How to be a property investor: Letting a property
Buy-to-let isn’t as easy as it seems. Not only do landlords have to deal with the financial side of their business, but the day-to-day management of properties and tenants too.
A recent survey of 500 buy-to-let investors by letting agent PropertyLetByUs.com found that rent arrears and sorting out repairs to properties are the top two causes of landlord stress, followed by the need to carry out new “Right to Rent” checks.
Late or non-payment of rent can mean the landlord lacks the cash to pay the mortgage or for maintenance of the property. In the worst cases significant rent arrears can have a devastating effect on a landlord’s long-term financial situation.
Unfortunately evicting a non-paying tenant, or one who has breached other conditions of their tenancy contract, can be an expensive and time-consuming process. Landlords need to serve the correct notices, follow a set procedure, and occasionally take a case to court to gain a possession order.
A new law, introduced as part of the Deregulation Act, has made it illegal for landlords to serve Section 21 eviction notices for six months after a tenant has made a genuine complaint about a property which has been verified by a local authority inspection. The aim is to stop so-called “retaliatory” evictions where a tenant complains about the state of a property and the landlord responds by evicting them instead of carrying out repairs.
Even if tenants behave perfectly, landlords have hundreds of pieces of legislation they need to stick to and keep up to date with.
By law, rented properties must be safe and fit to live in. Under the Housing Act 2004, environmental health officers can use the Housing Health and Safety Rating System (HHSRS) to check a property is safe. Subsequent notices served by the council can force a landlord to complete certain work or even ban the letting of a particular property.
Landlords also have to check tenants have the legal “Right to Rent” and protect any deposit handed to them in a government-approved scheme.
Christian Faes, co-founder and CEO of LendInvest, says: "Buy-to-let landlords have been painted as the pantomime villains of the housing market in recent years, but in reality it's a tough job. You have to find quality tenants, keep on top of your various responsibilities like property maintenance and then potentially have to deal with calls in the middle of the night about a burst boiler or some other issue that needs addressing immediately."
Number of tenants in severe arrears.
Tenant arrears tracker Q1 2009 to Q4 2015. Your Move/Reeds Rain
Do you need a licence to let?
The Housing Act 2004 gives councils the power to introduce the “selective licensing” of private rented homes. Selective licensing is intended to address the impact of poor quality private landlords and reduce levels of anti-social behaviour.
Councils can impose licensing requirements in entire boroughs or particular areas. Those landlords who fail to buy a licence can be fined up to £20,000 and those who fail to comply with licence conditions can be prosecuted and fined up to £5,000.
All landlords who let Houses in Multiple Occupation (HMOs) need a licence. An HMO is a property rented by three or more unrelated households who share facilities such as a kitchen and bathroom.
Don’t miss the first articles in this series:
- Our national love affair with property
- A history of property prices
- Property versus pensions
- Buy to let: Buying a property
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.