There are some two million private landlords in the UK owning a staggering£1.25 trillion worth of property. This number is only set to grow as more people look to buy-to-let as an attractive investment option and tenant demand increases.
Yet, for many reasons, a huge number of landlords are making big mistakes. This is partly because many have ‘fallen’ into becoming a landlord or because they go in with their eyes shut, thinking only of property as ‘the right thing to do’ or the only way to financial security in retirement.
This often results in lack of knowledge or understanding of the market and how to effectively manage a buy-to-let property or portfolio. And not having the right information or guidance from the outset can lead to easily avoidable mistakes – some of which can turn out to be very time consuming or costly to resolve.
1. Thinking of it as a side-line
Being a landlord is first and foremost a business and it should be planned and managed accordingly, even if it is not your primary source of income. The reason you have a buy-to-let property (regardless of whether you intentionally bought it or inherited it) is because you want to make money, through income and capital growth. Not only should you be looking at ways to maximise your profit, but you should be recording your income and allowable expenses and declaring them to HMRC. The size of your portfolio and long-term plans will determine somewhat whether you are best served owning them personally or setting up a limited company. By speak to your accountant and getting some advice on how to run your portfolio, you could run a highly profitable tax efficient business. But, fail to plan and research and you could be seeing a big tax bill coming your way soon.
2. Having the wrong mortgage
This is more often the case in scenarios where a landlord is renting out a property that they used to live in. It’s essential that you move your property onto a buy-to-let mortgage and not keep it on your residential mortgage. You may be able to do this with your current provider or move to another, but it is likely that whatever the outcome, there will be a fee. Similarly, if you are a landlord of a House in Multiple Occupation (HMO), a standard buy-to-let mortgage is not suitable. In extreme cases, this could be seen as mortgage fraud, so definitely not a mistake you want to be making. Consult your current provider or seek advice from a mortgage advisor. In most cases, they will not charge unless you take a product with them.
3. Not researching the market
Many landlords find themselves with low yielding properties. This is usually because they didn’t do the maths and find that the payable costs such as maintenance and ground rent are much higher than initially thought and not reflected in the rent they charge. Or, it could be that they bought a student HMO in an area that is saturated with them or too far from the universities and so void periods are high. Do comprehensive research on an area, the local rental market, the property and running costs so you can maximise the returns you could get from your investment.
4. Cutting corners
It’s all too easy to give someone the benefit of the doubt. After all, we’re only human, and it’s hard not to sympathise with someone in desperate need of somewhere to live. However, under no circumstances should landlords be renting properties to tenants with only a friendly handshake as proof. You should carry out proper referencing, take full deposits, check immigration status (soon to be law) and a obtain a signed tenancy agreement to ensure both you and the tenant are not put at risk.
5. Not knowing your responsibilities
Your rental property must meet minimum health and safety standards and be checked regularly. In some cases, you may need a landlord’s licence from your local authority and in every case you must safeguard your tenant’s deposit in a government-backed tenancy deposit scheme. You are also responsible to properly insuring the property. Failing to do any of the above through ignorance or arrogance could lead to penalties or even legal proceedings being brought against you. Don’t be caught short by not doing your homework.
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