilities companies and local councils will very quickly take arrears to court and register defaults or bad debt judgements against you. As you are not living at the address you won’t know till it is too late.
It is good practice to take photos of the meter readings at the start and end of every tenancy or ask you agent to do this on your behalf. Then speak to the council regarding move in and out dates for the tenant and make sure they have your home address, they know you are a landlord and have your contact details.
3. Landlords not planning for periods of no rent.
You will be very lucky if you go the whole year without a rental void. As a landlord you should expect to have between 2 and 4 weeks per year without rent and set up a contingency fund for these times of as least one month’s rent.
The most practical way to do this as a landlord is have the mortgage and rent going into the same account and leave the extra month in there as a float.
Longer term arrears and evictions cost a lot more. To protect against these, I would suggest 3 month’s rent or look at a rent guarantee insurance policy to cover arrears and eviction costs.
4. Not planning to refresh the property every 5 years or so.
Over time your investment property will become tired and this has a couple of longer term negative effects. Firstly, your property will be worth less if it is not maintained and should you want to sell or remortgage the property its condition has a big impact.
But the biggest risk is too tenant quality. Quality tenants want a quality property, if the property is tired and not maintained well you will achieve a lower rent, it will take longer to re let and the best quality tenants will look elsewhere.
5. Tenant deposits not dealt with correctly.
There have been a few changes around how, when and what documents landlords need to be provided to the tenant when a deposit is taken. If everything isn’t done correctly within the set time scales, you could be fined up to 3 times the deposit.
It is important a detailed inventory is also completed and given to the tenant before they move in and a detailed checkout is given when they leave.
Tenant and landlord disputes are on the rise and many landlords lose before they even start because they didn’t set everything up correctly at the start.
6. Not meeting the tenant in person.
Even if you are using an agent to find the tenant, meeting the person who is going to be renting your property is a really good way of ensuring things go right. You can see if you get on and understand their background a little better. After meeting them in person if you are not 100% sure, then keep looking. Your gut is usually right.
7.Landlords not regularly inspecting the property.
Regular inspections serve two main purposes. The first being to ensure the property is being looked after. The second is it nurtures your relationship with the tenant. A good relationship with your tenant means they are more likely to stay longer, look after your property and if there is a problem with money you are not a cold faceless landlord the tenant will ignore.
8. Low rental yield.
When looking at buying a property to let one of the key factors to consider is the purchase price vs the rent. Some larger properties can be very expensive to buy and the rent just doesn’t make it worth doing. Larger properties can also take longer to let and sit empty for longer. At the other end of the spectrum one bedroom properties are cheaper to buy but tenants don’t tend to stay very long and wear and tear on the property will be high.
Mid-range two and three bedroom homes tend to offer the best tenant retention and return on investment.
9. Not planning for the buy to let tax changes.
Less favourable tax treatment of landlords and buy to let mortgages is coming and will affect how much tax you pay on your profit.
Seeking independent tax advice regarding this will ensure you are putting enough money aside to cover this extra tax.
10. Buying a property nobody wants to rent.
Location, location, location also applies to tenants. When purchasing a property to let, consider who will let the property and how long will they stay? Tenant quality and tenancy length will make or break your investment.
Buying a property in an area close to where you live, that you know and can easily visit further reduces this risk.