The lettings framework for successful buy-to-let tenancies
In our last article, we discussed your rights and responsibilities when letting properties. We looked at the paperwork you need to handle and maintain, landlord insurances, and costs of letting. In this article, we outline the nuts and bolts of letting – the framework to use for every tenancy.
1. Set the rent
Deciding how much rent to charge depends on two factors: the local market and your costs. Let’s start with your costs.
For most property investors, a basic aim is that rental income covers their costs. It is essential that you do a cashflow projection when considering a property investment opportunity. The first part of this is to consider the costs of owning the buy-to-let property.
Write down all your costs on an annual basis. How much mortgage interest will you pay? Are there service charges? What is the cost of insurances and mandatory safety checks? Be conservative in this appraisal. Overestimating is preferable to underestimating.
Once you have your cost of ownership for the year, divide by 12 to obtain a monthly figure.
Now it’s time to research the local market to discover what income you might receive. Browse letting websites. Read local newspapers (often available online). Speak to letting agents and, if possible, other landlords in the area. Now you will have a good idea of the rent your property is likely to make.
Return to your costs list, and add in the cost of property management if you don’t intend to self-manage. This is usually 10% to 15% of the gross rental income.
Now deduct all your costs from your rental income. A positive figure means you are cash flow positive – the rental income will cover your costs. You will have some leftover each month to put into a reserve fund to cover emergencies.
If the figure is negative, then you have a negative cash flow. To invest, you will need to subsidise running costs out of your own pocket or other resources. This doesn’t mean you shouldn’t invest. Some investors actively use a negative cash flow strategy, often because they expect the value of the property to rise fast. They invest for capital gain rather than rental income.
You should keep your costs and rent under constant review like all good businesses keep their costs and revenue under review.
2. Find your tenant
With the property purchased, you must find a tenant. No tenant, no income. You’ll need to advertise your property, staging it so that professional photos create appeal. You might use a letting agent to advertise or use online letting sites. The big sites like Rightmove and Zoopla are careful about advertising for DIY landlords – they cannot afford to breach consumer protection laws. You may also consider advertising in the local press and social media (though we wouldn’t recommend the latter – you may simply be advertising the fact that your property is empty, and invite vandals or squatters).
You will need to identify your target tenant, script your advert accordingly, and conduct viewings. Make sure that the property is clean and tidy before showing applicants round. Explain all the features of the property, including local amenities and the local area. To create a sense of urgency, conduct viewing consecutively. When people are in competition, you are also likely to get a better offer for the property.
3. Vetting your tenant
You must vet a tenant. This includes conducting the following background checks:
- Previous rental record and testimony from previous landlords
- Work record and current employer
- Credit check
- Right to Rent
Do these checks diligently. Most nightmare tenants are those who the landlord hasn’t vetted properly. If you find any red flags, don’t let the property to an applicant. There will be a good tenant close behind.
4. Starting the tenancy
Before your tenant first moves in, you must make sure that the property is prepared. This includes ensuring it is in a good state of repair and decoration, and that electrical and gas safety checks have been completed, as well as an up-to-date EPC. Other tasks you must do include:
- If the property has been vacant for a while, switch on the heating and water to make sure all is in good working order
- Read through the tenancy agreement with the tenant and ensure that the tenant understands their obligations
- Take the deposit, and place it in a Tenancy Deposit Protection scheme
- Provide all obligatory paperwork, including the How to Rent guide
On moving-in day, conduct a property check with the tenant using the property inventory as a reference. Provide a pack of essentials – details about how to operate white goods and how to contact you in emergencies or to report repairs.
5. Dealing with disputes
No one likes conflict, especially with a tenant. However, occasionally there may be a disagreement. How you handle conflict is important.
Should your tenant become frustrated and make a complaint, listen to what they have to say. Remain calm, and avoid using strong language. Ensure that you reference the tenancy agreement and the How to Rent guide in your answers. Often a little empathy and give and take will ease the tenant’s pain and get your landlord/tenant relationship back on track.
Of course, the best way to deal with disputes is not to have them. Fostering a good relationship with your tenant is key. Here are some strategies to help you do so:
- Reply to messages immediately
- Be proactive with maintenance and repairs
- Be friendly – send them a birthday card
- Make sure you check in with your tenant regularly, to say hi and ensure they have no concerns
A good relationship with your tenant will help you retain them, make it easier to raise the rent when you need to, and reduce costly void periods.
6. Inspect the property regularly
In-tenancy inspections are essential. These allow you to check on the condition of your property regularly while your tenant is living there. Check against the property inventory, noting breakages or damages, always with the in the tenant’s presence.
The property inspection also gives you the opportunity to connect with the tenant, ensure that there are no issues that need attending to, and to see if there are signs of others living in the property who shouldn’t be.
During an inspection, you can also reinforce the tenant’s responsibilities – and your own, of course.
7. Raising the rent
The best way to raise the rent is to conduct an annual review – and detail this in the tenancy agreement.
In our article “How to maximise your rental income” we discussed strategies to help raise the rent, including knowing your competition, being prepared with the numbers, being reasonable, and always giving plenty of notice.
8. Ending the tenancy
If you need to end a tenancy, there are two main ways to serve notice:
- Serve a Section 21 notice. This can be done at the end of the initial fixed term period, to assured tenants only. You must give at least two months’ notice. This is sometimes called a ‘no grounds’ notice.
- Serve a Section 8 notice. This must stipulate the grounds for eviction – which often are two months in arrears of rent. This gives the tenant a maximum of two months to leave the property.
If you plan to evict a tenant, it is important to do so legally. You should always seek legal advice. A mistake in the eviction process could mean you will not be able to evict.
In this article, we have examined the major elements of letting properties. Of course, the day-to-day duties are much more than this. However, this framework is one that is effective and can be used with each new tenancy. It will help you keep on top of your property and your tenant, enjoy a good relationship, receive rent on time, and keep your property at its peak.
If being a DIY landlord doesn’t appeal to you – and it doesn’t to many buy-to-let investors – you can still reap the rewards of property investment by hiring an investment property manager to do the day-to-day work for you. This allows you to enjoy your life and focus on finding your next investment opportunity. To learn more about long-term buy-to-let investment opportunities, contact the team at Gladfish at +44 207 923 6100.
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