It is significant 5,900 buy to let properties were repossessed in 2011. This was a marked increase on 2010 despite what would appear to be solid conditions in the rental market. Poorly funded and under-insured landlords fell victim to misfortune, poor planning or a general inability to effectively deal with problem tenants. Many of these issues can be dealt with either by ensuring sufficient savings are available to cover these issues or a rent guarantee product. Those who have neither face significant chances of ruin should market conditions conspire against them.
There’s a natural over-confidence that comes with owning several properties while many first time buyers are struggling to even obtain their first one at age forty! One has taken a significant step towards future wealth, success and happiness. It makes little sense to ignore the risk of tenant defaults, interest rates in two years leaving a guaranteed rental shortfall on our portfolio or simply not having the cash to handle evictions, repairs and other unexpected problems effectively.
Luckily there are some simple steps landlords can take to protect themselves. Here are the three most important ways you can put that worry to bed:
Have A Cash ‘War Chest’ To Handle Emergencies
No amount of insurance, planning and people to call can save you in an emergency if you can’t lay your hands on some cash. Landlords really should have 6 months rent put aside to cover unexpected costs. Repairs that aren’t carried out promptly will usually result in a tenant refusing to pay rent – this only exacerbates your cash issues.
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Be Wary Of Future Market Conditions
Your property portfolio isn’t a guaranteed key to riches, it’s an investment portfolio. If gold was performing poorly but US Equities had a bright and shiny future you wouldn’t just hold onto gold blindly hoping that everything changed. You’d probably sell gold and buy US Equities if you were faced with that certain information. Many landlords are just too reluctant to dispose of assets which don’t hold good long term potential. A property which now is falling in value, and struggling to cover the mortgage at an acceptable level when base rate is 0.5% is hardly a great long term investment. Rates will move up at some point – your property could end up being impossible to remortgage. Think about how you’d feel covering a shortfall against rent, knowing that it wasn’t offering great capital growth or rental returns. Think about disposing of poor properties.
Protect Your Future – Don’t Bury Your Head In The Sand
A repossession ends your dreams of wealth as a landlord. Imagine never being able to get another buy to let mortgage again. Or at least for a very, very long time. It is rather foolhardy to not consider life insurance, rent guarantee cover and other protection of that nature. It might be possible for those with strong financial means to ride out a downturn without destroying their credit history or losing properties – but would you rather place a phone call to end all your problems or deplete your life savings to stay afloat?