With buy-to-let investors averaging a 5% yield per annum and demand from tenants surging in 2020, there’s never been a better time to become a landlord. But don’t assume that the hard work stops once you’ve identified the right property. Below, we’ve put together some of the most common mistakes that first-time landlords make. Give them a read and avoid them!
Property management companies will likely overinflate the rental value of your property to encourage you to sign up with them, but you should exercise caution and have a “reality check” by looking at similar properties available to rent in the same area. Demand might be higher than ever before, but there is a ceiling, so be realistic with your demands and you should find a tenant quickly. If your property has been on the market for more than a couple of weeks without receiving much interest, the chances are that it’s priced unreasonably high.
As a first-time landlord, it’s vital that you follow the recommended procedures when taking on a new tenant; don’t assume that your “instincts” are correct. Landlords need to know whether their prospective tenants can comfortably afford their monthly rental payments, so arranging a tenant reference is vital. Speak with their employer and ask for bank statements. Financial experts say that rent should not be more than 35-50% of their overall income. A bank statement can also help you determine whether they have a history of paying on time.
It’s a common misconception that landlords will forever be in profit when they find a good tenant. Don’t underestimate the ongoing costs associated with managing a rental property, from boiler breakdowns to property management fees to unexpected departures from your tenants. As the COVID-19 pandemic has taught us, nothing is guaranteed. On top of your monthly mortgage payments for your rental property, make sure you have a comfortable buffer should the worst happen. Could you manage two mortgages if your income dried up?
If you’re looking for a way to earn more from your rental properties, you could consider our bills management service for landlords. We allow you to offer an all-inclusive package to your tenants, who’ll pay one monthly fee for their household bills. It saves them time, makes life easier for you, and allows you to earn an additional revenue stream from each property.
Next up, it’s important that you put yourself in your tenant’s shoes when buying your first rental property. It’s easy to think with your heart rather than your head, especially if you’re buying a relatives’ property or an address on the same street as your childhood home. Think strategically - would professional tenants want to live here? Will I be able to sell the property easily if I needed to access cash? Don’t fall into the trap of buying a property that you like, rather than a property that will serve your needs and the needs of your long-term tenants. Get into their psyches and only buy a property that you’re confident can be rented out easily.
Many first-time landlords fall into the trap of choosing the cheapest property management firm or managing the property on their own, but neither is advisable. Consider your venture as a business - you need to ensure your properties are well-maintained and that problems can be sorted quickly. A good agent will take away the pressure from you, carry out inspections, and ensure you’re complying with all government regulations. They’ll also be able to back you up should you run into problems with a tenant, and handle notices and evictions. As you grow in the property industry, you might feel confident in managing properties yourself, but as a first-time investor, it pays to work with a trusted, professional team to avoid problems.
Have you made any of these first-time landlord mistakes? Let us know and check back to the Billing Better blog soon - we share advice for landlords and letting agents every month.