Ten Tips For New Property Investors and Landlords
17th December 2017
Being a new landlord can be daunting. Perhaps you’ve only just decided to take the plunge and currently, you’re sitting at your computer or scrolling down your phone and you’ve happened upon this article by chance whilst researching your first buy to let purchase. You’re in luck, in this short article, we’ll be sharing with you ten top tips on being a landlord, which may seem common knowledge to veteran landlords but nonetheless, we’re hoping there is something of value in this article for everybody.
- When looking at your next (or first) property purchase for the intention of lettings out, it is important you do your research properly and thoroughly. This goes without saying but even our managing director has made mistakes because he didn’t conduct proper research. Some key things to understand are;
- How much of a return on investment (ROI) do you want on your property?
- Is this ROI achievable in the area you’re looking at?
- Whom are you going to let your property out to? Students, professionals, housing benefit claimants, families or anybody and everybody with their dog?
- Are these individuals going to be interested in your property? It’s no use letting your property to students if the nearest university is outside of walking distance. Likewise, families and professionals may be less than enthusiastic about moving to an area where drugs and crime are rife though some (it is important to understand that we are talking about a minority of) benefit claimants may prefer this kind of area, depending on their personal persuasion.
- Can these individuals afford your rent, therefore enabling you to achieve your desired ROI? There is no point renting to an ex-bankrupt, CCJ ridden benefit claimant who wants to live in your property that costs way above and beyond the potential-tenant’s financial means because you simply won’t get paid on time, in full, every month.
A key source of information regarding property prices can be found on Zoopla. Incidentally, we can list your properties on Zoopla for a fraction of the cost of what other agents charge via our DIY service. It is important to note; however, Zoopla only offers their listing services to letting agents and not private landlords.
- Weigh up your finance options and costs properly. There are a multitude of ways to finance your property purchase these days with cash and mortgages still being the most popular types of finance. However, it is important to understand the pros and cons of being a cash buyer, taking out a mortgage to fund a Buy to Let or raising finance through other means. One rising trend in property finance is the use of peer-to-peer crowdfunding. When taking any kind of finance, it goes without saying that there will be fees payable as a result of borrowing (usually in the form of interest payments or fixed ongoing fees), when this is the case, it’s important to do your sums properly and seek professional guidance where appropriate. We will be discussing financing options in a later guide. It is also important to bear in mind any costs associated with renting out your property including repairs, maintenance, insurance, tax and agency fees where applicable.
- Decide whether to use an agent or do it yourself or both. Nowadays, there are a multitude of services on offer from traditional letting agents and online letting agents as well as multiple do-it-yourself services which can really take the headache out of being a landlord whilst still giving you the freedom to self-manage your property and keep costs down. However, some services are much more reputable than others and their fees may not provide good value for money; for example, you may consider spending less on professional photography because it’s quite a large expense and it will erode your ROI however, in circumstances where neutral décor is used in an unfurnished property and you’re likely to re-let the property with the same interior design (neutral décor), you’ll find you will be able to reuse the professional photographs with new listings, this can save you a lot of money if you thought you would have to pay for professional photography every time you re-let your property.
- Carefully choose insurance and tradespeople. It’s especially important to choose reputable insurance products, many times, insurance products can be eye-wateringly expensive or, on the opposite end of the spectrum, exceptionally cheap. However, the price may convey the level of cover the policy offers and as such, it is important to read the small print to find out exactly what you are and aren’t covered for. It is no use having buildings insurance if you’re not covered for natural disasters or “acts of God” as these are rather likely to cause structural damage, especially earthquakes, likewise it isn’t any good being insured for multi-millions of pounds on a property only worth £100’000. Alongside insurance, it is equally important to carefully choose your tradespeople, an unqualified or unregistered tradesperson may invalidate your insurance policy and even cause even more damage and expense, an unqualified, unregistered gas engineer may also cause loss of life which you may be held responsible for as the landlord.
- Don’t rely on property value increases. Nobody can predict the winning lottery numbers with anymore accuracy than you can predict the stock market and the same goes for property values. The comparison to lottery numbers isn’t exactly fair because at least with the stock market and property values, you can make an educated, informed guess; for example, it is unlikely that the property market will crash overnight with long term, sustained growth but at the same time, we said that about the financial industry in 2008. Instead, you should focus on rental income being your biggest driver of ROI. The capital gains earned on the sale of your property should be seen as the cherry on top of your cream bun, a cream bun is still a cream bun with or without a cherry on top but one thing you don’t want is a cream bun with a bite taken out of it because property values have fallen and you’ve had to pay your lender back more than the value of the house (this is known as negative equity, we’ll discuss this in the future).
- Never cut corners when it comes to tenant vetting. Do not scrimp on costs in this area. It goes without saying that the money you invest in background checks, affordability and credit checks that you pay for when vetting your tenants will pay itself back ten-fold in rent being paid on time, in full, every month without fail but the only way to ensure this is by proper tenant vetting processes. We can do all of the relevant checks on your behalf, if this is something you’re not confident with.
- Think of ways to boost your returns. With property investing, there are multiple ways of boosting your revenue; you could buy larger properties and convert them into several flats; a 3-bedroom house converted into flats and rented to three single professionals will give you a higher ROI than letting the 3 bedroom house to a family; it also mitigates the risk of lost rental income should one of the three flats be untenanted whereas if the 3 bedroom house was untenanted, you’d lose the entire rental income until a new tenant is in place. You may consider improving the energy performance of your home in an effort to increase property values and therefore better leveraging any borrowing you have made so far (we will also discuss leverage in the future when we discuss property financing), this will also decrease the risks of losses from property prices falling though this may only be a relative decrease of risk to the price you purchased the property for plus costs of improvements over the end-value of your property as opposed to an absolute decrease of risk.
- Look for under-priced or Below Market Value (BMV) properties that may need a bit of work doing to them. Most investors will see a good deal and understand that there multiple reasons why the deal is good, especially in respect to under-valued or BMV properties, it may be that the owner is going through a messy divorce and wants to sell the house to settle the divorce or it may be that there is a bit of work that needs doing to it before it is habitable. A £3000 decoration and a replacement boiler, bath and sink and could bring a property back up to its market value. The Telegraph shares Buy To Let millionnaires’ recipes here.
- Know when to buy, when to hold and when to sell. There are multiple factors that come into play when deciding to buy or sell a house. Seasonally, Winter (before Christmas) and Summer are tough times to sell a house, in Summer time people are going off on their holidays and before Christmas is rather self-explanatory as to why home sales aren’t as common as they are in Spring and Autumn. January is a great time to sell as people begin to think about their plans for the year ahead and in Autumn, you’ll benefit from fantastic lighting and few religious or leisure holidays to contend with. However, the optimal time to sell, according to Home Owners Allowance is Spring for similar reasons as Autumn; the downside of selling in Autumn is that people are more concerned with saving up for Christmas rather than the deposit on a new home. However, during the months where sales are low, it is a fantastic time for property investors to hunt for properties; homeowners will often instruct estate agents to lower the value of a property which may allow more room to negotiate a bargain if the house doesn’t sell in the first couple of months.
- Get involved in online communities. For new property investors, a fantastic way of quickly learning about the industry and how to manage properties outside of this website is a wealth of communities and industry specific news portals. Our favourite online community is Property Tribes. It may also be advisable to attend local networking and property events for the purposes of meeting likeminded people who you may be able to work together with in the future on any joint venture (JV) deals.
By following these ten top tips for new landlords and property investors, you’ll be sure to get your foot firmly on the first step towards your goal. This is not the be all and end all of guides though, in fact, this guide is extremely limited in terms of the wealth of information you need to understand to ensure you’re fully compliant with the law amongst other things. With that being said, we’re producing articles and guides all the time to ensure you’re kept up to date with industry and to help you decide how best to achieve your property investment goals.