We all make mistakes!
While mistakes are a part of life and a great opportunity to learn, as a landlord making a mistake can sometimes cost you thousands of pounds.
Although in some ways it’s fun to make your own mistakes and learn your own lessons, one of the benefits new landlords enjoy is that there are plenty of resources available that will help you avoid them in the first place. As a landlord, if your first mistake is a costly one, you could lose your investment and be put off buy-to-let forever.
While landlords may take actions that are based on specific circumstances, a recent Upad survey revealed some common mistakes it pays to avoid. The survey quizzed a number of Upad landlords on a number of topics, and the answers revealed plenty of valuable lessons that landlords both new and experienced can take on board.
What mistakes should you be looking to avoid in 2019?
Not Meeting and Vetting Tenants Personally
Vetting tenants is one of the most important things you should do as a landlord. If you hire someone else to meet with the prospective tenants, you might end up with the wrong person or people. Do you really want someone who doesn’t really have an interest in your investment deciding who lives in your buy-to-let property?
The landlord/tenant relationship is built on trust and respect. Who is living in your property isn’t a trivial matter! Even though you’re not living with them – unless you’re a live-in landlord, when meeting prospective tenants is a natural part of the process - you still want them to be courteous and respectful of your property. You may need to communicate regularly with your tenants and when you do, it’s easier if you have picked someone you have already built a rapport with.
When you meet and vet your tenants personally, you can get a sense of what kind of people they are and how well they’re going to look after your property. While you can’t fully know someone in just 15 minutes of walking around the house, first impressions and gut feelings count.
To avoid making this mistake, simply take the time to meet prospective tenants yourself. What you spend in time will be more than returned to you in being confident that you have tenants who will look after your property and treat it as their own.
Not Appreciating the Value of Tenant Referencing
Meeting and vetting tenants leads us into the second common mistake our landlords said they had previously made, which was overlooking the value of tenant referencing. While you want meet prospective tenants, you don’t just want to rely on your judgement. Undertaking thorough tenant referencing can protect you from a lot of hassle in the long run.
There are two key reasons you should conduct proper tenant reference check every time you’re looking for a new tenant. First, it can save you money down the line. While you’ll have to fork out some money to conduct the reference check, this can be as little as £75. Furthermore, the cost is definitely less than the hassle if you don’t seek references, and then have a tenant who fails to pay rent or causes extensive damage to your property.
The second reason is perhaps even more intriguing for landlords. By demanding a reference check from the outset, you attract better tenants in the first place. Those who know or think they will fail the check simply won’t even bother applying, while genuine tenants who have had a chequered credit history will usually be open and honest about this.
You just need to organise your tenant referencing and ensure it includes:
- Affordability checks
- Credit history checks
- Personal references from previous landlords and employers
When you do use tenant referencing and the results are not looking good for the tenant, remember to believe the report. No matter how nice your tenant might talk, failing the reference check is a warning sign you don’t want to miss. Likewise, checking tenant references doesn’t guarantee something won’t go wrong, but at least you’ll have done everything you possibly could.
Misjudging the Rental Value of a Buy-to-Let Property
Concerns about the economy and specific issues such as Brexit are among the many uncertainties landlords have to deal with right now. This is the time to get your rental price right. Don’t misjudge the rental value of your property!
Landlords tend to be divided into two types of rent mistake makers. The first group prices their rental at too high a price. They ask for the moon and whilst they may end up making a hefty sum, getting to this point can take time. When rents are unaffordable and unreflecting of the property’s value, you will have a hard time finding a tenant. You end up with longer void periods, which will end up costing you in the long-term, and could cause you personal cash flow issues if most of the rent you receive is responsible for paying your buy-to-let mortgage.
The other group of landlords set the rent too low. While this usually means you will end up finding an appreciative tenant as soon as you advertise your property, you might have a hard time making ends meet. Your rental value can’t be too low. Your mortgage, landlord insurance and other running expenses such as repairs and on-going maintenance won’t change simply because you want to charge less.
It’s important to find the correct value for your property – this could mean changing the rent occasionally between lets to reflect the market conditions, as well as deciding whether you will regularly increase the rent or adopt another strategy.
Being Too Lenient with Late or Non-Paying Tenants
In our survey, many landlords regretted being too lenient with tenants who were regularly late with the rent, or didn’t pay at all. When you’ve picked your tenant personally and built a rapport with them, getting tough on them can feel difficult.
There are many reasons people can get into problems paying their rent and it’s not always down to maliciousness. However, sorting out the problem early is in the interests of both yourself and your tenant. They don’t want to run into credit problems or continue living beyond their means, while you have your buy-to-let mortgage to pay.
It’s important to utilise services like Direct Debit Rent Collection. This allows you to know immediately if a tenant fails to make a payment. You can then contact them and sort it out without it turning into a bigger problem.
Not Having Rent Guarantee Insurance
Somewhat related to the above mistake, is letting your property without rent guarantee insurance. This insurance will protect you against those moments where late payments turn into a proper problem and you run the risk of not getting your money at all.
Paying for rent guarantee insurance is a small price to pay for the security it can offer. It can cover most of your loss of rental income as well as any eviction and legal fees you might have encountered as a result.
Some buy-to-let mortgages will have specific terms stating that you must take out rent guarantee insurance, while the insurance itself may also state that you cannot accept tenants in receipt of benefits or tenants that need a guarantor.
Not Completing a Full and Detailed Inventory
According to data from the Tenant Deposit Scheme, the most common disagreements post-tenancy are cleaning issues and the condition of the property. You can avoid this by completing a full and detailed inventory when the tenant moves in and when they leave, with both parties present and in agreement. This means taking photographs, listing of furniture and other fittings, and noting anything else you need to. An inventory cannot be too detailed!
The big mistake is to not do one, or to treat it as a tick box exercise that you just want to get out of the way. Taking this attitude is what leads to arguments as well as difficulties in claiming deposit deductions. You won’t have to fight over whether the door did have that scratch before because it would all be in the inventory.
Cutting Corners on Property Maintenance
Cutting corners on property maintenance is a mistake that will end up hurting you in the long-term. If you have repairs that need doing, get them done properly! This is an area where being a self-managing landlord can be hugely beneficial, as you can choose your own contractors and check the work yourself. Does your letting agent really check the quality of what has been done?
Ask your tenant to raise issues with you immediately. Be the landlord with the door open. Check those issues, with professionals if you have to, and make sure to fix issues as soon as possible. Avoid quick, cheap fixes that could end up costing you a lot of money in more substantial repairs in the long-term.
Not Having a Professional AST
Another major mistake would be to cut corners and draft your own tenancy agreement. This could lead to all sorts of problems, especially as the government is continuing to target landlords with legislation.
A professional AST, assured shorthold tenancy, will have the right legal language to protect you and your tenant. It will clearly outline the rules and responsibilities for each and have information regarding the different ways to deal with issues.
There is no reason to not have a professional AST, as they are available as part of the Upad Tenant Sign-up Service. You don’t want to make the mistake of simply finding a template online, because you often find out-of-date and incorrect versions floating around, or end up with clauses that aren’t legally enforceable, that could put you in just as big danger as not having one and make it impossible to legally serve a section 21 notice if you need to.
Using a High Street Letting Agent
Using a high street letting agent can be a big and costly mistake for some landlords. One respondent to our survey said they lost £3,000 with traditional agents!
Being a self-managing landlord doesn’t mean you are on your own. There are plenty of tools to help you out and services you can use in order to manage your let yourself.
As well as paying hefty management fees to a letting agent, many landlords today struggle with trusting them to manage their property effectively. Often landlords will find that they’ve paid sizeable call out fees and repair charges for work that isn’t that great, but that the agent has signed off. It’s also common for landlords who use a letting agent to meet their tenant at some stage and discover a multitude of issues that haven’t been communicated to them, but that were reported to the agent.
The bottom line here is that it effects your bottom line! While you might pay as much as 15% of your rental figure as a management fee to a letting agent, ultimately they aren’t invested or interested in what is happening at your property in the same way you are. You’ll pay them, but if they mismanage your rental it’s you who’ll pay again when you need to fork out for additional repairs or other work.
Upad can help you to avoid all of these landlord mistakes and maximise your buy-to-let business in 2019. Register with Upad to advertise your property on Rightmove and Zoopla and join our Landlord Club to take advantage of direct debit rent collection and a wealth of other features.