Landlords who choose to manage their properties on their own risk their entire investment
Renting out a property is usually undertaken to make a little extra cash from an investment, so it makes sense that you, as a landlord, would try to reduce your costs as much as possible to increase the profits. But could you risk your entire investment by cutting back too much? Read this article to find out more...
Most landlords embarking on the property investment journey are weighing up the risks and the benefits. Most intend to build wealth, secure regular income, capital growth of their investment or perhaps future security and generational wealth for their family. But there is one clear link - money.
Occasionally, there will be a spare property when a family member may have passed away, or maybe two families have joined and moved into one house, leaving the other empty. These property owners may not want to sell the property for many reasons, so they decide to rent it out.
Whether the landlord becomes a landlord intentionally, purchasing a property with the sole intention of renting it out to make a profit, or whether they become a landlord 'accidentally' by deciding to keep hold of a property that they are not currently living in themselves, they are still landlords and will, of course, be looking for the property to at least cover its own costs in mortgage and insurances, etc. Still, in an ideal world, there will be a profit generated.
So, when planning to rent out a property, you are essentially setting up a small business. You have your initial investment costs to purchase the property, then your monthly overheads, mortgage and insurances, and your income, the rent, and the remaining cash is the profit. Revenue - expenses = profit.
To maximise the profit generated, you could charge a higher rent. But this could result in an empty property without tenants willing to pay. The other alternative would be to reduce the expenses, cutting the property's running costs so that you can pocket more of the rent.
As a landlord of a tenanted property, there are no utilities to pay for, usually unless you have decided to include them as part of the rent charged to the tenant. And the occupant will be responsible for the council tax payments, so you will have a mortgage, buildings insurance and maintenance fees for safety certificates and repairs. You can't dictate to the mortgage lender the amount you will pay them, so there is no way to reduce this cost until you remortgage.
You might think about cutting other corners. Maybe you decide to file your own tax return and not bother with the accountant's cost. And you might decide to do as much of the maintenance as you can so that you don't have the cost of labour for the contractors when things need repairing. And maybe you will decide not to employ a letting agent to manage the tenancy for you. After all, what is the point? As long as the tenant pays the rent, you don't need to pay for management, right?
Wrong!
Letting management is a complex and complicated process. Landlords must adhere to hundreds of pieces of legislation unless they're taking exams to qualify in lettings management and have the time each week to dedicate to ensuring that the property and the tenancy are running correctly and everything is in order.
So, if tenancy management is much more than rent collection, what is really involved?
Rent collection: starting with the obvious, yes, tenancy management involves collecting the rent, which, if paid on time, is a simple process of bank transactions and no big deal. But, if there is a late payment, or indeed no payment at all, procedures must be followed to ensure the safe recovery of the arrears.
Maintenance: Every time something needs repairing in the property, the tenant will contact the letting agent, who will then need to assess whether the repair is the landlord's responsibility and which contractor is required to do the repair. The landlord will be informed of the issue and the quote before approving the work to be carried out. No chasing contractors or arranging access for the landlord, simply a 'yes, please go ahead' email. Nice and simple.
Inspections: Regular visits to the property will ensure that everything is being looked after and the tenants are happy. It's an opportunity to see the property and check for any maintenance issues and to check in with the tenants to ensure they are happy there. Inspections should not be overlooked.
Legal paperwork: It is possible to download a template tenancy agreement, but how do you know they are covering you properly? Ensuring the correct legal processes are followed is vital and could save you if you go to court later. Legal contracts are not the place to scrimp and save a few pounds. Letting agents are qualified in property letting contracts and will use an agreement that has been checked and verified to ensure that the landlord and the tenant are adequately protected.
Communication: If you still want to be a hands-on landlord, that is fine; you can meet with your tenants and get to know them. But, if you become snowed under with work or other life commitments, your contact with your tenants mustn't get forgotten. Having a letting agent in place means that your tenants have regular communication that you can dip in and out of as you please, safe in the knowledge that the agent is there for you.
Professionalisation: Employing a professional to represent you as the landlord creates a level of professionalisation in the tenancy. It is no longer 'Joe Bloggs, the landlord'. It is a corporation with official processes and procedures that have a complaints procedure and governing bodies to authorise the transaction. The temptation to become friends with your tenants that can cause issues later in the tenancy is removed.
Peace of mind: Finally, have the peace of mind that you are doing everything you're expected to do, and your tenants are doing what they are expected to do to ensure that the letting of the property goes smoothly. You get the rental income, and the tenant gets a lovely, clean, safe home.
There are simply so many areas of property letting to understand that it isn't realistic to expect a landlord to get everything right if it's a side hustle for them to supplement their income.
Renting a property out is a huge undertaking and a huge responsibility. You must ensure everything is done correctly, or you could fall foul of the laws and land yourself in hot water. Or you may end up with a tenant that doesn't pay and have no way to evict them or recover your lost earnings because you have not followed the procedures correctly during the tenancy. The peace of mind that you're doing everything correctly and not breaking any laws can not be overlooked.
You know that you may not be making the most of your tax allowances when you decide to do your tax returns yourself without employing an accountant. You may not be making the most of your rental investment if you manage your properties yourself without hiring professionals to handle it for you.
Would you try to handle your own divorce? Car MOT? Dental check-ups? No, you would employ professionals. It is possible to manage your tenancies yourself without the helping hand of a letting agent, but why would you want to?
Handing over this process will increase your monthly expenses for managing the property, but it will also save you hours and give you peace of mind that you are a good landlord. You can't really put a price on that.
Contact our property letting experts today to find out how a letting agent could help you manage your property investment, saving you time and headache and ensuring that you maximise the profits as much as possible in your investment venture.