MOST NEW LANDLORD LEARN ON THE , SOME TIMES AT A COST.
Now you are a landlord and it has just hit home being a landlord may not be as easy as it seems. The responsibility of being a landlord and the challenges of the letting market you want to make sure you do everything right and make a profit. It’s just doing things right, you may not know what those things are but you will learn on the job.
Some you will learn on the job. However to avoid these mistakes, here is a list of what we consider the “7 deadly sins” of the letting market by new landlords.
DEADLY SIN 1 – NOT BECOME EMOTIONAL
Being a residential landlord is about getting your sums right. Do not involve your emotions when searching for property. Look at the figures and the location, so it is easy reach of you managing the property. Very often the best investment is one that you can never imagine living in yourself.
It maybe that the property needs minor work or doesn’t meet your style, but it maybe perfect for letting and the sums add up nicely too.
There are new landlords who make the mistake of putting their own stamp on property.
This might include spectacular colours on the walls and garish flooring. The best rule to follow in order to maximise your property’s rental and resale appeal is to always go neutral with the décor and wherever possible, select durable, hard wearing finishes.
DEADLY SIN 2 – MIND YOUR OWN BUSINESS
You would never consider throwing half a million pounds into a new business without having a business plan in place right?
But surprisingly, this is what some new landlords do when they 1st start.
They jump straight into buying an investment property without first formulating a detailed investment strategy/business. Building a portfolio must be approached as a business endeavour in order to be successful.
Additionally, just as a new business owner must employ the best team to ensure their company takes off. So too must an investor surround themselves with experts who can help them make informed decisions, such as accountants and solicitors.
Far too often people get into property investment as a “hobby” and end up only ever owning one investment (which is just as ineffective as owning none), or up to their eyeballs in debt that they struggle to pay back.
Avoid this trap by replacing emotion with some good savvy business principal and plan.
DEADLY SIN 3 – KEEP THE PROPERTY IN GOOD REPAIR
One of the most frustrating aspects of property management is dealing with new landlords who think the best way to make money is by not spending a cent on the upkeep of their investment property. A disrepair claim can be very costly and all landlords should ensure they know what their legal obligations are when it comes to repairs.
It is not a good idea to provide white goods when letting a property. If they break down than it is your obligation to repair them. By providing white goods you will better rent.
They fail to conduct repairs in a timely manner and can’t see the value in a coat of paint, new air conditioner or dishwasher or a kitchen makeover.
The fact is, minor renovations can not only add significant capital value to your investment, it can also increase your rental returns overnight.
General maintenance is also important as it will ensure your property’s value holds up and make it easier to re-let as required.
For this reason and to do the right thing by your tenants, it’s important to attend to repairs in a timely and professional manner.
DEADLY SIN 4 – NOT BEFRIEND THY TENANTS
While I advocate landlords being nice to their tenants in terms of conducting maintenance as required and ensuring their property is a comfortable and safe environment, one thing I firmly discourage is direct interaction between the two parties.
It is always best to keep the landlord tenant relationship professional.
All too often though, landlords decide to form a relationship with their tenants and then the problems start.
The tenant thinks that because you’re a friend, you might not mind too much if the rent’s a little late each week.
It’s always best to keep the tenant/landlord relationship on a business level and employ a professional property manager to act as your go-between.
DEADLY SIN 5 – USE A LETTING AGENT
It’s difficult to avoid the above mistake when landlords decide to look after their property without the many beginning landlords think they can save a bit of money on letting fees, etc by choosing to “cut out the middle man”, but it can cost you quite a bit more in the long run if you take this route.
Not to mention the fact that property management fees are fairly inexpensive anyway…and tax deductible!
Letting Agents know how to effectively market your rental premises to prospective tenants in order to minimise vacancies, they collect the rent on your behalf and will act as your representative at court should the need ever arise.
They also save valuable time that you could spend searching for your next investment opportunity!
DEADLY SIN 6 – REAP THE BEST RENTAL REWARDS
Another important role of a letting agent is to conduct regular rent reviews to ensure the landlord is achieving the best possible returns on their investment.
Often landlords don’t have the ability to determine the best market rent for their property at any given time, as they have limited access to necessary research.
Letting Agents know the area they work in intimately and have an extensive list of comparable rentals in order to calculate the best market rent for your property.
This is critical, as your tenants help to repay your loan. By keeping up with rental increases, you can better manage your debt and minimise the gap between your returns and repayments, particularly if interest rates are going up.
DEADLY SIN 7 – ALWAYS APPRECIATE DEPRECIATION
Having a depreciation schedule professionally done can be a God send at tax time.
Many landlords think that this is only necessary with a new property though and don’t fully appreciate the concept of depreciation.
There are numerous items in a rental property that can be depreciated at a certain rate, allowing you to claim a tax deduction on them.
I know of some property investors who manage to reduce their debt significantly just by depreciating as much as they can and using their tax refund to pay down their loans.
If you avoid committing these seven sins and instead, seek to understand the rules of the property investment game, your portfolio will generate heavenly capital gains into the long term and put you on a path to successful wealth creation.