The property market remains solid, with little signs of a collapse in prices; meanwhile, rents remain strong and are indeed on an upward curve. It could be time to enter the buy-to-let market, but what challenges do new landlords face and what are the common mistakes they make?
Newcomers to the industry often underestimate their costs. Investing in a rental property is not like investing in a mutual fund in that it is not a passive investment. If you are a cash buyer, you will be looking for a higher return than you can find through a bank deposit or a fund; however, there are costs associated with this kind of investment. Allow at least two months’ income to cover these costs.
2. Legal requirements
There are legal matters to consider when drawing up the lease agreement for your tenant; for example, client deposits must be placed in a government-backed tenancy scheme if the property let under an assured shorthold tenancy beginning after 6 April 2007.
If this is the first time you have let a property, the temptation is often to get a tenant in as quickly as possible, perhaps without properly vetting the renter and acquiring references. Always check that your tenant can afford the rent and has a history of being a good tenant.
Another issue related to deposits is the inventory, which must be agreed with any new tenant. It may be wise to invest in property inventory software from a provider such as inventorybase.co.uk.
Your rental agreement should include clauses that specify when you can visit the property for inspection purposes and to carry out any repairs that may be needed. This will include confirming the notice you will have to give to the tenant. Inspections are important, as you cannot rely on the tenant to notify you of any problems.
Finally, make sure your tax paperwork is in order. An accountant familiar with the property market should be your first port of call. The fees you are likely to pay will be worth it over time. Remember that the rental income may affect your tax status. Keep all receipts for work on the property and for the management, whether you are doing this yourself or using a property management company.