Avoiding voids periods and rent arrears
Historically, there were two key things that could cripple a landlord financially; rent arrears (where the tenant does not pay rent on time) and void periods (when a property is empty). Now however, there is also a third caveat that landlords need to take into consideration – cuts in mortgage interest tax relief. Mortgage tax relief is to be gradually cut back to 20% between 2017 and 2020, which for some landlords could wipe out returns altogether.
With a greater need than ever before to plan, budget and avoid voids at all costs, I want to make landlords aware of the importance of being practical and realistic when renting out their properties.
When most landlords embark on finding new tenants, their intention is for the tenants to have good communication with the agent/landlord, look after and respect the property and ultimately, remain in the property as long as possible. This is a new business relationship that, with mutual respect from both sides, should grow over the term of the tenancy. Of course, finding this ideal candidate requires time, patience and often flexibility on the landlord’s part.
If you ask most landlords whether they would reduce their rent in order to keep hold of a good, reliable tenant, their answer would be yes. It is believed the average term of a tenancy is now approximately eighteen months and most tenants would like the security of longer tenancies. So, if you have a good tenant that is looking to leave, it’s often worth asking them why. It might be possible that, with a little incentive (such as a rent reduction) they would be willing to stay.
Now, you might be thinking “why would I reduce my rent just to keep a tenant when demand is so high?” Well yes, competition in many places is high, with properties in some areas renting out much quicker than others. However, competition for good tenants who respect and remain in a property is also high.
I have a friend who is a landlord and he has had the same tenant in his property for over 10 years. He tells me he is a dream tenant. So, what is his secret?
“I haven’t put the rent up in 5 years, but I’m happy with that. My tenant looks after the property and decorates the place with my consent, which also saves me money. I don’t have to pay any fees for advertising the property, letting fees or renewal fees, as I found the tenant myself. Yes, I may have missed out on increasing rent, but if I were to calculate the fees I could’ve paid over the last 10 years and consider the real possibility that another tenant may not have been as reliable, I think my buy-to-let business is working well.”
So how do you find these dream tenants? Statistically letting agents will rent out a property quicker than a landlord and arguably find better tenants, but I think it’s also important for landlords to understand the part they play in meeting tenants’ needs and aspirations. It’s not just about renting at a competitive price or having a property that is close to a train station. Landlords should sell themselves a little too in order to gain that competitive edge.
There is a good chance that your new prospective tenant will have rented before and may have had a bad experience with a former landlord, for example, issues with repairs or a deposit dispute. Promoting yourself as an accredited landlord that belongs to a landlord association and who has experience in renting will be a big plus for any tenant.
Sometimes it’s just the small things that make the difference such as high speed Wi-Fi, a coffee machine or discounts at local amenities such as the gym. If self-managing, simply offering a mobile number gives the tenant reassurance they have a landlord who is accessible to them and cares for their welfare.
It’s a good idea to understand your competition. What similar properties to yours are up for rent? How and where are they advertised? What do they have that your property doesn’t? How much is the rent per calendar month? If competition in the area is high, it might worth reducing the rent or offering an incentive to create initial interest.
Sometimes voids are simply unavoidable and landlords should budget and plan for the costs involved with this. In some cases, you could even make use of the down time by carrying out essential maintenance and refurbishments. A recent report from Nottingham Building Society said 1 in 5 landlords has had to wait longer than four months to have a tenant sign up and move in to their property after completing a purchase. The same survey also said that 53% of landlords had to wait two months before finding a tenant, which led to further financial pressure.
In what is already an expensive time, it can be difficult to consider outlaying further costs. However, being prepared to carry out refurbishments as quickly as possible can help attract the right tenants from the outset, resulting in less need for void periods in the future. Invest in kitchens and bathrooms as these are the most important rooms in a buy-to-let property and what attract most attention from prospective tenants. Get your letting agent in place and begin the process of looking for a tenant even if the property is not available just yet.
If you are self-managing as a landlord, make sure you are covered with the right landlord insurance and that you understand and have up to date knowledge of laws in renting out a property. For example, carrying out gas and electrical safety checks, issuing an Energy Performance Certificate and How to Rent guide. It is also a landlord’s responsibility to install sufficient smoke and carbon monoxide alarms, protect the tenant’s deposit, check their Right to Rent, and have sufficient landlord insurance.
It can seem like a lot to think about and a lot of responsibility. There is no doubt about it, being a landlord can be a full-time job, which is why it is so important to seek professional help if you don’t have the necessary experience. However, with the private rented sector set to account for 20% of all housing stock by 2020 I’m confident that demand will remain high and those savvy landlords that plan ahead and budget accordingly, will continue to benefit from this lucrative market.