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26, 02, 2016

Here is the theory: to make a success of being a private landlord you need to buy somewhere you can rent out, earning enough money to pay the mortage and running costs. Meanwhile, your investment will grow in value until it delivers you a beautiful, bouncing pension pot.

A combination of low interest rates, high tenant demand and rising property prices mean it is certainly possible to make money from a buy-to-let. But it is no passive investment.

1. Hire a special agent

Properties do not take care of themselves. They have to be maintained, tenants are often demanding and occasionally difficult, plus, as a landlord you need to comply with a long list of health and safety regulations, fire safety laws, deposit protection rules and the recently introduced immigration checks on tenants. 

A good letting agent will guide you through the rules and regulations and help you set up the tenancy, as well as find you a tenant and make sure they’ve been credit checked and referenced. The agent will also sort out the paperwork, including the tenancy agreement and deposit protection… and they will charge you a fee for this. 

2. Negotiate letting agent fees

Expect to pay about 10 per cent of your rental income for their tenant-find service and up to 20 per cent if you want the agent to manage your property and take care of everyday maintenance. Don’t forget that on top of this fee, you’ll have repair and upkeep costs plus interest payments if the property is mortgaged. As rental yields are only around five per cent in London, that won’t leave you much profit — and when interest rates inevitably go up, you could make a loss.

Make sure your agent is registered with the Association of Residential Letting Agents, and that they offer a redress scheme if things go wrong. Don’t be afraid to negotiate their commission at the outset — they are usually prepared to knock off a couple of percentage points. Note that agents usually charge renewal fees for every year the tenant stays in your property, so include these in your initial negotiations.

3. Buy landlord insurance

Even if you use a letting agent, you are ultimately responsible for your property and your tenant. If you want to sleep at night, make sure you buy landlord insurance and check that your policy includes public liability cover so you’re not wiped out financially if there’s an accident or a break-in.

4. Consider rent guarantee insurance

You might also want to consider taking out rent guarantee insurance in case you end up with a tenant who doesn’t pay and won’t leave.

5. Learn the ropes, then DIY

Once you have found your feet, you might want to dispense with the letting agent. Like me, about half of all landlords go down the DIY route, finding tenants and managing their properties themselves. You can find tenants via an online agent for as little as £20. Some online agents will deal with the paperwork, too, for far less than you’d pay a high street agent, but you usually have to conduct viewings yourself.

6. Be prepared to be on call 24/7

Managing a rental property isn’t rocket science, but it isn’t a nine-to-five job, either, and it can be stressful. You might hear nothing from your tenant for weeks or months, but just when you are starting to think that being a landlord is a doddle, you could get a call to tell you the boiler has burst and flooded the flat below. That call could come at any time of day or night. It can disrupt a business meeting or ruin a romantic dinner. Believe me, an SOS to report a blocked loo is a bit of a passion killer.

I’ve been dragged out of bed in the early hours to help a tenant who had been mugged and had her house keys stolen — lost keys are a common problem; I have been pestered while on holiday to sort out a quarrel between  flatmates, and I have abandoned a  Saturday shopping trip mid-shoe change when a tenant mistakenly thought she had carbon monoxide poisoning.

7. Build a good contacts book

If something is broken, tenants expect you to fix it, but one of the biggest stress factors is finding reliable workmen who won’t suck in their breath, shake their head and double the price as soon as they realise you are a landlord. Good contacts are key. Ask around, get local recommendations for plumbers, electricians and handymen.

And once you find good people, do all you can to hang on to them. Pay their invoices on time, don’t keep them waiting for appointments and knit them sweaters if necessary, because they are your life-savers. They are the guys who will come to mend your tenant’s boiler in the middle of winter.

8. Keep an SOS fund

You need to be disciplined and put aside at least 10 per cent of the monthly rent so that you can afford unexpected repairs. You should also have enough tucked away to cover at least two months’ rent, mortgage and other bills, including council tax, in case the property is empty between tenancies, or worse, if the tenant fails to pay. Save, too, for future refurbishments.

There is good money to be made but without careful planning, thorough preparation and a fair wind blowing, you could also end up suffering a loss.

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