Becoming a landlord is not a route to get rich quickly
Investing in property commercial or residential for letting purpose is not a route to get rich quickly. Investing in Buy to Let is a better investment than leaving money in your bank account or some other investment options, however, it is not a route to quick riches. With the rental income and the property value appreciation, both combined, without a doubt is an attractive option if you are considering the Buy to Let market.
It is vital to buy a property at a good price. The buy to let property is not for your personal use, so you should have a broader area to source a property below market value. Ideally, you want to buy near where you live, so it is easy to manage. Visit our property auction Guide page.
Some investors are attracted to high yield properties in areas like the Northeast and Northwest like Liverpool, Grimsby etc.
Although the yields look good on paper, in practice some of these deprived area’s tend to leave some landlords with high rates of voids, in some cases damage to the property and rent arrears. There is a lack of interest in this area’s for the Buy to Let investors for good reason.
Becoming a landlord does not give you a passive income
Generally, some people think being a landlord is a walk in the park, buy a property and its easy sailing from then on. This for residential property is not true, for commercial landlords life does seem to be that much easier, especially if the property is in a prime location.
Being a landlord does require effort, and it does at times lead to stress due to issue’s like rent arrears, damage to property or the process of eviction. Your investment at some stage will require repairs, refurbishment, and you will have to manage the tenancy too. The work needed in managing your properties will be ongoing and is time-consuming, it will not provide you with a passive income.
Time is money when you are a landlord
A landlord with one property or hundred properties, you will have to invest time in managing your investment. It is time-efficient if your properties are close to where you live.
You need to consider if you have the time to deal with all aspects of the letting market before you think of becoming a landlord. Using a letting agent will reduce the time you require in managing the properties. However, ultimately main letting decisions rest with you, having a letting agent on board, does not mean you will be free from all of the associated letting headaches.
Do your research before you become a landlord
It would help if you did your research on the tax implications, and how they may affect you. It would be better if you considered as an option using a limited company as an investment vehicle. Seek professional advice from an accountant on this subject.
The government has recently introduced tax changes for landlords and a raft of recent other new legislation that affects landlords directly. You should consider them all before you go into the Buy to Let market. Some of these changes are driving landlords away from the residential letting sector, they feel its no longer worth being a landlord.
Can you charge enough rent to break even?
You have a few factors to consider to make sure all the figures stack up to your financial advantage. If you are taking out a mortgage, you will need to take into consideration void periods, rent arrears, and tax liability. It is not worth considering becoming a landlord unless you have a least 30% after your operating expenses.
You will need to put aside money for repairs and refurbishment. Refurbishment may include in an unlikely case where the tenant damages your property. In some cases, the insurer may not pay out, and you have to pay the bill.
Landlord responsibility to know the law
Ignorance is not a defence; landlords must know their legal responsibilities.
Some of the main thing’s landlords need to be aware of:
• a smoke alarm must be installed on each floor of the property.
• carbon monoxide detectors must be placed in rooms with a coal fire or wood-burning stove.
• A valid current EPC
• a gas safety certificate for each gas appliance must be available inside the property.
• If you took a deposit, you must comply with the deposit legislation
• to reduce risk of fire, all furniture must meet safety standards and display the appropriate labels.
• any electrical devices must be safe for use, and we recommend an Installation Survey or Portable Appliance Testing (PAT), so you can be sure you are compliant.
• Right to rent
• the water supply must be working correctly to protect tenants from Legionella.
Must allow costing for repairs and refurbishment
We have already touched on this subject above. Some landlords fail to factor in potential finances required for repairs, decoration, refurbishment and legal fees.
Let residential properties frequently need repairs, replacement, decoration and at some stage refurbishment. Most tenants will not look after the property like you would, as you do your own home, for let properties the wear and tear are more frequent. For HMO, the wear and tear are even more frequent.
Landlords should seek to reduce voids, try to keep the rent at a reasonable level, consider taking tenants who are likely to be long term tenants.
An empty property is likely to mean; you are responsible for the council tax on the property for the period it is vacant.
Each time a tenant leaves, the property is likely to need some work even if it is general cleaning etc, and that means losing money and time.
Is it worth using a letting agent
Using a good letting agent will reduce stress and save you time. Especially if the property is not near where you live. Do your homework when selecting a letting agent, make sure they carry out regular property inspection? A good letting should mean:
1. Efficient rent collection
2. Your legal requirements are taken care of
3. The most suitable tenants will be found for your property
4. A professional inventory will be carried out
5. A regular property inspection will be carried out
6. Repairs needed will be efficiently dealt with
7. Save you time and stress of managing the let property
Booms and bust
Is it worth becoming a landlord under these uncertain times, where will our economy be by the end of 2020? Seasoned landlords look at recessions as an opportunity to make money. Even professional investors are spooked and are staying by the sideline until the property market reaches the bottom.
Boom and bust is a cycle and nothing new. The wise can make money from both boom and bust. If you are thinking of buying a property for letting purpose, you should consider the economy and buy at the right time. The world economies are in trouble due to COVID-19; however, the effect of COVID-19 will take time to filter through as unemployment rises, the impact of unemployment and in turn, mortgage defaults etc.
It may be worth waiting for at least four months before you consider buying a property.
Should I invest in a residential property or commercial property?
This question was easy and straight forward to answer 15 years ago. Easier before COVID-19. For your money, commercial properties typically offer more financial reward than residential properties. Without a doubt, commercial property landlords have less stress in managing commercial property.
The advantages of commercial property are that the repair obligations can lay with the tenant. You do not have the legal responsibilities residential landlords have under the housing law.
Commercial property generally has been a better option as opposed to investing in residential property.
Residential property has been less attractive in recent years, especially due to recent legislation which has had more impact on residential property than commercial property.
Coronavirus has changed the world; even some commercial landlords are in trouble, as their tenants are financially challenged. Many tenants, even big high street names are requesting landlords to write off rent for a period ranging between 3 to 6 months.
Even before Coronavirus, our high streets have seen an increasing number of empty units. Some landlords with commercial property in good location struggle to let, and when they do get a tenant on the hook, the tenants frequently ask for a rent-free period.
An empty commercial property attracts full business rates. Not only does the landlord not have any rent coming in, but the landlord is hit with full business rates too.
Currently, things are changing rapidly; many are dreading the possibility of a second wave of Coronavirus infection. We could be heading for a deep depression like the 1929/1932 until the dust settles and Coronavirus is bought under control; it is hard to say what sector is a better investment.
Is it worth being a landlord?
To answer the question directly; No, not at the moment. We are at the mercy of the Coronavirus. Wait for a few months try to identify the bottom once the economy starts faltering. The wait could be as much as a year.Should I invest in a residential property or commercial property? Click To Tweet
Cash or gold under these uncertain times is king.
Source: British Landlords Association
Author: Amanda Goldsmith
Date: 18th of May 2020