Buy to Let Pitfalls

An independent survey* of landlords commissioned by The Money Centre has identified three key pitfalls that many landlords experience at some stage.

Here, Lynsey Sweales, marketing and PR director of The Money Centre, offers guidance to landlords on how to avoid them or minimise the damage they do to their investment:

1. Rental voids (empty property)

The research showed that 46 per cent of landlords experienced a rental void during the last 12 months, the average of which was 14 days.

In order to minimise such voids and the resulting issues, Lynsey says:

• Take account of a void period when budgeting and have a slush fund with savings to cover a void period so you are not caught short
• As soon as your tenant gives you notice, make preparations to market your property immediately and make sure you or your rental agent is as proactive as possible to ensure you find new tenants quickly
• Research the demand in your area to determine whether the property should be let furnished or unfurnished, and stick to neutral colours for decorating.

2. Costly repairs and maintenance

The research showed 38 per cent of landlords questioned have had property damaged by tenants, with an average annual cost of £1,940 for repairs and maintenance (£701 for an individual property; £1,626 for landlords with two to four properties; £3,294 for those with five to 19 properties). Lynsey suggests:

• Factor in costs of maintenance (such as boiler replacement or new carpets every three to five years) into your budgets and have a slush fund to dip into to cover any potential costs of repair
• Vet your prospective tenants carefully before contracts are signed – ensure you have their full details, obtain references and even complete the application form at the prospective tenant's home to see how they look after it
• Ensure you place the tenant's deposit in one of the three government-authorised tenancy deposit schemes. As part of these there is a free service to help resolve disputes that may arise from the deposit being withheld
• Join a landlords association for advice and guidance on legislation, and to benefit from sharing best practice.

3. Shortfall in rental yields

The research showed that while 77 per cent of landlords make a profit, 16 per cent break even and seven per cent make a loss. If mortgage repayments are increasing and rental yields falling, Lynsey recommends:

• Don't panic or make any snap decisions – take your time to assess your situation and consider all the options, such as increasing the rent, remortgaging and speaking to your dedicated Money Centre consultant to see how they can help
• Consider using a buy to let mortgage broker for professional guidance and to help you get the best deal.

Lynsey concludes: “Property is never without its risks but by doing meticulous research on the property market in the area you want to buy and ensuring you have the right finance and strategy in place, you can make property investment work hard for you for a successful investment over the long term. Research, planning, sufficient cash reserves and a realistic approach are key to making successful investments in property.”

*The research was undertaken by independent research agency BDRC on behalf of a syndicate of buy to let mortgage lenders and brokers. 523 online interviews among residential property investors were conducted between August 17 and September 6, 2007.

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