Many people invest in property so that they can make an income from it. But, as with any investment which requires active involvement, there are many potential pitfalls. Yes, you might like to charge tenants 1 percent of the property’s value per month in rent, but all too often tenants let you down, and you don’t end up with the income you’re owed.
So what should you do to avoid disappointment when trying to make money in the buy-to-let market?
Draw Up A Tenancy Agreement And Customise It
It’s a good idea to have a proper tenancy agreement in place before you hand over the keys. But don’t worry, it’s easy to find a template online. The tricky part is customising the agreement to your needs. For instance, generic agreements don’t usually have sections in them governing the use of the garden, mostly because so many rental properties are in larger buildings with their own groundskeepers. Sometimes, though, you’ll need to specify that the homeowners need to do garden work themselves. Gardens that are left to deteriorate over the course of the tenancy cost a lot to put right and could stymie your attempts to find new renters.
Screen Tenants Thoroughly
It’s a good idea, according to CarisProperties.com, to be upfront about the standards you expect from your tenants. Problem tenants can be a nightmare and can lead to lost income. Even if you get insurance, your premiums could go up if your tenants regularly refuse to pay. Tenancy screening is essential, and something that all newcomers to the buy-to-let market should do, unless they have special reasons to believe that the new tenants will always be regular. What’s more, it’s also a remarkably easy process: many third-party companies can check a tenant’s credit history and find out whether they are a good choice or not.
Find Out If You Can Profit
The whole point of renting out a property is to make income in excess of the mortgage payments. But in some parts of the country, this is by no means guaranteed. In places with a high level of competition for rented properties, rents can be pushed down, and it may even cost you money to administer a buy-to-let property. What’s more, just looking for areas with rising house prices often isn’t the solution. Rising house prices mean that you have to sink even more money into a mortgage, even if rental prices are going up simultaneously.
The trick is to find areas where rental prices are on the up, but property values are falling. Forbes.com has a list of areas it thinks are performing well.
Factor In Void Periods
No buy-to-let property is continuously occupied. There are always weeks of the year in which one tenant is moving out and another moving in. Therefore, it’s important to factor in void periods into any calculation of your general rate of return. Don’t just add up the rental values from all 52 weeks of the year. Take a more conservative estimate, such as renting out for 48 weeks, on average, and then see whether it’s still worthwhile going ahead.