In this Quick Property Sale (property for quick sale) post, we will outline some of the reasons why being a landlord is not always honey and roses, albeit, done right there can be great rewards from property investing. If you are thinking about becoming a property portfolio landlord, you should seriously consider whether it’s worth the hassle en-route.
From a novice to be becoming a landlord means you have to learn a new trade, certainly accepting it as an apprenticeship, don’t go in blind and make possible financial blunders. Some people imagine that being a landlord is an easy way to enjoy a passive effortless income, where, once you have outlaid some capital to fund a purchase of a property, you can just sit back and take the money. That is not certainly the case. Your first ever investment may come from a house quick sale.
In reality, to become a successful landlord you need to grow gradually, and with proper restraint, so you can control your business around you. Expanding too quickly can lead to uncontrollable bad debt which is completely different to ‘good debt.’ Good debt is manageable, especially when you budget wisely.
Of all of the sectors within property of being a landlord, the most common is renting to tenants, who could either be families or single people. Choosing the ‘right’ tenant is always key because the landlord needs to gel well with them, and profiling potential tenants is paramount (affordability, status, maturity etc). Picking the wrong tenant can be disastrous, for example, where your property can be trashed and rent arrears occur.
Take a look at these considerations below when renting out to tenants:
The phone calls
Every time a tenant’s name flashes up on the mobile screen, it is usually not a social call, when a tenant telephones there’s a problem. There are two types of calls; one is where there’s an issue with maintenance, the other because perhaps they are ‘needy’, calling with trivial requests when they could easily have remedied the problem themselves if they had given it enough thought. On occasions a landlord could find a tenant has removed internal doors ‘to create more space,’ or a tenant has constructed a home art gallery using screws hammered into the wall to hang up their hobby, or even build an indoor planetarium to house reptiles – bizarre? – it happens! It is not the tenant’s property – and they know it.
A tenanted property ‘wear and tear’ can be eight times more than that of a standard mortgaged homeowner’s residence.
Ouch! When a tenant stops paying rent or is regularly overdue on a consistent basis then this can cause a heavy headache for any landlord (as we all know too well at QPS – quick sales property – this has unfortunately happened even to the most seasoned professionals). At this point eviction seems to appear on the horizon and be the only way forward.
A landlord’s angle
From the landlord’s point of view, there is nothing worse than inspecting a rental property and realising how much remedial work it needs, because rental time does equal wear and tear.
Over a period of time funds will need to be spent on general maintenance jobs and this is the best case scenario, if you get a tenant that really doesn’t care about your property, any wear and tear accelerates the fabrication condition of the building.
In addition, not everyone’s idea of cleanliness is clean. Unfortunately there is not a lot a landlord can do about it (except in extreme cases whereby the house is disgustingly filthy), in essence it is the tenant’s own home creature comforts and environment until they leave. When they do vacate the premises it can be a demoralising aftermath to clean up.
Even if you do not have a mortgage on your rental property, there are certain ongoing costs to take into account throughout the year that will corrode any profits:
There is the annual landlord’s buildings insurance, if you using a letting agent, their management fees are usually 10% (+ VAT) of the gross rental monthly income. Then there are yearly gas and five year electrical certificates to pay for. Gas boiler insurance is a prudent cost. Some properties are liable for annual ground rent and/or service management charges. There is also the dreaded HMRC bill, depending on your main income; you may have to pay tax on rental profits.
Apart from the regular general maintenance expenses there will be instances when a major ad-hoc issue could arise, a central heating boiler break down is beyond repair or a water leak causes the ceiling to collapse, although an insurance policy may cover any remedial fixes less their compulsory excess charge. Older buildings require more attention to maintain due to their age which equals more expense.
Regulatory onus is on the landlord
As a landlord ourselves it seems and feels the law sides with the tenant most of the time. Over the past six years more stringent laws and regulations have been introduced from taxation (section 24 and the decline of capital gains allowance), to upgrades of property safety to tenant’s rights. If a landlord wishes to evict a bad tenant (which can take 6 months or more with the increase of rent arrears in the meantime) the LL must produce flawless paperwork otherwise it will be rejected by the courts. Imagine accruing rent arrears and malicious damage committed to your property. Who pays for the mortgage arrears and repairs during and after the eviction? The landlord does unfortunately.
Research the facts around landlord law
If you are contemplating becoming a landlord in the future, you should learn the law around tenancies and property rentals. Engaging a reputable letting agent for your rentals can alleviate the headache of knowing the ropes, albeit, at the end of the day the onus is still on you as the landlord, if the letting agent fails to comply with the rental legislation.
In hindsight it would be very prudent to learn about your obligations of becoming a landlord well in advance of actually doing so.
Sell my property portfolio? Maybe you are a landlord who has experienced these previous situations and wishes to exit the rental property world, if so, please get in touch to discuss how we can help. We buy property portfolios!