Tips for buy to let landlords in the UK
Times have been tough for many buy-to-let landlords over the last eighteen months, but there are plenty of opportunities in the current market for those looking to take advantage of low prices by expanding their portfolios.
First of all, buying at a good price is the most obvious way of minimising initial cash outlay and maximising returns. Chain free properties, including lender repossessions and unsold stock from developers, are often priced to sell quickly and will generally offer the best deals on the market. Landlords can therefore benefit from the highest possible yields - the average yield on propertyearth.net, which only lists chain free properties, is currently 6.59%, compared to an average yield on the open market of 4.56% according to findaproperty.co.uk.
There has been a noticeable increase in professional landlords actively seeking tenanted property, with an existing Shorthold Tenancy Agreement in place. With an oversupply of rental property generally and an increase in competition amongst landlords to attract quality tenants, the prospect of having a reliable tenant already paying the rent is becoming more appealing.
Tenant redundancy is possibly the biggest risk currently facing buy to let landlords in the UK, and with unemployment still rising this is unlikely to go away. It is essential that landlords carry out robust referencing of prospective tenants, to minimise exposure to payment defaults. As well as credit references, it is advisable to contact a previous landlord to check the tenant paid the rent on time, and also their employer to verify that they have a secure and regular income.
Despite extensive and thorough referencing, many landlords are still inevitably falling victim to defaulting tenants who have been made redundant. To protect against this, it is advisable now more than ever, to take out insurance to cover against rent default and court fees in case you are faced with the potentially expensive route of evicting a tenant. This insurance should cost less than £500 per year and would be a worthwhile investment in the current market.
Once landlords have purchased their investment property, their top priority should be avoiding void periods, which can be seriously detrimental to yields. They must research their market thoroughly in advance to ensure their property is priced competitively, even just below the average market rent, and be sensitive to changes in rental values when contracts reach renewal. Actively marketing a property several weeks before the existing tenant leaves is also advisable, to ensure a continuous rental income.
By Dominic Toller, managing director, Property Earth