How to avoid the common mistakes of inexperienced buy-to-let investors
Any of the seven deadly sins could cost a property investor their business. Pride, greed, lust, envy, gluttony, wrath, and sloth are all traits that could encourage you to make poor decisions and bad errors when it comes to investing and letting. But there are seven sins that are more common among buy-to-let investors. Avoid these at all costs, or they will cost you.
1. Inadequate vetting of tenants
Getting the wrong tenant may be the biggest mistake you can make. It’s also one of the most common mistakes made by buy-to-let investors.
Consider it this way: would you let anyone coming off the street borrow your car and take it for a drive around the UK? I suspect not. Before you’d allow someone to get in the driver’s seat, you’d want to know that they had a licence to drive and that they could be trusted with such a valuable possession. So why would you let someone you hardly know live in a possession worth at least 10 times the value of your car?
It’s unlikely that you will ever fully know your tenants, but you must conduct comprehensive tenant vetting to know them well enough to let them live in your property. While you’re at it, here are a couple of tips for getting tenants:
- Avoid tenants who will cause you grief – they will probably cost you money, too
- Never use free tenant search sites – statistics prove that professional tenants from hell trawl for these for their next victim
2. Not charging the right rent
If you set the rent too high or too low, you will lose money.
Setting a high rent sounds like the best way to make a lot of money as a buy-to-let landlord. The problem is that if you set the rent too high, you will end up with a long and expensive void period. Not only will you have to subsidise the mortgage and other costs out of your own pocket, but while your property is empty it is more likely to be vandalised or attract squatters. You will only let the property when you have pulled your rent back to a realistic price.
If you set your rent too low, you’ll attract the wrong sort of tenant. Better tenants will wonder why the rental price is so low. They will ask, “What’s wrong with the property?” Go too low on your rent, and you may not earn enough in rental income to keep your cash flow positive. You’ll be racking up costs and losses that could be avoided.
3. Writing a tenancy agreement that doesn’t cross the ts and dots the is
The tenancy agreement is the most important paperwork of all your landlord documentation. It must be right. It must include provision for all eventualities, and be written in line with all current landlord laws and regulations. It is the framework in which your relationship with your tenant exists. It sets out how the tenant should treat your property.
Forget the off-the-shelf tenancy agreements sold online or in high street stationery shops – they are probably already out of sync with the law before they are printed.
4. Not carrying out regular property inspections
The property inspection is your chance to see how your tenant is treating your property. This is your opportunity to catch minor maintenance issues and deal with them before they become major repair problems.
You will also spot clues as to changes in circumstances (for example, a ‘guest’ has moved in, or a partner has moved out). Such changes in circumstance could impact your legal liability as a landlord, and the ability of your tenant to continue to pay the rent.
5. Failing to evict quickly
It’s hard to know when to evict. That late rent payment might just be a question of forgetfulness. If your property suffers constant damage, might it not be just a run of bad luck?
Further to knowing when to evict, it’s even more difficult setting an eviction in process. After all, you might be putting a family out of a home. But here’s the thing: if you don’t evict, your tenant will continue to take advantage. Late rental payment will become missed payments. Missed payments become a refusal to pay. Before you know it, you are paying for your tenants to live rent free!
6. Not keeping the right documentation
Make no mistake, being a buy-to-let landlord is a business. The taxman will want his cut, and there are legal obligations to meet, too.
You must keep all documentation pertaining to your investment. This includes:
- Right to rent documentation
- Gas safety certificates
- Property inventory and inspection summaries
- Landlord insurance documents
You will also need to keep receipts and invoices for all maintenance and repair expenses, as well as all other financial paperwork (such as mortgage statements).
7. A lack of understanding of landlord laws
Laws that govern the buy-to-let sector are constantly changing. Keeping up with these changes may be your biggest challenge. If you don’t, you could find that you are breaking the law, and this could be very damaging. You could be fined tens of thousands, or even be barred from letting your property. In court, you won’t be able to claim ignorance of the law as a defence: you are expected to keep pace with any changes and run your business legally.
How do you avoid these seven sins and stay profitable?
Being a landlord is hard work and takes time and effort. You must have the systems in place to vet tenants, produce watertight tenancy agreements, deal with poor tenants, and keep abreast of the law. This is why I always recommend investors concentrate on investing. Leave the day-to-day tasks of property management to a professional investment property manager. Do this, and you’ll find you get to enjoy the lifestyle benefits of being a property investor, instead of suffering the stress of being a buy-to-let landlord.
To discuss how to maximise the rewards of property investment, get in touch with Gladfish on +44 207 923 6100. We want you to be successful in property investment and enjoy the cash flow and profits that we’ve helped hundreds achieve to date.
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