Does it add up? The experts at Belvoir reveal six expensive economic errors… and how to avoid them
“One of the most costly mistakes a landlord can make often occurs right at the beginning of their investment journey and before a property has even been purchased,” says owner of Belvoir Swansea and Belvoir Mumbles Ben Davies.
“Investment errors at the initial stages will inevitably affect profit potential. In fact, choosing the wrong property or paying the wrong price can significantly reduce monthly rental return, expected yield and capital growth on resale.
“Make sure all the finances add up before signing on the dotted line. Research the market to find out how much rental return you can expect for a property of that type and size, plus how similar properties have performed on resale in that area. Don’t be afraid to negotiate on the sale price either – many vendors are willing to reduce the asking price, especially if you’re a cash buyer or are in a good position to proceed.
“Remember too to look at the small print regarding the terms and conditions of the sale (especially on leasehold properties), plus make sure you commission a HomeBuyers Report to identify any issues that may prove expensive later.
“Additionally, make sure the property will appeal to your target tenant. What are their needs and wants? Which types of properties are renting quickly and consistently in your chosen area? A rental property is an investment vehicle so it’s vital to approach the purchase from a business prospective and not based on your own tastes, wants and desires.”
- Negotiate on the purchase price
- Buy with your target tenant in mind
- Find out about potential rental return
- Make sure the finances add up
“Void periods cost money and if you’ve ticked all the boxes in terms of property type, area and tenant appeal then periods of void may simply be down to marketing mistakes,” says co-owner of Belvoir Liverpool West Derby and Belvoir Liverpool Central Adam Rastall.
“If tenants don’t know about your property then they’re not going to be queuing up to rent it. Similarly, if the quality of your marketing material is poor, then the appeal of your property will dramatically decrease.
“Well thought-through strategies and high quality marketing material help let properties at speed. Ensure that your wording is clear and concise, highlighting the key features of the property and taking the potential tenant on a journey through the benefits of living there.
“Include several good quality recent internal and external pictures too, preferably taken by a professional on a bright sunny day. It goes without saying that the property should be looking at its best with beds made, rubbish bins emptied and toilet seats down.
“Make sure your marketing ‘sells’ a lifestyle so a tenant can imagine themselves living there before they’ve even taken their first steps through the front door.”
- Forward plan your strategy
- Highlight the property’s key features
- Add a selection of good quality photos
- ‘Sell’ a lifestyle through your words and pictures
“Presentation can make or break a rental property,” says Ben. “Poor quality presentation with tired fixtures, fittings or appliances will lower the property’s appeal and, of course, the rental return you can expect. Likewise, shoddy décor with peeling paper or paint will shave pounds off your profit.
“It’s a common mistake to underestimate the modern renter’s demands and needs,” he continues. “Today’s tenants want contemporary, fresh and neutral properties so ensure yours is desirable and move in ready.
“Check out the competition too. Competition complacency can be an issue for some landlords so always thoroughly research the presentation level of similar rental properties in your area so yours remains streets ahead.
“While a good level of presentation is vital, however, it’s also important to stay practical and within a set budget. Don’t overspend on expensive and elaborate presentation which costs more to execute than is cost effective.”
- Keep it neutral, contemporary and fresh
- Assess the competition
- Keep your target tenant in mind
- Don’t blow the budget
“Getting a ‘bad’ tenant can cost you dearly in many different ways,” says Adam. “If they consistently pay late or don’t pay at all you will be losing income and may be left with no choice but to start eviction proceedings.
“Similarly, if someone doesn’t look after the property and causes damage, malicious or otherwise, it will also affect your profit potential.
“To improve your chances of getting a ‘good’ tenant it is important to get to know a bit about them and their background before you commit.
“Never rely on gut instinct alone, however. It’s vital that you do full checks on them and their financial circumstances. This will include ensuring they have the Right to Rent, plus thorough credit checks and reference gathering (from employers and previous landlords) which should then be verified.”
- Always credit check potential tenants
- Gather references too
- Regularly inspect the property to make sure a tenant is living within the terms of the Tenancy Agreement
- Long-term tenants can save money on re-marketing costs and periods of void
“As with any business you will have costs and expenditure to consider and one of these that you can’t afford to ignore is maintenance,” says Ben.
“It’s advisable to factor in one month’s rent per annum for essential maintenance and repairs. Work out your net yields taking into account that you may have to spend out on the property throughout the year in order to protect your investment.
“Ideally, all maintenance issues should be resolved before a tenant moves in which will help minimise the risk of something going wrong during the tenancy.
“Throughout their stay it’s then important to visit the property regularly and troubleshoot issues as they arise and at speed. Ignored maintenance often escalates generating more work and larger bills.
“Another budget busting mistake is cutting corners to cut costs. Using substandard materials or ‘cowboy’ contractors rarely saves money in the long run and can, in some cases, compromise the safety of your property and tenant.”
- Ask your tenant to report maintenance problems
- Regular pre-arranged visits to the property will allow you to assess its needs
- Deal with issues immediately and before they escalate
- Commission reliable and recommended contractors
“Never ignore the valuable resources offered by your local letting agent,” says Adam. “Experienced and knowledgeable about the industry, a letting agent’s help and advice can be bank balance beneficial for landlords both old and new.
“Not only can an agent help ensure the property is ready for rental and is legally compliant, but they can also help reduce your vulnerability to ‘bad’ tenants.
“Once a property is tenanted they can then make sure that the tenant is living within the terms of their Tenancy Agreement, plus they can organise trusted contractors to carry out essential maintenance in a timely and efficient way.
“Additionally, a good letting agent can help you assess how your property is performing plus help you grow your portfolio so you can increase your investment return and protect your profit potential.”
- A letting agent’s help and advice can be invaluable
- They understand lettings legislation and will be able to keep you up to date with recent changes
- A letting agent can help you source additional properties and grow your portfolio
- They can also assess how your property is performing and help you maximise your investment
Article Courtesy of: Belvoir