Properties are a major financial responsibility as there is more to it than just the purchase. Landlords who choose to go with the full management service of a letting or property agent for the management of their buy to let can expect to pay a fee of anywhere between 8% to 15% of the monthly rental. For landlords, it’s essential to know exactly what they’re letting themselves in for in terms of costs and to prepare for it accordingly.
Take The Time To Screen Tenants
While authorities are clamping down on rogue landlords, those landlords who do things by the book may need some assistance of their own. One of the biggest mistakes landlords make is rushing into a rental agreement with a tenant that doesn’t quite make the mark. By going through an agency, although there is a fee involved, the landlord has the potential to avoid larger losses if the screening is done properly.
One of the worst pitfalls for a landlord is signing up a professional tenant. These tenants are well-versed in property laws and have worked out just how long they can stay in a property before getting evicted. They know the law inside out and will use it to their advantage. For landlords, a property reference from previous landlords is critical. Credit reports may also reveal whether there are judgements taken against them for loss of rental income by previous landlords.
Understand Tax Rebates And Write-offs
The first few years after purchasing a buy to let property can be financially draining, especially those considered fixer uppers. Other costs that that landlords face in those beginner years include the purchase of furniture, maintenance, legal costs, property taxes, surcharges,property deposits, and more. Losses are to be expected from time to time, and when this happens, it’s important for landlords to have their paperwork in order when doing their annual tax returns. Tax refunds and write-offs are possible during these years, which is a great boost to those who don’t find themselves breaking even as yet.
Follow The Golden Property Rule
One of the most important property rules is to expect periods where the property will stand empty. This is critical for cash flow purposes as properties, especially those in the suburbs or outskirts of the cities, may have a lack of tenants during certain times of the year. Cash reserves to cover the mortgage or property taxes are critical in order for landlords not to be forced into a forced sale situation. While there may be tax relief in some cases, landlords should prepare for this financially to ensure their property remains maintained and attractive to potential renters. During this time, it’s also critical to put security measures in place to restrict access, as squatters may cause further financial problems.
While a buy to let property can serve as a great source of income, it’s critical to understand the potential pitfalls in purchasing a property for rental purposes. Damage, loss, and costs could all quickly deplete a previously cash flush coffer.
Author: Sandy Kenrick
Sandy Kenrick swapped a fast-paced career as business banker for the insurance industry. Long hours and a new family quickly led her to look beyond the world of finance. As a work from home mom, Sandy now gets to do what she loves. Much of her work still involves finance and business, but when that mid-afternoon sun swings around it’s time to switch off the laptop, pour a glass of wine, and enjoy her growing family.