As a first time landlord, you may be eager to start making money from your first property investment without first investing some time into research of regulations and the most common mistakes that first time landlords make.
Mistakes are inevitable, and are all a part of the learning curve, but many small mistakes are easily avoidable and can save you from unnecessary headaches and heartaches along your journey.
1) Going with your heart instead of your head when choosing tenants.
Use your head. Some tenants are particularly good at fabricating stories to gain the sympathy or trust of their landlord. Don’t fall into the trap of just automatically believing anything they tell you without them being able to back it up. Your prospective tenants should be able to win your approval through facts and numbers.
2) Not carrying out your own credit report / referencing.
As an extension of the first point, you should always make sure that your prospective tenant’s referencing is verifiable. If they provide references or reports, you should absolutely check that these references have not been manufactured or edited by them. Whether you carry out credit report and reference checks yourself or have a letting agent do this on your behalf, this step is crucial.
3) Forgetting that you are running a business; not a charity.
Everyone falls into tough times at some point or another, but you should never put your personal finances on the line to help a tenant who may take your help for granted. If you have a particularly good relationship with your tenant, perhaps they have been a trustworthy tenant for over ten years but are just struggling between jobs, you may give them the benefit of the doubt. It’s your choice at the end of the day, and if you can afford to let them backdate their rent a month or two once they find a new job, then you may choose to save yourself the hassle of a void period by doing this.
Otherwise, many new and inexperienced landlords fall victim to tenants who expect special treatment.
4) Treating the business like a hobby.
As well as not running your business like a charity, you should also not be treating it as a hobby. Too many landlords start out their buy-to-let venture without first separating their finances and carefully thinking about profit. You may not rely on your property investment as your main source of income, but it is certainly not just a side hobby and cannot be operated as such. Things like bank accounts, bookkeeping, and landlord insurance need to be taken into consideration.
Not to mention the rules and regulations under which you have to operate. Make sure that you’re aware of all your legal responsibilities to your tenant, including securing their deposit in a tenancy deposit scheme and ensuring the safety of the plumbing, heating, gas and electrical appliances.
5) Not being realistic about the finances.
Being a landlord is often assumed to be an easy case of just watching the rent money rolling in each month. This is not the case. You have to take into account your annual budget for maintenance and repairs, putting money aside to deal with such issues as and when they arise, as well as consider things like tax and void periods in which the property will not be bringing you any income. Another crucial mistake is overestimating how much you can realistically increase the rent amount by and how regularly.
6) Underestimating family tenants.
You may not even strictly call yourself a landlord if you are renting to a personal friend or family member and, as a result, neglect certain formalities like landlord insurance for family members or even a standard tenancy agreement. As much as you trust your family to be good tenants, this puts you at risk of being exploited.
7) Not thinking about marketing.
It can be tempting to forego the help of a regulated letting agent or property management company when trying to fill your property. Especially when you have the time to put into your investment, what can an agent offer you that you yourself cannot, right? The answer is: expertise. Letting agents have access to certain marketing tools to help you quickly find a tenant so that you can start making a return. Every week that goes by where your property is uninhabited is another week where you are losing out on potential income. If you don’t have the property strategy in place to market your property, then you may be losing more money than you would had you just paid an expert to market the property for you.
8) Forget about inspections.
Ideally, you want to be taking photos of every nook and cranny of the property before any tenants move in, for the purpose of insurance and inventory. This will give you something to compare the current conditions with whenever an inspection is conducted, so that you have evidence of any property damage if there is ever a dispute. Neglecting regular inspections, usually 1-3 times a year, can lead to you losing control of the state of your property where tenants become more careless as a result of too much freedom. This, in turn, can mean that when the tenant eventually moves out, you’ll be paying more than you bargained for in repairs and maintenance.
9) Do too much repair work.
As a new landlord, it may be tempting to be the best landlord you can be by carrying out all repairs and maintenance that your tenant requests! This can all add up, and ideally you should be prioritising which repairs are in need of being carried out, whilst keeping some savings aside for those emergencies when you absolutely need to repair something. Don’t give into your tenant’s every whim, whenever they fancy a new coat of paint, or a new cooking appliance.
10) Do too little repair work!
Conversely, don’t completely ignore all repair work there is to be done! A £100 fix today could potentially save you thousands in future. Learn how to prioritise and optimise maintenance tasks over time so you can stay on top of the condition of your property and not be confronted by any nasty surprises down the line.