As Landlords, there are many things that can come back and bite us along the way, being seriously damaging to our wealth. I thought I would compile my list of top 10 most deadly pitfalls, to help others to avoid them!
1. Buying BMV from a "distressed" seller.
If you purchase below market value from a "distressed" seller, you need to be aware, that should the vendor go bankrupt later down the line, and it was found that the property had been sold at a discount, the sale can be unwound.
Furthermore, most lenders will not even lend now where a "distressed" seller is involved, so you do not want to put forward a deal that might get rejected at the last minute, especially if you are on a bridging loan.
Further reading and detail on this topic: BMV bombshell
2. Bridging loans when the exit fails
I see many mentors and gurus talking about creative finance and suggesting the use of bridging loans. These loans are only designed for short term funding as they are cost prohibitive.
You should only enter into a bridging loan if you have a very clear exit of how you are going to redeem it. See No. 1.
3. Poor tenant referencing
The best way to never experience a bad tenant is never to let one into your property in the first place. This means doing intense due diligence on any tenant.
This can include:
Employer's reference
Previous Landlord reference
Rental guarantor
Visiting the tenant in their current property to see how they keep it.
Further reading on this topic: The ultimate way to vet a tenant
4. Relying on someone else's figures and/or information.
Whether that be a property sourcer, letting agent or anyone giving you any figures to do with property investment, make sure you do your own intense due diligence and satisfy yourself that you have the correct information.
A small difference in the achieveable rent for a property can make a significant difference as to how much you can borrow against a mortgage for that property and also how much cash flow you will achieve.
NEVER, EVER, EVER agree to purchase a property without having been to view it and understand it from every angle.
5. Failing to protect tenant's deposits
As a Landlord, you are required by law to protect the tenant's deposit in one of the government approved schemes.
Failure to do so can lead to harsh penalties in the event of a deposit dispute.
Further reading on this topic: Important ruling that all landlords need to be aware of.
Tenancy deposit protection reminder
6. Failing to commission an inventory.
The inventory and schedule of condition sets out the condition and contents of your property at the start of the tenancy, so that there is something to compare at the end of the tenancy.
If you do not have an inventory done, and the tenant damages your property, the onus is on you to prove the damage, not on the tenant to prove that they didn't damage the property or remove anything from it.
So, if you do not have an inventory, you are actually giving your tenant an unfair advantage.
7. Being under-insured.
In these austere times, some landlords try and save money by cutting down on insurance.
Whilst the vast majority of landlords have invested in insurance (98%), most of these policies are only basic buildings insurance products which safeguard the physical structure of the property.
Were landlords to experience problems with late or missed rental payments, these policies would offer little or no support; leaving them in a complex predicament.
Rental arrears are often considered to be one of the biggest problems faced by landlords and are something which specific rent guarantee insurance policies can protect against.
So to be safe, Landlords should consider Buildings insurance, landlords insurance (for PI) and rent guarantee insurance.
There is also a new insurance proposition called Rentplan. It is a new service for tenants that offers income protection insurance to cover rent and other expenses, to enable the tenant to keep their home and tenancy if they become unemployed or suffer an illness, accident or involuntary redundancy. Read more about Rentplan >>> here.
8. Not getting "consent to let" from a lender or freeholder
Many accidental landlords let our a property with a residential mortgage on it. It is imperative to contact the lender and get permission to let the property. This may involve a small fee or a change in interest rate. If you do not do this and the lender finds out, you will have breached the T & C's of your mortgage and the lender can take action.
Also, some leasehold properties have clauses in their leases that state you are not allowed to sub-let at all, or, if you do, you have to apply to get a "consent to let" and there will be a charge associated with this.
9. Not working with a letting agent who has client money protection in place.
The lettings industry is largely un-regulated and there are many stories hitting the headlines of agents who absconded with large amounts of landlords and tenants monies.
Only work with an agent who is registered to a recognised accreditation scheme like ARLA or NALS. The SAFEagent scheme shows which agents have voluntarily registered to confirm that they have recognised client money protection in place. These agents registered to an accreditation scheme will also be registered with a Property Ombudsman Scheme, which gives a route of redress if something goes wrong.
10. Failing to maintain your property.
This excerpt from the Property Hawk blog says it all:
By law, as well as making sure the property is fit for habitation, landlords are generally responsible for carrying out all repairs to the structure and exterior of the property. Therefore not responding to issues of damp in your property will not only lead to a deterioration of your housing stock, but may lead to complaints from tenants, many of which won’t understand the relationship between their lifestyle and the damp in the property. This can lead to arguments between tenants and landlords, a great deal of stress and can also potentially lead to you, as the landlord, being prosecuted.
Condensation is one of the three forms of damp and is caused by a combination of two main factors. The first is the amount of moisture we produce, and the second is the surface temperature where the condensation occurs. We produce huge amounts of moisture everyday, through bathing, washing, showering, cooking, drying washing and even breathing. During the winter months this moisture-filled air stays trapped indoors as tenants open windows less frequently to keep the cold drafts out. The resulting build up of moisture in the homes leads to damp and mould growth. First you see condensation on windows and cold surfaces, and then mould growth occurs where there is a cooler surface temperature, such as on north facing sides of houses and on poorly insulated walls or ceilings.
Mould will form where there is high moisture content, usually as a result of damp, and the result is both an unsightly and unhealthy house. However, there are many less well-known consequences of condensation and high humidity, including higher heating bills, health issues and also a deterioration of the building. All of these can result in a property that is unsuitable to live in or even unfit for habitation, resulting in conflicts between tenants and landlords, as well as depletion in the value of your property.
So, how can you protect your property investment and avoid condensation? The only way to avoid condensation and prevent mould appearing on cold spots and north facing exterior walls is to remove it from the air or increase the surface temperatures. As a landlord this is achievable by;
Improving the quality of cavity wall insulation in the house so that the walls have a higher surface temperature, reducing condensation and mould growth.
Providing mechanical ventilation throughout the house, especially in bathrooms and kitchens.
Educating the tenant about the sources of moisture and the consequences of it to help them visualise a solution
Providing the tenant with a dehumidifier and educating them on its use.
A dehumidifier is used not only for removing moisture in the air, but also can dry clothes, help houses feel warmer, minimise health issues and reduce heating bills. The reduction in heating bills may not immediately seem like a benefit to landlords however, with the rising cost of gas and electricity it’s likely to become a deciding factor on whether a tenant can afford to live in a property. By providing a solution that creates a healthier atmosphere within the home, minimising any health implications to the tenant, this is likely to remove a great deal of stress from any tenant/landlord conflict regarding issues of damp and health.
If you have not provided your tenant with a tumble dryer then a dehumidifier is a great alternative as it dries washing and will keep the entire home dry at the same time.
By investing in a £149.99 Meaco dehumidifier you can significantly improve the quality of your property, leading to happier tenants and a better reputation as a landlord. The cost of a Meaco dehumidifier is extremely small in comparison to the thousands of pounds worth of damage that damp can cause, plus the potential for lost rental earnings. A dehumidifier is not only a tool to remove water from the air, but will also build a positive business relationship between any tenant and landlord and avoid the stress and headaches that arise as a result of any conflict regarding damp properties.
Related reading on this topic:
Condensation and mould - a guide to give your tenants on moving in.
Have I covered everything? What other pitfalls would you warn landlords against?