Tempted to get into buy-to-let? You need to know these five steps!
Landlords get a really rough time of things.
For years, the ills of the property market were blamed on the nasty buy-to-let landlords who were 'stealing' properties away from first-time buyers, artificially inflating house prices, and generally being nasty pieces of work.
I have a real problem with this.
Yes, there was a boom from speculative investors, entering the private rented sector with their eyes closed, tempted into it by a succession of TV shows and viewing it as a short-term move.
But that completely ignores the extremely sensible 'professional' landlord who knows what they are getting into, treats the exercise as a long-term investment, and provides a fantastic service.
And the fact is we NEED them to keep providing that service, as people still want (and need) to rent property rather than buying outright. If you do it properly, becoming a landlord can be a very rewarding and profitable experience.
Here's my guide to becoming a great landlord - and staying one.
1) Buy the right property
An obvious point, but one worth stressing.
Make sure you do your research before you invest in a buy-to-let property, and ensure that there will be sufficient demand. For example, if you are hoping to attract a city worker, then it makes sense to go for a property with good transport links into the city.
It might also be worth having a chat with a local letting agent to gauge how popular a property is likely to be. There's not much point purchasing a buy-to-let property if every other house on the street is also available to rent!
Repossessed properties have long been a target of buy-to-let investors, as they tend to offer great value. Typically the main place to look for one of these would be at an auction house, but if you don't fancy that, why not have a look at PropertyEarth.net, a new site which details chain-free properties?
And once you get that property, make sure you keep it up to scratch.
Yes, some tenants will inevitably not treat the property with due respect, but it is in your interest to keep the property looking as attractive as possible, for the long term.
2) Get up to speed on your legal obligations
I can't emphasise this one enough.
Over the last few years, an enormous amount of bureaucracy has come into the rental sector, and that is only likely to increase if, as expected, the sector becomes officially regulated by the FSA.
There are certain things that you are obliged by law to do. These include making sure that the property is safe and healthy for occupiers, that all gas and electrical appliances are in good working order, and that smoke alarms are fitted, with a decent escape route in the event of a fire.
In addition, if your property counts as a house in multiple occupation, then you will require an additional licence. For full information on the requirements on landlords, I'd recommend having a read of the Directgov website.
Another area you will need to devote some time and effort towards understanding is the Tenancy Deposit Scheme, which ensures that tenants will get all or part of their deposit back when they are entitled to. Once again, the Directgov website is the best place to get comprehensive information on how the initiative works, and what is expected of landlords.
There is a heap of yet more new regulations due to come in, which are covered at length in Good riddance to bad landlords! You can't afford not to read it!
3) Get the right tenants
Clearly this is easier said than done, but there are enough horror stories about tenants from hell to emphasise the need to get it right.
Always request references from previous landlords and employers, and ensure they measure up, while I would also recommend taking advantage of the Tenant Check service provided by the National Landlords Association.
It costs £10 to non-members, and can fill in any blanks in the information provided by a prospective tenant.
Of course, if you do end up with a nightmare tenant, then don't panic. There are plenty of outfits that can provide you with legal advice and assistance, with Landlord Action one of the better organisations.
4) Sort out your budgets
This is sadly where a number of the speculators slipped up, or got greedy.
It is massively important, particularly in the current market, to ensure you have got your sums right and are not over-stretching yourself.
There will inevitably be times when your property is not occupied, so do not budget in such a way that a couple of voided months will lead to missed mortgage payments or even repossession.
During the boom times, a number of landlords could only see the pound signs, and over-stretched badly.
The problem was they focused on short-term increases in the value of the property, rather than the rental yield, and so when the crunch hit they were left high and dry.
Don't make the same mistake!
As always, I would recommend speaking to a mortgage broker when arranging the finance to purchase a rental property, as buy-to-let mortgage deals are disappearing and reappearing at great pace in the current market, and that expertise could prove invaluable.
5) Settle in for the long term
Being a landlord should NEVER be viewed as a short-term investment. Those that did view it in such terms are the ones who have been so badly burned.
But it is a great investment for the long-term, so long as you get your sums right, and put in work to get the property - and the tenants - right.
Landlords are not pantomime villains, and do not deserve to be treated as such. And with property as cheap as it is currently, now is the time to consider whether joining their ranks is right for you.
More: Good riddance to bad landlords!
Compare buy-to-let mortgage deals at lovemoney.com