Beware the pit-falls of being a Buy-to-Let landlord

Rental prices are rising almost as fast as house prices. More people are looking for somewhere to live than there are homes available for them. Savings rates are still pitifully low. So why wouldn’t someone want to invest in a buy-to-let?

It seems a simple, sensible investment solution – resulting in better returns on your savings, both in monthly income and capital growth (potentially).

However, it is not simple at all. There are a great many pit-falls for landlords to fall into, not least of which is the red tape imposed by government and councils.

So here are some top tips we’ve gleaned from working with Landlords across the country:

Location is key

Put yourself in the shoes of your potential tenant – is it near to schools, colleges or universities? What are the transport links like? Is the area nice to live in? Visit the area at various times of the day and night to see for yourself. Is it close to where you live so you can deal with any issues quickly? (If you’re going to use an agent, that is not necessarily relevant, but if you are doing the work on the property yourself, that is very important.)

Get the best price for the property

Don’t be afraid to haggle, especially if the property requires some work done to it before letting out. You are investing thousands of pounds, and possibly having a mortgage to do so, so it’s important that you get a good deal. A surveyor’s report can help here.

What rent can you charge?

If there is a mortgage, the lender may have strict rules about this, e.g. at least 125% of the monthly mortgage repayment. Do some research into rental prices nearby, and/or get advice from local letting agencies. Shop around for the best agency deal, if you are going down that route. Checkout the council tax, water rates etc for your tenants – will they be willing to pay these on top of your rent? The rent will have to cover overheads like insurance, maintenance, repairs and replacement of equipment, as well as a contingency for periods when the property is empty.

You might consider an extra chunk for risk as well, particularly for when your variable rate mortgage suddenly jumps a few percentage points.

Don’t forget, in a rising market you might be wise to insert a rent review clause if you are looking at a lease longer than, say, two years. There’s always a possibility that you’ll have to adjust the rent down, but most likely you’ll be able to justify an increase with the help of a professional valuer’s report.

Shop around for mortgages

Maybe use a mortgage broker who has good knowledge of the products available. Work out your Annual Return on Investment like this: Calculate a year’s rental income, and subtract the annual mortgage cost. Divide this figure by the equity you had to put into the property to secure it initially, and the result – multiply by 100 to get a percentage – is your rate of return.

Remember that property prices may not continue to rise, and allow for the possibility of having to sell up at a loss if the going gets tough. The smaller the mortgage element, the less likely you are to get burned in this way. Hopefully, you will have – or be able to build up – a fund to cover emergencies and empty periods.

So now to the property itself

How you decorate it and/or furnish it depends on the type of tenant you are looking for. Students might like it simple and easy to clean, whereas professionals might prefer something more luxurious. Young families might prefer a blank canvas to bring their own possessions in and personalise it.

Vet your proposed tenants carefully – check references properly or have your letting agent do so. Ensure your tenancy agreement covers every aspect of the property maintenance – be clear about whether the tenant can decorate, put up shelves, knock down walls etc.  Have a long conversation about why they’re moving and get some rapport going. Let them know that they can call you with any problems and not let them escalate into something major.

Lastly, but not at all ‘leastly’, make sure you follow the rules and regulations, keep careful financial records, maintain the property and pay your taxes. If your total income – from rental or otherwise – is more than the current Income Tax Threshold, then you will have to pay tax on it. There are reliefs you can claim on interest on the mortgage but these are being squeezed down. Also, tax relief for maintenance costs are not staying at the 10% flat rate – by next April (2016) claims for maintenance will have to be backed up by receipts and proof.

Still want to be a buy-to-let landlord? If so, great, but don’t forget that you can find a friendly professional to support you through that journey at the link below:


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