About to become a landlord; what's the pitfalls?

[TpdNotts]

Hi folks,

Myself and my sister have been left a part share of my deceased grandmother's house. We're buying out the other benefactors and hope to 'do' it up a bit, hang on to it and rent it out. We intend to use a letting agency. However, having neither of us done this before I wondered if any PH'ers had any wise words of advice; things they wished they'd known before embarking on owning a property and renting it out?; information and points to remember etc.

Thanks

[ShadownINja]

The tenants is the pitfall.

Some say avoid housing association types (or insert favourite derogatory term) but others say when they create a new exit with a sledgehammer in a supporting wall, the council will pay to fix your investment.

[TpdNotts]

In all honesty I think we may end up letting it out to someone on benefits, as it's on a council estate and I think it may appeal more to someone on low income, especially as it will be let as a 3 bedroomed at around £450-495 per month.

Is it best to let the Letting Agent arrange the inventory and tenancy agreement? Is it something that the landlord can do easily? Any points of reference appreciated!

Teresa

[mk1fan]

Think through the business side of things carefully. Is this going to be the first of many lets? VERY simply put the more you have the lower the risk.

As above the tenants are the biggest problem. There aree more bad tenants than bad landlords.

Be very clear what your terms are and understand the terms of your lease.

Be proactive and clear in your actions. If the property needs repair/fixing - regardless of the reason - then fix it properly.

Make sure you know what your legal obligations are - starting point is the U-Gov website.

[Goochie]

If you're not paying a mortgage on it and can afford the fees, go for an agent that offers a fully managed service. They will organise the repairs, guarantee your monthly income, handle evictions etc.

This costs a bit more than a standard agents fee but it may well be worth it.

[TpdNotts]

Mk1fan: Don't know if this will be the first of many until we can see how successful it is. However I would love to pursue property investment if it proved possible. We have borrowed on interest only about half the value of the house so payments are very low. At the moment our idea is that if we can have the house supporting itself on the rent money and we don't have to invest our own money into it we're happy. Anything more is a bonus. Basically we want to hang on to it. We've taken out legal protection insurance.

[Timberwolf]

Tenants are scum. Even as a renter myself I'd say that - my last place the previous tenant had seen fit to rip apart most of the downstairs skirting boards, take apart the back door lock so it didn't shut properly, put back every dead lightbulb they'd ever replaced and as a final parting shot fill the bin with garden waste so the local authority wouldn't collect it.

Anyway... various members of the family have let places out. If doing it for long enough rent disputes are a matter of when not if. The legal advice they got was this is fine and presents no problem if you are a hard-nosed bd and refuse to deviate from the process of eviction. Of course the tenants will know this and come up with any number of sob stories to get you to stop; it's not uncommon for rent arrears to suddenly build up shortly before Christmas as you'd have to be a scrooge to ruin it for someone, right?

Students are a better bet for financial security if you're in the right area and property type as most institutions take a very dim view of their charges not paying the rent. The downside is they change frequently and about one in every three groups will trash the house. Also you don't get a full year of rent, only something like 39 weeks. Undergraduates will also go through a cooker every few years as they generally can't cook and can't clean.

There are good tenants out there and if you can get some, keep them, i.e. reward loyalty; they're worth more than being able to ask full market rate every year. Single professionals, especially those only needing a pied a terre are the best bet; couples in rented accommodation have a nasty tendency to explode leaving one person whose income won't cover the rent.

Those are the main pitfalls I can remember from people who've done it. Overall if you have a house in an area with strong rental demand and the right type of people looking for accommodation, it's not a bad source of income though.

[Rags]

Timberwolf said:

Tenants are scum. Even as a renter myself I'd say that - my last place the previous tenant had seen fit to rip apart most of the downstairs skirting boards, take apart the back door lock so it didn't shut properly, put back every dead lightbulb they'd ever replaced and as a final parting shot fill the bin with garden waste so the local authority wouldn't collect it.

Anyway... various members of the family have let places out. If doing it for long enough rent disputes are a matter of when not if. The legal advice they got was this is fine and presents no problem if you are a hard-nosed bd and refuse to deviate from the process of eviction. Of course the tenants will know this and come up with any number of sob stories to get you to stop; it's not uncommon for rent arrears to suddenly build up shortly before Christmas as you'd have to be a scrooge to ruin it for someone, right?

Students are a better bet for financial security if you're in the right area and property type as most institutions take a very dim view of their charges not paying the rent. The downside is they change frequently and about one in every three groups will trash the house. Also you don't get a full year of rent, only something like 39 weeks. Undergraduates will also go through a cooker every few years as they generally can't cook and can't clean.

There are good tenants out there and if you can get some, keep them, i.e. reward loyalty; they're worth more than being able to ask full market rate every year. Single professionals, especially those only needing a pied a terre are the best bet; couples in rented accommodation have a nasty tendency to explode leaving one person whose income won't cover the rent.

Those are the main pitfalls I can remember from people who've done it. Overall if you have a house in an area with strong rental demand and the right type of people looking for accommodation, it's not a bad source of income though.

If you rent your property out to gypos then that happens.

Get good tenants by using reputable sources and if it costs you a few % its worth it. Also, if you have 6 weeks deposit or 6 months rent as one tenant gave (up front) they have a lot to lose so tend to kep the property in good order.

Rgds

Streaky

[TpdNotts]

Thanks for all your comments. They've proved very helpful and interesting.

I'm not sure the property would get someone in it who is a professional as its on a council estate but that would be ideal!

Like it's been said, if we could get someone who wouldn't trash the place then we would definitely be prepared to lower the rent. We're not greedy and see this as a long-term investment.

Talking as someone who is ignorant of such things; what's the next step from owning one property to rent out, then buying another to rent out. Are you using the value of the first one as a kind of 'guarantee' on the second one?

[ShadownINja]

Goochie said:

If you're not paying a mortgage on it and can afford the fees, go for an agent that offers a fully managed service. They will organise the repairs, guarantee your monthly income, handle evictions etc.

This costs a bit more than a standard agents fee but it may well be worth it.

When you say organise the repairs, who actually pays for the repairs?

[mk1fan]

Essentially, the Landlord does. If the tenant caused it through negligent or intentional actions then the landlord has to claim it back from the tenant.

Landlord insurance may cover some damages but that depends on the terms of the policy.

[Mark Benson]

We found this site helpful when we started out, it has a lot of useful information and some great, easy to follow articles about most aspects of being a landlord.

Well worth a read before you take the plunge.

[M400 NBL]

You'll need landlord insurance and electrical circuits tested as well as gas appliances.

If it's local and you choose not to use a letting agent, I can PM you the AST that I give my tenants.

If nothing else, it'll show you what a landlord and tenant should be responsible for.

[TpdNotts]

That would be helpful. Thank you. I would think we may be using a letting agency but it would be good to have something to look at beforehand.

I'm aware of the eletrical testing and gas appliance testing etc. So I'd probably arrange this myself.

Is it easy to do an inventory yourself? It would be unfurnished.

[M400 NBL]

TpdNotts said:

Talking as someone who is ignorant of such things; what's the next step from owning one property to rent out, then buying another to rent out. Are you using the value of the first one as a kind of 'guarantee' on the second one?

When I bought my btl, I had to put down a deposit of (I believe) 15%.
I'm not sure if the criteria has changed since 2005, but my lender needed the deposit and the rent had be be 125% of the repayment mortgage.

As you won't have a mortgage, you get yourself a portfolio. But now is not the best time to be buying property as an investment... and i'm usually very bullish.

Not unless you can pick up a bargain at auction.

If you do require a mortgage, you'll need to let your lender know that it's a btl mortgage and not a residential. My rates are the same for both so it's worth declaring to cover yourself.

[M400 NBL]

TpdNotts said:

That would be helpful. Thank you. I would think we may be using a letting agency but it would be good to have something to look at beforehand.

I'm aware of the eletrical testing and gas appliance testing etc. So I'd probably arrange this myself.

Is it easy to do an inventory yourself? It would be unfurnished.

If you can post on PH you can do your own inventory. I'll see if I can send you my AST.

[M400 NBL]

I couldn't attached a document so i've copied and pasted it to a PM. PM me another email address if you want the word doc.

[Silver]

I would suggest not using a letting agency. I originally used one when letting my flat and found I was paying them XX for very little. They lost one of the keys I gave them for the meter cupboard and I always found my own tradesmen to do repairs because theirs was too expensive and in the end after a few other issues I binned them and went it alone.

To be fair, my tenants are very good - a couple who had a baby a year or so after moving in.

Make sure you play fair with your tenants, don't fob them off with crap service. If something needs fixing or replacing, get it done fast and don't penny pinch. Mine were without adequate hot water after the boiler started to go wrong earlier this year for a few weeks (not my fault - engineers kept letting us down) and I gave them some M&S vouchers to say thank you for being patient.

ETA - I would also strongly recommend no DSS/council etc. In my experience they are a nightmare.

Good luck.

Edited by Silver on Tuesday 3rd August 19:12

[TpdNotts]

Thanks Silver. Good advice. Think you're right about being fair with the tenants. I've got full boiler cover and heating and electrical systems covered. I'm also fully decorating it and putting new flooring in most of the house.

It's difficult not using a letting agency when you've never done this sort of thing before. What if there is a tenancy dispute? I wouldn't want to have to speak to the tenants face to face.

[M400 NBL]

TpdNotts said:

It's difficult not using a letting agency when you've never done this sort of thing before. What if there is a tenancy dispute? I wouldn't want to have to speak to the tenants face to face.

If there's a dispute you'll be involved one way or another anyway. Insist on a deposit to lessen the hit should that happen.
I've just let my place out to friends of friends. I trust my friends judgement of my tenants more than a letting agent that wants a percentage of the rent.