People talk about becoming a landlord as if it’s easy money. Sure, property investing is still one of the best ways to build wealth, but it’s not a guaranteed money spinner; just because you invest in property, it does not guarantee success or that everything will come easy for you. It’s not like your personal property, where you pay the mortgage each month and sit back and watch your investment grow.
And behind every “passive income” post about property rentals is someone somewhere chasing errant payments, fixing leaky taps or struggling with interest rate hikes.
Whether you’re already a property investor or considering getting your toes into the world of a UK landlord, here are some fundamental mistakes you need to avoid.
Believing it’s just Bricks and Mortar
First, let’s get this straight – buying a rental property or property for investment should not be done the same way as buying somewhere to live. These are two vastly different purchases and should be approached as such.
Next, you are not buying bricks and mortar. You’re building a business. One that comes with taxes, legal responsibilities, regulations and ever-changing rules that keep you up at night.
Then there’s the yield. Don’t be fooled by this. Sure, Zoopla says the current yield is around 5.6% to 5.8% depending on property type and area, but while this looks good on paper, it’s gross yield, you know, the figure before your deductions come off – property taxes, management fees, maintenance, insurance, etc. Once you take this off, it’s probably closer to 3% than 5%. Before you buy, make sure you understand you won’t be seeing the average yield (unless you’re in a prime location and can command higher rental prices), you’ll be seeing a lot less.
Ignoring the Legal Stuff
This is a big one. No one wants to get themselves into legal trouble, but that’s exactly what happens to multiple landlords each year. We understand that it’s boring, but it’s also legal and essential.
Gas safety checks, energy performance checks, and deposit protection are all necessary evils that are part and parcel of being a property tycoon.
The NRLA warns that many landlords get caught out not because they don’t understand, but because they don’t realise how much the law changes. And fines for not adhering to them can range from a hundred to the thousands, and they don’t accept ignorance as an excuse.
Even if it’s one small flat or studio apartment, know the legalities and get on top of them.
Trying To Go Alone
You aim to make money, but you can’t make money if you don’t know what you’re doing, or if you’re getting the wrong tenants or no tenants at all. And while it might be fine at first, over time, it becomes that headache you’d rather not deal with.
Many landlords try to go it alone and find they become stuck or bored with things quickly. Working with a professional property management team can be a good idea. They handle everything, or you even source property if you need help with that, while you focus on other stuff. Don’t think of it as an extra expense, or think of it as adding to your empire.
The difference between a burnt-out landlord and one who is building a steady portfolio is the team behind them.
Forgetting About The Cushion
Just in case it’s not been made clear, a healthy return should not be expected, nor is it a given that it will happen. Every landlord has a quiet month, where the property is sitting empty. Then there are the months where it feels like the property is falling apart, and then there are the hopefully not too frequent non-payers and midnight escape artists fleeing in the dark of night, without paying what they owe, leaving a huge mess behind.
And if you don’t have the funds to cover gaps that your rental income doesn’t, you’re going to end up in trouble fast. Especially if you’re already carrying high levels of personal debt and payments you need to cover each month.
The ideal situation would be to have at least three to six months’ worth of rent or expenses set aside. This is your safety net for those times when things go wrong. Because if you have no safety net, you’ll be up the creek without a paddle, and no one wants everything they’ve built crumbling down around them due to one small financial oversight.
