The top buy-to-let pitfalls and how to avoid them

(11/12/07)

Buy-to-let has never been without its risks but the spotlight is now on the buy-to-let market more than ever before, with higher interest rates and uncertainty in the UK's housing market. This has unsettled some landlords, in particular those with a few properties and those who are new to the buy-to-let market.

An independent survey of landlords commissioned by The Money Centre, one of the UK's largest independent buy-to-let mortgage brokers, has identified three key pitfalls which many landlords experience at some stage.

Here, Lynsey Sweales, marketing and PR director of The Money Centre gives 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% 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 comments:

• 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
• Make preparations to market your property early on and ensure 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% 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 2-4 properties, rising to £3,294 for those with 5-19 properties.

Lynsey suggests:

• Factor in costs of maintenance (such as boiler replacement or new carpets every 3-5 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 which may arise from the deposit being withheld
• Join a landlords' association to get advice and guidance on legislation and benefit from sharing best practice.

3. Shortfall in rental yields

The research showed that while 77% of landlords make a profit, 16% break even and 7% 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, re-mortgaging and speaking to a specialist broker to see how they can help
• Always shop around for the best deals
• 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 b y 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.”

Sources of further information and advice for landlords include:

• The Department for Communities and Local Government: www.direct.gov.uk/tenancydeposit or 0845 609 0696
• Landlords' associations: National Federation of Residential Landlords – www.nfrl.co.uk; National Landlords Association – www.landlords.org.uk;
• The Money Centre: www.themoneycentre.net, 0800 374611

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 17 th August and 6 th September 2007.

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