Buying-to-let is becoming a popular way to make extra money due to rising property prices of houses on the market and a greater number of people choosing to rent. However, many hopeful landlords do not fully consider the potential pitfalls before embarking on this scheme and could even end up losing more money than they make, if only initially.
This article considers the disadvantages of buying-to-let, the possible ways a landlord may unexpectedly lose money and offers some solutions to these problems. Finally the use of property management services is suggested as a means to reduce the stress involved but still leaving buy-to-let landlords with a good profit.
Are You Cut Out to be a Buy-to-Let Landlord?
Today, a growing number of people are starting to think about buying-to-let as a stable form of extra income. Now is the best time since property prices are rising, better mortgage deals are becoming available and more people are renting than in previous generations. While this may seem a guaranteed way to make money, letting a property is not without its disadvantages and it is important to consider the potential pitfalls of buying-to-let.
Investing Your Money Wisely And Knowing The Extra Costs
It is very important to do the maths. Firstly you should shop around for the best available mortgage and stay up to date with the property market and changes to tax laws. Websites exist to help you compare mortgage deals or find the best mortgage rates, such as thisismoney.co.uk.
There are also a number of extra costs that should be considered in addition to mortgage repayments, for example buildings and contents insurance and insurance to cover rent arrears or damage to the property. After careful assessment of the costs you may even find that investing your money in a fixed-rate savings account or a tax-free ISA could be more financially rewarding than buy-to-let.
Tenants must be carefully selected and references should be obtained for all people wishing to live in the property. Failure to do this could result in large, unanticipated costs should your tenant decide to damage the property or not pay rent. In the event of a tenant not paying rent, it is useful to know that insurance policies are available for as little as £50 to protect you against this. You should also bear in mind that during periods where the property is empty, landlords still have to cover their mortgage so be careful when tenancy agreements are drawn up.
Know Your Location
Location is a key factor when buying-to-let. For example, houses located in areas that have a reputation for high crime rates, or those with poor transport links will be difficult to rent out for a reasonable price regardless of how much work you have put into the property. For this reason you should view the area yourself and find out what rates other properties are rented at in the area to ensure that your property is advertised at a reasonable and attractive price. If there are schools in the area, consider that your property may be more appealing to families. Likewise, nearby universities will be likely to attract students to the property.
How Hands-On Do You Want To Be?
Consider whether you want to rent your property out yourself or through estate agents. Renting through agents will mean paying a number of fees but the positives are that they will liaise with your tenants for you and will deal with any problems that arise with the help of their own network of plumbers, electricians and handymen.
You may also consider a Property Management service to relieve some of the stresses of being a buy-to-let landlord. These services include handling your property portfolio, providing detailed inspection reports and dealing with disputes and the progress of maintenance issues. All these services will be available and viewable to landlords on an online portal, relieving many of the stresses of being a landlord while still leaving you with a good profit.
Martin Gibbon is the Director of Balgores Property, the leading Essex Estate Agents. Martin has been working in the industry since the mid 80’s. When he is not selling properties, Martin enjoys spending time with his wife and children, fishing and supporting West Ham.