Whilst the advice on being a successful buy-to-let landlord should be followed, landlords should also be aware of the common downfalls, otherwise your property rental investment may go up in smoke.
As with any investment it’s important to be aware of the associated risks that come with buying property to let out to prospective tenants, otherwise it may cost you. These can be avoided by completing the right research, having set goals and reviewing your investment on a regular basis. Here are the five common mistakes that property investors make.
Buying a property you would live in
One of the biggest mistakes - often made by newer landlords - is purchasing a property they would like to live in themselves. Whilst that rural countryside cottage surrounded by lots of land may be a dream home for you, it may be a disaster purchase if it doesn’t attract tenants. Most tenants are those in their twenties, according to the latest government statistics, who are social and may be dependent on public transport; therefore they’ll be looking to rent in areas with good transport links to nearby city/town centres. Forget about what you want in a home, and start doing research on rental hotspots to invest in, as well as what renters are searching for in terms of number of bedrooms, size of property etc.
Ignoring background checks on tenants
It’s important as a landlord for you to do your due diligence and vet your tenants properly. Any tenant who doesn’t pay on time, or at all will have a negative effect on your monthly mortgage repayments, hurting your cash flow and putting you at risk of repossession.
Ensure you complete a credit check, request bank statements, proof of income and a reference from a previous landlord (if they have one). If you aren’t confident in completing a thorough check, get in touch with a local letting agent who will be able to locate potential tenants and complete these checks for you.
These aren’t guarantees, but by doing the right background checks, you’re limiting the risk of choosing the wrong tenant. And if possible, look into getting a rental guarantee insurance policy that covers your rental costs if your tenants do not pay.
Ignoring the red tape
Whilst buying-to-let can be a nice way of earning money, it does come with plenty of administrative work, including rules and regulations that you must abide by.
For instance, whilst you are liable to pay income tax on your property, there are also additional exceptions and costs so ensure you do your research, or alternatively seek professional tax advice. Other things to remember include gas, fire and electric safety standards. Remember to keep all paperwork in a safe place as well!
Mortgage lender loyalty
Despite the struggles the buy-to-let sector suffered during the credit crunch, the state of the market has changed drastically in the last few years with new lenders, deals and more flexible criteria. This means that as a landlord, you now have more options to choose from, so it’s certainly worth shopping around for a new deal, especially if it works out better for you. Are you able to secure a fixed rate that deters future rate rises elsewhere? There’s nothing wrong with reviewing your rate at least once a year.
It’s key that landlords are aware of the common problems that can occur and that you put a plan in place to mitigate them, as they can make all the difference between success and failure with a buy-to-let investment.