"The most successful landlords spread their investment to reduce risk"
Commercial Property Lawyer Lisa Evans
The UK’s buy-to-let market continues to boom as many investors choose bricks and mortar ahead of stocks, bonds and savings funds. A record 1.75 million people in the UK now own rental properties, latest HMRC figures reveal.
Whether the aim is to supplement an income, substitute a pension pot or grow a full-time business, simple steps can help you climb the buy-to-let property ladder, says commercial property lawyer Lisa Evans of North West law firm Kirwans.
Here she shares her top tips for turning a small business into an empire.
1 - Team spirit
Gathering professional people around you who can give expert support is essential. These should include a solicitor, accountant, surveyor and mortgage adviser. You may think you can save a few pounds with some googling of complex property matters - but in the long term it could prove costly. The added value gained from an established team of advisers can help you up the property ladder.
2 - Check it out
Be wary of rushing into any property deal without making appropriate checks. Suddenly finding out about legal or technical restrictions on your property could affect the value and hinder development. It could also put off potential tenants if it impacts on their plans. At worst it could mean you cannot rent out the property, and you may have to sell at a potential loss.
Your solicitor will check exactly what, if any, legal restrictions exist such as planning and building control, listed or heritage status. To an inexperienced landlord concepts such as freeholds and leaseholds can be confusing, as can Stamp Duty Land Tax (SDLT). As you grow your portfolio you will also grow your knowledge of how the system works but expert legal advice is always recommended to help avoid pitfalls. Always seek advice before buying at auction, some sellers sell at auction their properties ‘warts and all’. You could end up stuck with a property you thought was a bargain and it actually turns out to be a liability.
3 - Local knowledge
There is an emerging trend to shop around for bargain properties outside your immediate local area as margins in property hotspots tighten. This can be risky on several fronts. Managing a property from hundreds of miles away can be difficult. If you know an area well it makes sense to make it your priority target. So remember, local knowledge can add value to your portfolio. You know which areas are increasing in desirability and how much people are prepared to pay. You will also have the advantage of being able to check on the property and get to know tenants.
4 - Two-way street
Tenancy agreements should be attractive to the tenant but also protect you as landlord too. Disagreements or misunderstandings can often be swiftly sorted with reference to a copy of the agreement. Equally, a poorly drafted agreement can leave a landlord exposed. Be familiar with your rights and responsibilities. Tenants also have rights and responsibilities. Ideally, you want a tenant who feels they are getting value and is able to pay promptly. Unhappy tenants can make landlords unhappy too. Tenants are your customers - without them you will have no business.
5 - Changing times
The government has moved to stem and stifle landlord portfolios in a bid to make housing more affordable, especially for first time buyers. The Landlords Licence Requirements and Levies and the withdrawal of certain tax relief has certainly posed new challenges for landlords. After all, extra costs affect profit margins - unless they are passed on to the tenant which is not always desirable. Keeping tabs on announcements or just being aware of the latest speculation is important. For instance, the Bank of England is currently consulting on affordability checks which could affect buy-to-let lenders, especially those tempted to overstretch.
However, do not panic if changes are announced. Experts can get it wrong. For example, the Government’s 3% rise in stamp duty for second home owners in April 2016 has not had the catastrophic impact on buy-to-let landlords that some commentators predicted. In fact, rents for UK properties are still around 5% up year-on-year. Often it pays to hold your nerve but be aware of changes around you.
6 - Be nimble
The rental market is still generally regarded as a relatively low risk, high return investment. But there’s no guarantee that market growth will continue. Investors need to be ready to respond swiftly. It is good practice to regularly review risk and seek to offload aspects of your portfolio, especially if they are non profitable. An unexpected rise in mortgage rates, for example, could jeopardise your entire portfolio because of one or two unprofitable investments. Your solicitor, together with other professionals, can advise on best options.
Keep things orderly and keep your portfolio balanced. Don’t become asset rich and cash poor by over-extending yourself because of cheap property and increased availability of lending. The most successful landlords spread their investment to reduce risk. If circumstances do change you need to be able to act fast.