The Essential Guide to Letting

New landlords sometimes make what seem obvious mistakes to those that are more experienced. But we have all been there, so here are a few tips for any novice property investors just starting out along the buy-to-let learning curve. I strongly believe that knowledge and forewarning brings power … so fellow landlords, here’s some power to your elbow.

The Problem of Inherited Properties

Many people find themselves becoming a landlord by circumstance, rather than by choice, and typically it is because they have inherited a property and don’t really know what to do with it. Deciding to rent it out, perhaps while waiting for the housing market to improve, is not always the best course of action.

A house situated in the wrong location is a recipe for disaster. Experienced property investors examine and quantify local supply and demand before they buy a particular property that they intend to let out. If the volume of tenants looking for a rented home in the neighbourhood is low, there is the added likelihood of long voids – which are a landlord’s nightmare, because they produce none-earning months and reduce the chance of annual profit.

When a friend or relative inherits a property, they have had no involvement in choosing its location. Deciding to rent it out without undertaking careful research is a little like putting the cart before the horse. They are taking a huge gamble on whether there will be enough tenant demand to sustain the proposed letting. Sadly, many discover the mistake too late and long after expenses have overwhelmed rental income.

Sometimes it makes far more sense to sell the dwelling, even at a substantially discounted price, and then use the capital to re-invest in a more suitable property situated in an up-and-coming location or one closer to local amenities.

Letting to Friends, Relatives or Colleagues

Many novice landlords believe there is every advantage to letting their property to a friend, a relative or a work colleague – but the truth is, this is often a situation that spirals into social calamity and financial ruin. What might have begun as a cordial relationship can often be destroyed by disagreements over late or absent rent payments, levels of maintenance on one side or the other and the expectation of ‘favourable’ treatment.

In fact, any landlord tenant relationship is likely to fail, unless it is based on professional business-like qualities. And when (note I didn’t say ‘if’) there is a problem over rent arrears or property damage, you are likely to find it much more difficult to take speedy action to rectify it. Could you take your friend to court for possession? Could you call in a debt collector, if a relative abandoned the tenancy? Do you really know whether your work colleague would care for your property and furnishings in a respectful and tenant-like manner?

And would you be careful enough to reference the proposed tenant before granting a tenancy, like you would under normal circumstances? Would you ask for and collect a surety deposit? Do you really know what their credit history is like? Without referencing, you may only discover the truth about these matters when it’s far too late.

Using the Property as a Furniture Depository

Some people have a bad tendency to use the let property as a place to store unwanted furnishings, which they feel are too good to sell or throw out. Others think they are saving money by using their own excess furnishings, ornaments and oddments to furnish and equip a let dwelling. I can’t begin to tell you how many times I have seen rented homes overflowing with broken, mismatched and inappropriate furnishings, supplied by those too Scrooge-like to buy and replace with new.

This all too common habit creates several problems. It makes the property unappealing and chaotic. First impressions count – and a harmonious clutter-free house will find a ready, willing and able tenant much faster than one that is full of (yes, let’s just say it how it is) … rubbish. Poor or slow tenant take-up will create extended void periods, which is a shame, because the money earned by letting faster would probably offset the cost of purchasing new furnishings right from the start.

Secondly, old, broken and second-hand furnishings are unlikely to comply with the law. This means the landlord is putting himself at serious risk of being sued, either by the tenant or by the local authority or both. Furnishings must comply with current fire and health and safety legislation. They must be fit for the intended use and, in the case of appliances, they must operate properly and safely.

And finally, a property that is full to the brim with oddments of furniture, kitchen utensils, linens and a myriad of other items will simply cost a small fortune in unnecessary and additional expense. The more items you provide, the longer and more difficult it will be to follow check-in and check-out procedures at the start and end of tenancy. And if you employ an inventory clerk to draw-up and administer an inventory, the more they will charge you for their services.

Remember too that in supplying these items, you are legally obliged to replace them, if they break down or get broken. The more things you supply, the more expensive it will be to maintain the endless list of furnishings, equipment and appliances during a tenancy. Most tenants only need the basics – a bed to sleep in, a wardrobe to hang their clothes in, enough plates and pans to prepare and eat food for themselves and perhaps a couple of guests. Experienced landlords rarely supply bed linen or towels, because most tenants would prefer to supply their own. The same is true of personal-choice items, such as pictures and small ornaments.

Stick to supplying only the basics and your property will remain clutter-free and feel more appealing to prospective tenant viewers. It will also be much easier and more cost-effective to manage throughout the period of tenancy.

Acquiring Permission to Let

Most investors, new and experienced, know the importance of asking a mortgage provider for permission to let a property. However, many fail to realise it is equally important – and a legal requirement – to obtain the authority of a leaseholder too, in the case of a leaseheld dwelling. Permission is usually granted (and cannot be unreasonably withheld), but failing to obtain permission in advance can have some serious consequences.

It is also important to consult other agencies, such as your buildings and/or contents insurance provider. Most domestic policies are inadequate or do not provide cover at all for a property that is let out to tenants. There is however a large number of alternative ‘specialist’ providers available to landlords, and their policies usually supply additional protection that is beneficial in the event of tenant-inflicted, neighbour-caused or accidental property damage.

Rent Guarantee Insurance

Many experienced landlords feel this type of policy, which guarantees that rent is paid each month, is a waste of money. They believe this, because they feel they are adept at dealing with rent arrears or have a sufficiently large portfolio of properties to offset the underperformance of one with others they own providing ample and consistent rental income.

Novice landlord investors are not in the same advantageous position.

The greatest danger is presented to those who rely entirely on rental income to meet their monthly mortgage obligations. The scenario of a tenant falling in serious arrears is something that has caused financial ruin to many novice landlords. Some have had to pay their (second) mortgage out of their own savings – while others have fallen so far behind that the lender has repossessed the property.

Given the alarming and frequent occurrence of rent arrear cases befalling new landlords, it makes sense to consider having a rent guarantee insurance policy in place right from the start. The relatively small additional expense not only provides peace of mind, but also the certainty of keeping mortgage payments up to date, even if the tenant fails to meet their own payment schedule.

Failing To Inspect at Regular Intervals

Some landlords tend to think they can buy a property, rent it to a tenant, and then sit back and wait for the money to roll in. These same landlords wonder how and why their property is then abandoned by the same tenant a year later and how it fell into such disrepair. We all know that no matter what type of property we live in, no matter how old it might be or how pristine it might look on the first day of buying it - things go wrong. Gardens continue growing, paint starts peeling, damp spots appear on ceilings because a roof slate has slipped, pipes start working themselves loose and wallpaper gets banged, knocked and marked. If left, all of these general maintenance issues get worse and some develop into much more serious problems over time.

Not all tenants will report what they perceive as minor issues, but minor issues become big problems - and before very long, a property can fall into substantial and expensive disrepair.

Landlords that take their responsibilities seriously will inspect their investment at least once a year (and more frequently is better). This can help identify any maintenance that might be required - but it can also be used to double-check how the tenants are caring for the property and that the original tenants are in fact still the same people living there. Letting agents employed should undertake inspections on your behalf, but there is nothing better than performing your own, because your standards and expectations may be considerably higher than those of your managing agent.