To misquote Einstein, he who has never made a mistake has never been a landlord. While it’s possible to make a lot of money investing in property, it’s even easier to trip up along the way. Here’s our list of the 10 most expensive mistakes:
1. Being Too Greedy
We all want to squeeze as much rent out of our investment as possible, but if you set the rent too high, it’s likely to take a long time to find a tenant and you could end up with an empty property. Empty properties cost money - in addition to any mortgage you might also have to pay the council tax and other bills and your insurance premiums might cost more. Avoid this by setting the rent at a realistic level.
2. Wasting Money
This includes everything from throwing money away on high street online letting agents to spending too much on fixtures, fittings and furnishings. You need to keep a tight rein on your costs if you’re going to run a profitable rental.
Before you spend a penny, ask yourself “do I need to do this, will it add value or help let the property faster,” and if the answer to all of these is “no”, keep your cash in your pocket.
Also, do you really need to give away around 10% of your annual rent to a high street agent? Half of all landlords successfully source tenants themselves, often using much cheaper online agents.
3. Buying the Wrong Property
A great property isn’t necessarily a great rental investment and just because you’ve fallen in love with it doesn’t mean it’ll earn enough rent to cover your costs. Before you buy, check on property websites to find the asking rents for similar properties of similar size no more than quarter of a mile away. Unless your property will give you at least a 5 per cent yield, you could end up in deep trouble.
4. Being Rubbish at Maths
It’s vital to factor in all your costs when working out how much rent you need to charge to break even or make a profit, but often people overlook costs like letting agent fees, ground rent, the annual service charge, insurance, inventory preparation and general letting costs. You should also expect to spend at least 5 per cent of your annual rental income on maintenance and you should plan for at least a couple of week’s void between rentals.
5. Being Too Trusting
Running a reference and credit check on a tenant won’t guarantee they’re perfect, but it should ensure that they don’t have a history of bad debt and that they earn enough to cover the rent. Given that it can take months and sometimes thousands of pounds to evict a bad tenant, it’s a step you shouldn’t skip, even if the tenant seems trustworthy.
6. Being Lazy
Property isn’t a passive investment, you need to keep an eye on it, which means carrying out regular internal and external inspections. You need to make sure the tenant is looking after the place but also that there’s no damage, such as a leaking roof or blocked drain that the tenant, who might be even lazier than you, hasn’t bothered to mention.
7. Being Flaky
Forget to protect the tenant’s deposit and they can claim compensation of up to three times the value of the deposit. Also, you won’t be able to evict them, even if they’ve broken every term in the lease and/or trashed your property. Even if you have protected the deposit but you haven’t issued the tenants with all the Prescribed Information required you won’t be able to serve notice on them to leave, so make sure you fill out all the paperwork properly.
Don’t forget that since October 1, you also need to give tenants a copy of the Government’s How to Rent Guide plus a copy of the Gas Safety Record and the Energy Performance Certificate before you can give them notice.
8. Forgetting About Insurance
Specifically public liability insurance. This will cover you if your tenant has an accident in your property, for which you are to blame. It’s usually included in landlord insurance or it can be bolted on for an additional fee. Imagine what you’d do without it and your tenant fell on a loose piece of stair carpet, broke their leg, couldn’t work and lost their job - and decided to sue you as a result.
9. Not Building in a Break
Tempting as it might be to lock a new tenant into a long lease, you really ought to build in a break clause, preferably after the first six months, just in case they turn out to be the tenants from hell. A break clause would allow you to end the tenancy early with just two months’ notice. Without a break clause you would have to wait until the end of their contract to get rid of them or, if they’d broken the terms of their lease, start legal proceedings.
A break clause can’t be activated by the landlord with the first six months of an AST, but it can be inserted at any point afterwards.
10. Being Too Personal
It’s easy to get carried away renovating or decorating your BTL, but remember this is a business, not your home, and rein in your inner Laurence Llewlyn-Bowen. That sofa you think is super stylish and that humorous framed poster you have fallen in love with won’t necessarily get you any more rent and might even put tenants off if they don’t like your taste.