Purchasing a Buy to Let property for the first time: What should I consider?
Published November 7th, 2013
The eagerly awaited end of the recession is beginning to stimulate the residential buying to let market. There are many reasons why this is now occurring:
- – Firstly, increasing house prices in general is giving home owners greater equity in their houses which can be reinvested into buy-to-lets;
- – Secondly, the marketplace for buy-to-let mortgages has improved with a greater range of products available which is inevitably improving terms for borrowers and freeing up availability of loans.
- – Thirdly, residential rents have been rising noticeably over the past couple of years, driven by a shortage of supply and a general lack of movement by tenants.
Purchasing a buy-to-let can be a very exciting time for new landlords and the vast majority have a desire to get things right. During the early part of the 2000’s buy-to-let was often seen as a source of a quick buck and an easy way to make money. However, the risk should not be underestimated. The pitfalls for mistakes by the unwary virgin landlord are countless and colourful.
In terms of choosing a property the new landlord should make some decisions as to the type of property required in the local marketplace. This need not be a pretty house but should serve the requirements of the local market. Most landlords would be best advised to operate in an area they know and can readily service. Purchasing a property two hundred miles from home may seem like a good idea, but do you really understand the market and how do you deal with any problems that arise? Even with a good management agent there may still be issues which a landlord has to attend to personally.
A familiar complaint from landlords where things have gone wrong is that they fail to see why rules and regulations should apply to them because they are only “amateurs”. Owning a buy-to-let property should be treated as a business decision and with full respect and regard to the rules and regulations which apply. Whether you own one house or one hundred houses the same laws and provisions for occupation of the property apply. In the event of a tenant being in breach the landlord may incur time and cost in recovering possession. There are quicker notices for more serious breaches, but even then cases can become embroiled in court proceedings which can last for several months.
Landlords should prepare a proper budget which shows how they can fund the property in the event of there being significant repair costs (a new boiler?) or in the event that the tenant is unable or unwilling to pay rent for a period. Relying on rent coming in simply to pay the mortgage is not always a good idea.
Most landlords are well aware that the gas installation and appliances have to be checked annually and a safety certificate provided. The certificate has to be provided to the tenant. However, there are still occasionally cases where landlords have failed to obtain certificates and render themselves liable to prosecution and, even in some cases, imprisonment.
There are no corresponding rules on electrical safety but a good landlord would not let their property without having an electrical safety check undertaken. Periodic checks should be undertaken every five years and it is recommended that an interim check be undertaken at the end of every tenancy. Landlords are obliged to vouch for the safety of their property and only by instructing the proper safety checks can they be totally certain.
Where a landlord takes a deposit there is a legal obligation to have it properly protected. Failure to do so can render the landlord unable to serve a Notice to Quit and potentially liable for a fine of three times the deposit.
The final tip relates to the instruction of contractors to do work on the house and the need for adequate supervision and consideration of Health and Safety procedures. As a landlord your obligations to contractors is greater than if the contractor was working on your private house. It does not matter whether the contractor is self employed and a recent case, following on from a fatality, has confirmed this obligation.
The conclusion being reached is that whilst there are good opportunities for landlords, early discussion with a good local agent is beneficial and instruction of an agent should ensure that potential pitfalls are well managed.