With the current proposal of banning tenant fees by agents (still being consulted at the time of writing) – which will have ramifications for landlords who use agencies to find their tenants, combined with the harsh tax rules will mean that most landlords with mortgaged buy-to- lets will now be seriously looking to see if their figures still tally. You must resist the opportunity of a knee-jerk reaction by some landlords to sack the agent until you have carried out a proper risk assessment. So the question will be, will you carry on with your existing agent? Dis-instruct one in favour for another or opt to self-manage? Whichever way you go you must ensure your objectives are met and you do your due diligence.
The private rented sector is predominately made up of one to three owned buy-to- lets property landlords. Most have full time jobs and do not understand the copious amount of paperwork and detail that you need to have in place to stay compliant. As the owner of your investment you will need to ensure that joining forces with the right management agency is paramount. As a landlord you need to ask the right questions and these could include some of the following. How comprehensive is their referencing? When agents or landlords fail on this highly important element, it is like not building the foundations of a house securely and the impact is likely to spell disaster. How transparent are they? Start with their tenancy agreements are they clear and easy to read. What type of contract do you have with them? Do their contracts tie you in for a very long time?
Do they send you copies of the trade invoices? What is their management procedure on check ins, inventories, deposit registration, interim inspection visits, repairs the entire spectrum. In essence if you required possession of your property, will their procedures let you down? Do they have client money protection? (this will soon become mandatory for letting agents). No one has a crystal ball but you have to make sure you can do everything to protect your landlords. Why would you not have CMP as standard benefit of an agency service? What level of expertise do they have? Do they go the extra yard? Any agency (online, shopfront or otherwise) can advertise a property on the main portals for a discounted fee, open a door with a key and show prospective tenant(s) around and decipher which room is a bathroom from a kitchen. This is NOT what any self-respecting landlord should be looking at when deciding which agency to manage their property in 2017 and beyond. When agents get it wrong because they are clueless, the implications are huge for the landlord and their family. Behind every private property there is a human element, a story, a person, a dream, a vision. When that vision becomes distorted the pain is very real. Sub-standard referencing can lead to rent arrears, this could potentially put an already struggling landlord in a precarious position and not be able to pay the monthly mortgage. Not understanding licensing requirements could expose the landlord to fines and penalties, tenants can apply for a rent repayment orders – the list is endless. I could quote so many situations that could lead to financial hardship/ruin, just because your objectives were mis-guided, or the agent failed to do something so simple it can wreak havoc on your tenancies. If a lender starts to embark on legal action, that ultimately could result in the loss of your very expensive investment. Or at best you lose control of your property and a LPA receiver now controls it and you get no rent!
So you think you can self-manage and do it yourself?
The main element that any individual must have is applied knowledge understanding the “why” and the law and to infuse both into an ethical, compliant and profitable business framework of which any buy-to- let business (regardless of size) should be about. When you are able to do this in an expert way litigation and rent arrears no longer become your main issues.
You also need to consider whether you have the right temperament, traits and time to manage your investment. An honest self-appraisal must be carried out. Consider these points:
- Does your lifestyle mean that you could cope with sudden interruptions to deal with a leaky roof, or the boiler not working?
- Do you have the right “A” team that you can call on? Perhaps if you only use certain trade professionals, every now and again, the emphasis will not be for that trade to give you priority, or even a bigger discount.
- How will you cope with rent arrears? If a tenant does not pay and your paperwork is not in order and you are already on a suspended repossession order from the courts on your BTL and you need to make this mortgage payment how will you deal with that situation? Will your stress levels reach fever pitch and your next move is one of regret that could see you in problems with certain authorities.
- How organised are you? Are you good at documenting or are you really a “wanna-be ace organiser” going to get there soon, but not soon enough.
- What will you do when you are ill, or on holiday who is the support team when these every-day life occurrences happen?
- Are you a people person or people pleaser? Can you adapt? You sure will need to know when it is necessary to switch and wear the right hat when the situation dictates.
Here are a handful of situations some of my consultancy clients have endured, before they have contacted me for help. These situations, any landlord could face, when you take your foot off the gas and life gets in the way. The disaster zone is only a thin line away.
A career driven landlord allowed her ex- boyfriend to rent out her property. She trusted him, but had no dealings with any of the paperwork. When they broke up she realised she did not even know the surname of the tenant. Tenant now is claiming to have a tenancy agreement, copy sent, not with any landlord signature. It also shows that there was a deposit taken. He has been living at the property for four years and paying rent directly into her bank account. The current tenancy is within the Deregulations Act. If you are self-managing would you know where to start and what element of the law you could use in your favour? Are you aware of the De-regulation Act and what it entails? He is also claiming that there has been no valid CP12. Do you know what that is?
Four sharers rented a property for two years, there was no formal end of tenancy check out. The tenant(s) told the landlord repeatedly they were moving out, but the landlord never replied, as he missed the email because he was on holiday. Once the landlord had been able to get to the property it was noted that there were a number of issues that then resulted in deductions from the tenant’s deposit. Tenants are claiming compensation against landlord with regards to the deductions in the deposits. Can you prove that the tenants do owe this? How can you prove it? Are you aware of the important procedures you need to do at the beginning of a tenancy?
Landlords opts for a cheaper letting service and then decides to self-manage. After 9 months their bad boy tenant has been sent to prison and all the agency ever had was his name and telephone number. Shocking but this is not an isolated case. No rent has been paid for the last two months. What would be the easiest way to remedy this situation?
The point I am trying to make is that it is all in the paperwork, do not understand it, leave it, get it wrong will have harmful consequences and all of the energy you put into the creative financing of this investment or the upscale decoration will mean nothing if you move into the disaster zone. All of the above could have been avoided if certain steps were taken, procedures were implemented and documented and your tenant referencing was robust.
Perhaps you can succeed but your lifestyle does not allow you to self-manage. Perhaps it really is not for you. What I know for certain is that no landlord should opt for no-management. Either you seek out the best or you become the best. Clearly there has to be something in place and it is more prevalent at this time than ever, that you do not penny pinch on good management.
As the tax rules start to bite over the next three years and with the hunch that most London boroughs will introduce landlord licencing across the board for all privately rented landlords, interest rates likely to go up, this will see profit margins reduced even further. Do not fall foul of the minefield of paperwork that landlords must comply with. We have adapted so well to the raft of legislation and regulations since the introduction of the Housing Act 2004. Governments will continue to bash us, but remember the vision and hold on, it is going to be a rocky ride for a while, but make sensible decisions and keep going.
© Copyright 2017 George Ellis Property Services