How to become a Successful Landlord05 May 2016
So what makes a successful landlord?
The first item to address when you are thinking of becoming a landlord is what your aims are. Why are you becoming a landlord? Is it short term, long term, do you want a specific property type?
Are you buying this property solely as a buy to let investment or is it actually maybe for a son and daughter to live in at some point in the future, or even for yourself? That can completely change the type of property you are interested in.
For example, if your aim is for your son to live in it when he’s at Strathclyde Uni, you probably don’t want a upper cottage flat in Kings Park, even though the rental yield on that might be very good. You probably are more inclined toward a small one bed or 2 bed as close to Merchant City as you can afford. Its going to cost you more to buy, and the yield might be a bit lower, but your son will be happy there for 4 years and that might save you some stress and some money in rent!
It may be that your sole aim is to generate as high a rental yield on your investment as possible, to give you an income stream to pay for say, care costs for an elderly relative, or school fees.
In that case, a cheap flat in Ibrox might work for you, where you could pick up a small one bedroom for £35k and rent it out at £350pcm. That’s’ a great yield for an affordable initial outlay. Of course you need to think about some key issues if you are inclined down that route:
- Who is going to rent it and how long will they stay there?
- What are the neighbours like/ communal areas?
- There might be a longer void than you would have in a more in demand area
- Is there potential to have rent arrears/ a lot of damages if a tenant vacates?
- Key importance, if you decide you want to cash in your investment are you going to be able to sell it and at what price. It’s unlikely you will see major capital gains in my opinion but perhaps the days of that are gone in pretty much everywhere ( unless you live in London of course!)
You might prefer to base your purchase on a middle ground, a decent yield with a chance of capital growth and a secure place to keep your money.
Thats probably the route most middle ground buy to let landlords go down if they are in the fortunate position where they have some funds for a deposit and are in a secure financial position.
Many first time landlord make some fundamental mistakes by not thinking about the whole picture so its useful to flag up some areas new landlords might forget about.
Financially, are you in a position to be a landlord?
Have you considered the factor fees? As a landlord, You need to pay them, what about council tax? Although tenant pays that, what is for some reason there is no tenant living there (a leak for example) can you cover the council tax?
What about re investing back into the property. Tenant demands are high and the days of flowery sofas are long gone. Tenants want decent decor and furnishings if you are providing them. I would say you need to factor in redecoration every 4 years or so.
Repairs – repairs happen unfortunately! Tenants demand quick action and it’s important to make sure the property is maintained. Down time on a boiler = demand for compensation!
Tax – rental income is regular income for you. You can offset costs and interest from your mortgage but you still need to declare it on your tax return. You can offset 10% wear and tear costs per annum.
Do you know your target market?
Are you concerned about who is living in the property or are you not bothered as long as they look after it and pay their rent?
Does your mortgage provider or insurance provider specify the type of tenant you can have? It significantly reduces your ability to find a tenant in certain properties if you can’t take students or housing benefit claimants.
Communal areas – these are fundamental to the rent ability of your property. Make sure they are reasonable!
Ensure you know the law or are using a professional agent who does. Allowing your mates’s mate to move in and agreeing that the rent is going to be £500pcm is no good if things go awry! Everything is always fine at the start, its when things go wrong that you need to know things are ok!