Is being a landlord right for me?
June 26, 2018
Property has always been a popular asset class in the UK, largely because there are not enough properties being built to meet the ever-increasing demand! This maintains robust property prices and rental values.
What makes property an attractive investment?
- It is a tangible asset
- Many people invest in it as a pension hedge or a legacy for their children
- Low rates for savers sub 2% means property gives better returns
- Access to finance - BTL mortgages will typically loan up to 75% of the property’s value and represent (at the time of writing) cheap borrowing.
- Property can deliver two forms of income - cash flow and capital growth
- Property can be improved through refurbishment or development to force the appreciation and build in equity
- Most people understand the legal system surrounding the purchasing of property
For people considering investing in property, it’s important to understand what you will be getting into. It’s not simply a case of letting a property out and watching the rent roll in! Being a landlord comes with significant responsibilities and legal obligations.
Over 160 regulations
The first point to understand is that landlords have to adhere to over 160 Government statutes and regulations in order to provide safe and compliant homes for their tenants. The penalties for non-compliance are harsh and have recently been raised to a maximum fine of £30,000. It is important to understand that, even if you employ a lettings agent on a fully managed basis, you cannot be divested of your legal responsibilities and the buck will always stop with you. So, if you are going to become a landlord, you will need to treat it as a business and educate yourself as to your legal obligations and feel comfortable with the responsibilities you are taking on.
Businesses come with risk
Secondly, like any business, renting out a property comes with associated risks and it is vital to understand what these are and if you feel comfortable with shouldering them. If you are buying a property using mortgage finance, the biggest risk you are taking on is that of the tenant not paying the rent, or having a void property (when a property is empty). Do you feel comfortable with debt, and could you manage if the tenant stopped paying the rent? If the answer to these questions is “no”, then maybe being a landlord isn’t right for you.
The second area of risk is whether the tenant will look after your investment. A naive and uninformed landlord will be an easy target for a delinquent tenant to take advantage of, which once again highlights the importance of education. Landlords must feel comfortable with risk and they also need to be good problem solvers. If worrying about rental payments or whether the tenant was looking after your property would keep you awake at night, then perhaps you ought to re-think being a landlord.
It's a people business
Next, being a landlord is a “people” business, as you are supplying a service to your tenants, or as we prefer to call them “clients”. People do not always behave in the manner you might hope and even the most-robustly referenced tenant can sometimes develop problems or experience issues such as personal crisis, mental health problems, or lose their job and a good tenant can suddenly become a problem tenant. If you are not a fan of dealing with people and their issues, then being a landlord may not be for you.
There are costs involved
As well as acquiring a property, there are significant costs involved in managing and maintaining it. Landlords are obliged to undertake repairs and maintenance in a timely manner. If a boiler needs replacing, that could cost between £1,500 and £3,000, so landlords need to have a “rainy” day fund to pay for the maintenance and upkeep. If it would stretch you financially to do this, then you may need to consider if being a landlord is the right option for you.
It needs maintenance
Additionally, the last thing you want is for your investment to go downhill due to lack of maintenance, as this will mean lower rent, greater void periods, and your property will likely decrease in value.
Market conditions play a factor
Another aspect to consider is if you are willing to take a long-term view. In the current market conditions, property investors should be thinking in terms of holding their investment for 15 or 20 years. If you are the type of person that seeks instant gratification or who does not have the patience to take a long term view, then you should consider looking at other investment options.
It is worth mentioning here that property is a fairly illiquid investment, so if you might need access to your money quickly, property may not be the best place to park it.
Being adaptable to change
Another quality of landlords is the need to be adaptable to change. In the last three years, there has been increasingly onerous taxation and legislation of landlords, and many have had to adjust their business model to survive.
If after reading this, you are still happy to go ahead with being a landlord, then probably one of the best things you can do is find yourself a team of professionals. This team should include:
- A mortgage broker (unless of course you are a cash buyer)
- A tax advisor
- A solicitor
- A reputable lettings agent (if you are choosing a fully managed service)
For newbie landlords, buying a tenanted property is very attractive because it means that you have an income from day one of ownership and there are no real “start-up” costs such as getting the property ready for rent, advertising for tenants, undertaking tenant referencing etc. Buying a tenanted property is one of the low risk ways of starting out on your landlord journey.
The Vesta platform was set up as the new marketplace for investment properties, and all our properties come with tenants in situ. This means as well that you will be able to see how the tenant has been treating the property throughout the tenancy, and if they are looking after it. So buying a tenanted property through Vesta deals with two big issues that make landlords fearful - no rent, and tenant damage to the property.
With Vesta you know that you will get income from day one of ownership and you will also have confirmed to yourself that the tenant is treating the property with respect.
To learn more about determining your property goals. Read more here.