Three pros and three cons for the first-time landlord to consider
Buy-to-let property investment could be the passive income-producer that will change your life. If you’ve never owned a buy-to-let before, or find yourself as an accidental landlord (perhaps you’ve inherited property, for example), you might think it’s a case of let out, sit back, and bank profits.
It’s not quite this simple. The monthly pay cheque comes at a cost – you’ll need to manage your property (and your tenants). In this article, we’ll examine the benefits of owning buy-to-let property and the disadvantages that could catch out the first-time investor.
Buy-to-let investment: income, growth, and lifestyle benefits
Do you want a constant stream of extra income? How about an investment that could fund your retirement? Or perhaps a valuable legacy to leave your children? A good buy-to-let investment could give you all of this.
If you maintain your property well and you’ve followed our buy-to-let landlord’s guide to get the best tenants, your rental could provide you with handy extra monthly income.
When you invest for positive cash flow from investment property, you benefit from income that:
- could fund further investment;
- provides a cushion against void periods; and
- could fund a weekend away each month, or anything you want it to.
Whatever you decide to do with your extra income, don’t forget to put some aside and build a reserve fund. It will make sure you have enough cash for unexpected repair or maintenance bills.
Even if you don’t benefit from positive income, the capital growth on your property investment could still prove extremely valuable. Let’s say that you have a negative cash flow of £100 per month. Over a year, you’ll have to subsidise it to the tune of £1,200. If it was valued at the beginning of the year at £180,000 and has increased in value by 5%, your £1,200 has ‘bought’ an investment return of £9,000!
Ideally, you’ll want your buy-to-let property to produce positive cash flow and capital growth. But even if the cash flow is negative at the start, increasing rents could quickly transform your cash flow.
When the value of your property increases, your equity builds up. You could use this to remortgage and finance further property investment.
If you plan to sell your buy-to-let property, take tax advice first – you may have a capital gains tax bill to pay.
Lifestyle – gain your independence
As a buy-to-let investor, you’re ‘working’ towards your independence. Every penny of rental income takes you a step closer to financial freedom and the lifestyle you desire. As you add a property to your portfolio, those steps become strides. However, there are some disadvantages. You should be aware of these before you decide to invest in buy-to-let.
Buy-to-let investment: the pitfalls to avoid
As a first-time buy-to-let investor, you might decide to manage your property yourself. If you’re lucky, you’ll have a great tenant who will pay on time every month. They’ll respect your property, and your maintenance bills will be small. However, investment property management is more complicated than making the occasional visit and banking the rent.
Tenants – they could have been born in hell
If you haven’t advertised properly, and then meticulously vetted your tenant, you could find your property is inhabited by the tenant from hell. They’ll be late paying their rent. They’ll complain about everything. When they move out, you’ll have a massive clean-up and redecoration bill. That reserve fund you built up from your positive cash flow could be gone in one hit.
And if the tenant stops paying and then disappears, you could be even deeper in the hole.
The legal issues
Buy-to-let landlords have a heap of rules and regulations to which they have to adhere. These cover elements such as:
- Who can be a tenant
- The tenancy agreement
- Tenant deposits
The list is almost endless. And it seems that every law and rule and regulation is updated and changed on a regular basis. If you don’t keep on top of these changes, you could find yourself with a huge fine, or tenants you can’t evict.
Buy-to-let is time-consuming
To the inexperienced, buy-to-let investment sounds easy. It’s not quite as straightforward as many think:
- You must advertise, interview, and show prospective tenants around your property.
- You’ll have to vet them, too – background checks and credit scores need to be made.
- You need to ensure that the tenant’s deposit is properly handled and segregated from other money and in a registered scheme.
- You’ll need to ensure you have a watertight tenancy agreement.
- You’ll need to collect rent.
- You must make an inventory, and check it by making property visits.
Also, you’ll need to arrange any maintenance requirements. That means liaising with tradesmen, negotiating price, and checking work. And getting it all done quickly is essential to maintaining good tenant relationships.
All of this takes time. If you’ve got a full-time job, too – and most first-time buy-to-let investors do – you could find your investment becomes a noose around your neck. Instead of freeing your time to create the lifestyle you want, you suddenly find you have two jobs. And with buy-to-let, you must be on-call 24/7.
Buy-to-let can be a life-changing investment. As your property portfolio grows, you’ll get nearer to achieving your lifestyle aims. However, it can also be a legal minefield. And you can’t assume your income is passive. It’s not. Investment property management is hard work, and time-consuming.
If you are considering buy-to-let investment, or you’ve found yourself in the position of being an accidental landlord, think about how you want to manage your property. If you want it to provide you with lifestyle-creating passive income with the minimum of hassle, hire the services of an investment property manager.
Contact Ezytrac today on +44 1522 503 717, and discover how our investment property management service could help you benefit from the advantages of buy-to-let without the time-consuming hassle of being a DIY landlord.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA