Some things to consider if you are thinking of buying a BTL
If you have never been a landlord but have had the idea of having a several properties that produce a regular income is great because it means you never having a regular income and the prospect of capital growth. And even with the overheads and non-benign taxation regime, it seems a great idea in principle, even if it takes some time to get there.
Certainly, the idea of sitting in the sun twiddling your fingers for a living while a bunch of tenants pay you money every month is appealing. And the more tenants you have, the more income you have, and the more properties you have increasing in value. It’s not a bad way to live at all.
However, before you get to that grand stage, there are a few things that you need to learn, not the least of which is that there actually is work (uuurrrgggh! – werk!) involved in being a landlord.
In fact, the very first thing that you need to do is to work, and that means scouring the internet for as much information as you can get about buying a property with the sole intention of letting it. One landlord who now has plenty of experience says that on looking back, it is incredible that he made it through his first purchase. His main mistakes were paying for services he didn’t need and ignoring laws that he didn’t know existed. But he went on to say that the best way to learn is by doing it yourself, and that there are really no “secrets” to being a landlord.
One thing to note is that it is difficult to “time the market”. Ideally, you would want to wait until the market was slow and buy at the lowest possible price, but you might find yourself waiting a long time. A year or so ago, the property market was doomed according to many people, with Covid and so many people being on furlough or out of a job. In fact, the opposite has happened, with property prices skyrocketing in some areas with a hugely unexpected rise driven, no doubt, by the stamp duty holiday. Even that does not exactly make sense as the money saved is small compared to the price increases.
The price increases has put more people in difficulty when it comes to buying a home, and so there are more people who need to rent. However, if you are looking for a quick buck, then being a landlord is probably not the right choice. If you are willing to save up a good deposit and invest in a BTL for long term growth, then that is the right way to look at it. History shows that over the longer term, house prices always increase, but there can be dips and dives as with many other investments.
You need to understand that being a landlord involves making decisions, because you are running a business, and you have to treat it as such. And that includes evicting rogue tenants who don’t pay the rent. You can guarantee that sooner or later that is going to happen to you. And eviction can be a long procedure, so you need to have the patience to deal with it, because the law tends to favour the tenant rather than the landlord.
There are many other issues to consider such as vetting your tenants, making sure they have the Right-to-Rent, ensuring that appliances and detectors are up to spec. There is of course insurance to take care of as well – to protect the property and contents (if furnished) and protecting your rent. You may also want to cover maintenance emergencies, and these can be expensive. Suppose the central heating dies? You can’t just leave it. You have to fix it ASAP. You need to realise that owning a BTL isn’t just about paying the mortgage and collecting the rent. There are running costs involved as well.
Then there is the case of damage caused by the tenant. When your tenant moves in, you need to undertake a written inventory report which will note the condition of everything at that point. This is so that, if the tenant causes unreasonable damage, you can recover the cost of repair from the deposit. An inventory report should also include lots of photos so that there can’t be any arguments. You should take inventory on a regular basis throughout the tenancy and then produce a final check-out report on moving out day.
This will enable you to claim for any damage from the tenancy deposit. However, you should note that you cannot claim for fair wear and tear. Carpets do wear when people walk on them, and that is part of the overhead of being a landlord.
There is a lot more to being a landlord than just this, but hopefully this has given you some pointers. You could just leave it to a letting agent and let them find and vet the tenant, manage rent collection, maintenance and insurance for a fee, but where would the fun be in that?
Panos, 12 August 2021
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