The majority of landlords make a profit, whilst the rest break even or make a loss. We want all our investors to make a profit – be prepared and learn about your Business.

We are 100% honest and want to provide you with a high level of service. This Section is to advise you some of the issues that are associated with Property Investment,

Buying properties with a view to renting them out is known as Buy to Let and this comes with its own legal and financial responsibilities. It is important that you are aware of the risks beforehand and in that way you can make a positive move in the right direction.

We take property investment seriously and would like for you to go in with your eyes open.

Are you aware of the following Risks of Property Investment? Points to note:

You understand that property can be a medium to long term investment strategy? Make sure your property has cash flow, high rental demand and is in the right location.

You understand that there are legal implications to owning a property that you rent out – You can join associations such as ARLA [Association of Residential Letting Agents}. The subscription is normally a nominal annual fee. The ARLA will keep you up to date with latest changes in legislation and you can download documents as well as contact their advice line.

You understand that there are costs to maintaining a property – These can be factored in when you conduct a visual inspection followed by a survey which will highlight any urgent repairs. You can budget for other repairs in the medium term.

You understand that rents are not normally guaranteed – You may be able to take out an insurance policy subject to terms and conditions to protect against loss of rent.

You understand that there are costs associated with finding a tenant and managing a property – You can factor these in, you may agree a fixed fee to find a tenant. Alternatively, you can pay a percentage of the rent collected by the agent every month [this can range from anything between 5 to 10%]. You can build these figures into your business plan.

You understand that there may be void periods and costs to you when the property is vacant – You can build in void periods into your cash flow model. We use 21 days as a general rule. However, if you develop a good relationship with your tenant/s then your properties are more likely to remain occupied for longer. If a property is becoming vacant then subject to your tenancy agreement you can look to market the property, therefore reducing rental void periods.

You understand the risks that can be associated with borrowing money and that if you do not keep up your repayments then your property could be repossessed. – If you have developed the right income stream for your property and have the reserves in place, then your property should be rented all the time. You must remember that the Lender is potentially the one that is at risk, and if they did not feel comfortable with the level of risk then they would not have approved the loan to the value they have.

You understand that your property must be compliant and meet the legal requirements when renting to a tenant - You can join associations such as ARLA [Association of Residential Letting Agents] who will provide you information and ways in which you can keep up to date.

You must understand that you may have to pay ground rent and service charge on certain types of property, even if it is vacant – You can factor this into your business model. There is not normally a service charge to pay on houses, and ground rent can be nominal. Service charge can sometimes be effective, as you are paying for the upkeep and insurance of the building that your property is in.

You must understand that you will have to keep your paperwork up to date and must keep the Inland Revenue informed of your income and expenses and pay tax as required on your rental income less expenses – Your rental agent will provide you with a monthly report, this will let you know the income and their expense. You can then tally this up with your bank statement. If you keep hold of all the expense invoices, together with the interest payments made, you can work out the profit figure relatively easily. You may decide to engage with an accountant or liaise directly with the tax office. There are also many accountancy software solutions available.

You must understand that you may be liable to pay Council tax and Building Insurance, even if the property is vacant – this must be factored in with your business plan. You should have surplus capital to pay for voids from the cash flow you receive.

Common Mistakes made by Investors?

Failing to understand why they are looking to invest into property without considering personal risks – This should be addressed and hence provisioned for in your business plan.

Not looking after your investment property – It is advisable to carry out an inventory before you rent a property and carry out inspection visits. You may nominate your agent to do this on your behalf.

Not using the right letting agents, solicitors and / or financial advisers – We can recommend and refer to you tried and trusted professionals.

Not buying in the right location – This is where the due diligence process is imperative.

Not buying the right type of property - This is where the due diligence process is imperative.

Not looking at current or future market trends and factoring in changing market conditions - This is where the due diligence process is imperative.

Not keeping up to date with legislation – Subscribe to a rental association such as ARLA who will keep you informed. Land Registry also provides a great insight to changing market conditions and trends.

Not being proactive in looking at ways in which to grow or consolidate your portfolio – Working with us will allow you to build and strategize the way in which you create and grow your portfolio. Sometimes it’s not about growth but merely about consolidation. Ensuring your portfolio is well managed and income producing before you set out to acquire more assets.

Not looking at ways in which to maximize the rental income on the property in order to give you the best possible return – Always keep an open mind and consider your options.

Tenants – It is not always plane sailing

A good tenant is a tenant that ideally adheres to the Tenancy Agreement. Rent is paid on time and they maintain your property to a high standard. If they discover a problem in the property they notify you immediately so that you can carry out emergency repairs so that your property does not deteriorate from unnecessary damage. Problematic tenants can be a nuisance, please see examples of some issues we have come across below?

• They either pay no rent at all, do not pay rent on time, or look to pay a reduced amount from the pre-agreed Tenancy Agreement.
• They may cause malicious damage to the property or even try to damage the property structurally.
• They may be calling you out to do repairs and try to pressure you, albeit the repair may not be of an urgent nature.
• They have other people living in the property that are not allowed to do so.
• They have pets and you may have excluded this from their Agreement.
• They use the property for immoral use.
• They break the windows, damage locks, damage the kitchen, bathroom or damage any other built-in appliances, which can also affect the decoration.
• They keep the property untidy and unsafe, which could affect your insurance.
• They could be a nuisance to neighbours and the local residents.
• They could not keep areas clean and tidy, causing an infestation of pests.
• If the property is furnished and they don’t look after the furniture causing damage, resulting in you having to replace it.
• They could look at bringing an action against you for something you have not done as a Landlord, and as you may not be entitled to Legal expenses cover you may have to fund defending such an action.
• They could misuse the boiler and as such damage the heating system.
• They could strip the lead of the roof and try to sell it.
• They could use your address for fraudulent activity.
• You could send repair workers to the property at an agreed time for the tenant to be present, however the tenant might not be there and as such you may have to pay the contractor for their inconvenience. You will then have to reschedule another appointment adding to the cost and time you have spent already.

You can insure against tenants and as such look to protect your interest subject to the insurers’ terms and conditions.

Always take references for tenants and a deposit [which will have to be held in a compliant protected scheme].

Take an inventory of the property and inspect the property either yourself or through an agent every so often.

Have a protocol in place, should the tenant be in arrears or breach the terms of such agreement then speak with them to remedy the situation. If they refuse to cooperate and remedy the situation then commence legal action against them. Providing you are a member of ARLA, they can advise you. Alternatively, you may decide to instruct a solicitor to do it on your behalf and should you be successful you can look to recover costs from the tenant at a later date.

You may take out insurance cover for boilers, electrics and drains for parts and labour.

Types of Tenancy Agreements for Residential Property Investments

The most common type of residential tenancy is an Assured Shorthold Tenancy Agreement which can normally be either a 6 Monthly or 12 Monthly contract term. These Agreements can vary as to whether the property is furnished or unfurnished.
In order to create an Assured Shorthold Tenancy, all of the following need to apply:-

• The Tenant is renting from a private landlord
• The tenancy started on or after 15 January 1989
• The property is the Tenant's main accommodation
• The landlord does not live in the property - i.e. If the Tenant has rights to have privacy in the property where the Landlord cannot enter without mutual agreement before hand
• The rent is less than £100,000 a year

Eviction

If the matter relates to a civil breach by the Tenant then you may decide that the best solution is to evict the tenant, and as such you will have to use a civil court procedure. This can be a time consuming and costly process. You must at all times act fairly, responsibly and appropriately as a Landlord. You may also be able to recover costs from the Tenant and or the tenant’s guarantor should there be one in place. You may use a solicitor to do this if you don’t have an insurance policy in place that will do this for you or at least cover any associated costs.

You will also have to factor in the cost of loss of rent, damages, legal fees, interest on monies due, personal time, expenses, court fees and disbursements.

Hidden Charges – Watch out for the unexpected when purchasing a property

Mortgage Brokers Fees – Always find out the costs upfront

Lenders Arrangement Fees - Always find out the costs upfront

Valuation Fees- Always find out the costs upfront

Specialist Reports – Such as timber, damp, electrical safety, Gas Safety - Always find out the costs upfront

Solicitors Legal Fees – Watch out for the charges such as case management charges, etc. Try to get a full estimate of costs beforehand with a break down for the likely disbursement cost.

Title Indemnity Insurance and / or other Legal Policy that may be required – This is normally nominal amounts in comparison, however you still may decide to get a quote first and pass this cost back on to the seller.

Searches -These could be legal searches such as, land charges, environmental, drainage, utilities, chancery check, insolvency, boundaries, right of way, land searches, ownership searches to name just a few - Always find out the costs upfront

Insurance- Always find out the costs upfront

Stamp Duty- Always find out the costs upfront

Interest Rates within contracts [just in case you miss your completion deadline]. – Ask your broker to explain these to you or alternatively ask your solicitor.