More and more people every day are buying up property and becoming landlords. However being a landlord can be a very tough job as there are a number of ways a landlord can fail. Here’s how you avoid those pitfalls!
10: Lack of Business Management Knowledge
Being a landlord isn’t just a case of owning a property, and renting it out. When you decide to become a landlord, you are effectively starting your own business. Your tenants will become your clients. You need to understand how to run a business to really succeed in the landlord market.
Solution…Invest wisely. You need to focus on the magic word..PROFIT. You can do ethically and by becoming a good landlord but many people get carried away when it comes to spending money. For example, they will buy a property for £100,000 with a yield of 6%. But then they will spend £5,000 of unnecessary improvements which do nothing to increase the rental income or even the value of the property.
9: Lack of Research
What do you know about the property that you are renting? What do you know about the neighbourhood? Many people like to purchase a “fixer-upper” place where they buy cheap, renovate then rent high. However even if you turn a pit into a mansion, the crack den that is your neighbour isn’t going to magically disappear!
Solution: use specialist research tools. Modern landlords can now access a plethora of research tools which can gather massive amounts of information. Everything from identifying properties with HMO licences through to local average prices. Providing you with crucial information that you can reinforce by speaking to local estate agents.
8: Lack of Knowledge
There is a lot to learn when it relates to becoming a landlord, and you need to understand everything. This includes how to deal with certain tenants to all the potential legal mistakes you can make.
Solution: as you are starting out the most effective method is to find a good letting agent. Spend time seeking recommendations and even asking for references. Look for letting agents that are well established and transparent in their services and fees. It may be tempting to use the cheapest or most convenient letting agent but you really need to use a letting agent who will find you the best tenants and look after your property the best.
7: Legal Mistakes
It’s very easy to make legal mistakes as a landlord. Laws in regard to being a landlord and letting property are regularly updated and you need to make sure you are aware of all of them. One of the most common issues is over eviction notices, and covering everything in regard to that. It’s common for mistakes to be made when it comes to how to handle the tenants that you are evicting, and missing legal steps along the way.
Solution: This goes back to using a quality letting agent as you get started. There are also services you can use which provide legal documents for as little as £10 each month. Include a tenant portal and e-signature to ensure that there is no reason why contracts cannot be signed and stored safely. The key is to be a good landlord. The truth is that taking on bad tenants can happen to anyone but bad landlords will attract bad tenants more often.
6: Rental Agreement Mistakes
This is a big one – making mistakes in your rental agreement. When you make a rental agreement, you need to make sure you cover everything. If you forget to mention that the tenant can’t have animals, then you’re going to have a problem when Rex covers the place with hair!
Solution: You need to ensure you outline your terms with the letting agent. A good letting agent will check with you whether you will allow pets but ultimately you must take responsibility for the terms of the rental agreement.
5: Not Respecting a Tenants Privacy
No matter who your tenant is, they still have a right to privacy. Many states have different rules on this, but the iron-clad rule is that if a landlord wants to enter a rental unit they need to provide 24 hour written or verbal notice. Just because you’re renting to your nephew, does not give you the right to walk in whenever you want!
4: No Business Plan
Renting a property is not just a case of buying a property, then renting it – and we’re not just talking about contracts, security deposits etc. We’re talking about you creating a plan to make sure it’s profitable. The worst thing a landlord can do is say “Well I’ll make $xxx a month as long as there’s no repairs needed”. Repairs are needed, and things always go wrong! Be sure to factor these in when setting a price to rent your property.
3: Going Overboard
This one goes hand in hand with the business plan. When you buy a property with the intentions to rent it out, it’s so tempting to go overboard and make it such a nice place. Yet in reality, it really doesn’t matter. The worst thing you can do is work on a property to the point that you won’t get a positive ROI(return of investment) for many years. Sit down, plan it out, figure out at what point you want to profit, and then aim towards that.
2: Plan for the Worst
One of the biggest mistakes you can make as a landlord is thinking it’s easy. It’s not easy; it’s very difficult! One of the toughest problems can be when it comes eviction time, as it can be a long drawn-out process – especially if you haven’t covered yourself legally! Don’t assume everything will go swimmingly, and plan accordingly.
Solution: Be pragmatic. Being a landlord means you are starting a business and running any can be a real challenge at times. Quote honestly… everyone would be doing it if it was easy. If things do wrong (including a global pandemic) you need to have cash in reserve to cover at least three months of the buy-to-let mortgage along with a small reserve of capital to repair any damage done to the property.
1: Making A Lower ROI Than They Planned
Becoming a landlord is a great way to invest money in an asset which not only generates revenue but also increases in value as demand for property continues to grow. However, many landlords simply make their investment decision based on the yield of the property. Ignoring many of the costs involved in being a landlord. If a landlord isn’t capturing all the expenses within their business they are not only missing opportunities to save money, they are overpaying tax. A property investment calculator is an essential resource to not only get a clear picture of how much profit they are actually making but to ensure they are not overpaying taxes.