With property prices rising and more and more people renting than in previous generations, buy to let can seem like an easy way to make money!
However, it is not as simple as that, and there is a great deal to think about when letting a property.
Here are the five pitfalls to avoid:
1. Being unaware of tax
If your total income for the tax year as a landlord is above the personal allowance threshold of £10,600, you will need to pay tax on the money you receive from tenants.
Currently, landlords can claim tax relief on monthly interest repayments at the level of income tax that they currently pay, but from April 2017 mortgage interest tax relief will be decreased to a maximum of 20% basic tax rate.
Furthermore, from April 2016 the ‘wear and tear’ allowance will be scrapped, meaning landlords will only be able to claim for maintenance and repairs which can be proved to have taken place.
2. Choosing the wrong location
The location of your buy to let property is imperative and can determine how successfully you are able to find tenants.
You will struggle to find good tenants and make a decent income if you choose an area which has a bad reputation or is in the middle of nowhere.
Visit a potential area in the day and in the evening to evaluate whether it is a safe and desirable place to live. Also try to find out how much other landlords in the area are charging as this can help you calculate your likely rental income versus the cost of the property.
You should consider whether the property has good transport links, and if you will be carrying out repairs yourself, try and find a property that is close to where you live.
3. Not considering void periods
Whether a tenant is living in your property or not, you will still need to make mortgage payments regardless of whether any rental income is coming in. If a tenant wants to stay for a short time then it may be better to find someone else as void periods can cost you dearly.
If you are letting to students who will be living in your property for just nine or ten months, consider offering a short term summer let to an exchange student.
Remember that happy tenants are likely to stay in a property longer and can cost you less in terms of void periods and cleaning bills.
Legal Expenses and Rent Guarantee Insurance covers void periods and can give you peace of mind, even if your property is empty.
4. Forgetting about the hidden costs
There are many costs involved with a buy to let that may not be as obvious as mortgage repayments and potential letting agent fees.
Other initial costs that are important to consider include buildings and contents insurance if you are letting a partially or fully furnished property. Landlords insurance is also another important consideration as it covers against rent arrears and damage to the property.
You will need to provide a gas safety certificate and pay for annual checks in addition to being expected to cover repairs of items such as the washing machine and boiler if this was not the tenants fault.
It is also important to have funds in place in case of emergencies.
5. Not knowing your tenants background
It is vital to invest time in to finding good tenants or you could end up with tenants who damage your property or miss rental payments. Tenant Referencing can be used to get a fuller picture of your tenant’s background as it can identify if a potential tenant is using an alias name, multiple addresses or even a bogus employer to try and secure your property.
You can also sit down with the potential tenants and discuss why they are moving as this could indicate how long they are likely to stay in your property.
It is essential to have a signed rental agreement in place but clear lines of communication are also important so that both parties know what is acceptable.
For more advice and useful tips, visit the Landlord Zone section of our website.