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Starting out as a buy-to-let landlord can be daunting. There’s lots of legal requirements, red tape, and a long list of things to get done before your tenant so much as moves in. Don’t be fooled, however, if you’re a seasoned landlord, nobody is safe from these common mistakes.
In this post, we look at 16 common landlord mistakes and offer advice on how you can avoid them.
Landlord Mistake #1: Viewing Property as a Passive Investment
There is a common misconception that the role of a landlord is a passive role that subsequently earns passive income. This is not the case and you shouldn’t go into the buy to let market under this assumption. Trading on the stock market or investing in REITs are much more passive forms of income if that’s what you’re looking for.
For landlords there is lots to do before the tenant moves in and a constant stream of responsibility once your tenant is situated. You’ll have to handle property certificate renewals, property inspections, legal requirements, repairs and maintenance, self-assessments, and much more.
You also have to be personable to deal with tenants, knowledgeable on all things property management, and business savvy to keep your property rental business profitable. So, owning and renting out property is undoubtedly a hands on investment from the second you buy the property right up until the second you sell.
Landlord Mistake #2: Badly Kept Property Records
Record keeping, it’s easy if you just have one or two properties to think that you can catch up with the paperwork later, but that takes a lot of time and effort and leads to mistakes and confusion. Do it as you go along and it will be faster and more accurate. Landlords who don’t keep audit trails and copies of communications etc can find themselves coming unstuck later on.
It’s fine to store property records by using spreadsheets, word documents, storing photos on computers, and keeping receipts in old filing drawers if you have a super organised system to handle this. If you don’t, then storing your property information like this can get out of hand, and fast.
We recommend using as few programmes as possible. This could mean collating all your data into one easy to use spreadsheet or using software to manage your property portfolio. Free property management software is available and more than capable if you have just a few properties, but when you start to grow, you will find yourself in need of a solution with a more comprehensive list of features such as Landlord Vision. Landlord Vision has such a wide variety of features that we are able to cater to buy-to-let landlords, student landlords, commercial landlords, property accountants, and local authorities. There is a free 14 day trial available so you can try it out before you decide if it’s right for you.
Landlord Mistake #3: Skipping Letting Agent Due Diligence
Whether you’re hiring a letting agent to find tenants for your property or to manage your property for you in return for a fee, you must make time to do your due diligence. To keep on top of your property business you will want to find out exactly what is included in the tenant finding service, whether or not the service includes tenant referencing, and you may also want to request proof that these things have been carried out at the end.
For property management services, conducted either by a letting agent or a property manager, due diligence is just as, if not more important. When it comes down to it, you will be held responsible for any shortcomings of your letting agent or property manager. Ignorance is no excuse in the eyes of the law. Even if you use a fully managed service, you will still want to keep up to date with what is required of landlords and occasionally check with your property manager that all necessary tasks have been completed. If the job is not being done to the standard that you expect or to the standard you both agreed to when you handed the management over, it’s time to look for an alternative property professional to oversee your portfolio.
Letting agents tend to meet all the legal requirements that a landlord should meet, but they aren’t the right service to use if you want someone else to grow your business. Property managers can really help to look closer at your property business at missed opportunities for growth and act on these. Opportunities for growth include, but are not limited to, increasing rental yields, saving on expenses, increasing rent prices, considering whether you’re targeting the right tenants, and much more. If you’re not okay with sticking to the status quo, then ask your property manager to look into these or start investigating if you self-manage your portfolio.
Landlord Mistake #4: Not Taking Out Landlord Insurance Policies
There is no legal requirement that a landlord must take out landlord insurance which is why some aren’t insured. Make sure to read the terms and conditions of your mortgage, as most buy-to-let mortgages stipulate that you must take out landlord insurance as a condition of borrowing the money. Whether or not it is required of you, it will give you peace of mind for when the unexpected happens.
The landlord policy you choose will depend on the age of your property, the type of property, and your budget. Take your time finding the right insurance policy, check different plans, compare prices and details of what is covered. You will want to make sure you don’t spend too much money on insurance by paying for add-ons or policies that cover things you would not claim for in the event they were to happen. For example, you may choose not to claim on the cost of a broken door after an attempted break-in if you can afford this expense.
However, in the case of a burst pipe and water damage, you will most likely need insurance to cover the cost of repairs as this will be a much bigger expense. For this reason, you also want to make sure you don’t underinsure your property. Go through your policy with a fine-tooth comb and ensure that every eventuality you want covering is in your paperwork.
Landlord Mistake #5: Choosing the Wrong Location and Wrong Target Tenant
Location choice and target tenant are interconnected factors. You need to get them both right to avoid this common landlord mistake.
You can decide on either one of these factors first but deciding on a target tenant up front will give you room to explore more target audiences. The type of tenant you want to target will influence the location. For example, if you want to attract student tenants, your property will need to be close to the local university, have access to transport links, and preferably have nearby shops for the student’s convenience. Alternatively, if you are looking to target retired couples, you will be less constrained to built-up areas and can venture out into more rural locations.
If for whatever reason you have to choose the location of your property before you choose your target tenant then this will limit the pool of potential tenants available to you. This isn’t necessarily a bad thing, so long as the type of tenant you want is still interested in your type of property. For example, if you buy a suburban home and want to rent to families then you will probably find a suitable tenant. However, if you want to attract students, you will see much less demand for this type of area.
As you can see from the above examples, choosing a desirable location and matching tenant type to that location is imperative to the success you will have when attracting tenants.
Landlord Mistake #6: Skipping Tenant Referencing
Some landlords skip this step with the hopes of getting a tenant situated as quickly as possible. After all, no tenant means no rental income coming into your business. However, if you move someone into your property without carrying out reference checks, you are taking a risk. You will be increasing the risk that the tenant might not be able to afford the rent or they might have a history of late payments or might not respect the property. Even if you know the tenant through a friend or family member, it is still advised to carry out these checks regardless.
You can ask a letting agent to carry out tenant referencing as part of their tenant finding service, however, this isn’t always done as standard so you will need to make sure that the agent is reference checking the tenant and that they are doing it to the standard that you want. Alternatively, you can pay a tenant referencing service to do this instead.
Find out more about tenant referencing in this Guide to Tenant Referencing for Landlords.
Landlord Mistake #7: Ignoring Rent Arrears
Failure to keep a close eye on your property accounts could mean you don’t become aware when somebody misses a rental payment. The more time that passes, the more likely the issue is to spiral out of control.
Your tenant may have missed the payment completely by accident and pay you right away, which is what landlords hope to hear. Your tenant might be facing financial difficulties and would appreciate if you could work out a payment plan, again something that is better done sooner rather than later. But the problem could be much harder to handle if the tenant can no longer afford the rent and refuses to leave the property.
If you’re writing in a forum something along the lines of, my tenant is 7 months behind on their rent what do I do, the answer is you should have started dealing with it after month 2. You should educate yourself on what you can and can’t do with regards to late rent and have a strategy in place for dealing with it immediately.
Landlord Mistake #8: Slow to Fix Maintenance Issues
When a tenant reports a maintenance issue to you, it is your responsibility to investigate the issue. Your level of responsibility will depend on what is stated in your tenancy agreement and whether or not the issue poses a safety risk.
Landlords often fail to tend to maintenance issues in a timely manner. Not following through on investigating and taking steps to fix maintenance issues will not only cause issues between you and your tenant, but it will also contribute to greater costs in the future when the issue worsens. For example, if you put off fixing a small leak in the kitchen, sooner or later you may be dealing with water damage to the property due to a burst pipe.
Our advice is to save your time and money by getting ahead of these issues before they spiral into much bigger, more expensive problems.
Landlord Mistake #9: Skipping Property Inspections
Nobody likes a property inspection, but they are a necessary evil to give you peace of mind that your property stays in good condition. They are an opportunity to make sure your property is running as it should and find out about any repairs that need to be made. This is especially important if there are any maintenance issues that pose a safety risk.
Avoiding periodic inspections could lead to problems with how a tenant looks after the property, as tenant and landlord may have different expectations. An inspection is a chance to communicate or reaffirm these expectations. It’s also a great time to look for or ask tenants about any maintenance issues that you can get ahead of before they spiral out of control. In turn, the tenant can ask you any questions they’ve had since you last spoke to them.
We recommend inspecting your properties at intervals of 3-6 months for new tenants. If you have longer term tenants who have settled in you can then lengthen the time between inspections from 6 months to a year. Make sure you give adequate notice to the tenant and aim to find a time that works for both the tenant and the person carrying out the inspection.
When carrying out inspections, you should make a checklist of everything that needs to be checked then tick off each item on your list as you go. For an idea of what you need to inspect during a property inspection, check out this property inspection checklist.
Landlord Mistake #10: Not Offering Long-Term Tenancy Contracts
It’s good practice to start your tenants off on a 6 month or 1 year contract. During this time you can get to know how the tenant treats the property, if they are punctual with their rental payments, and overall if they are a good fit. You should clearly state in the tenancy agreement what you expect from them and in return what they can expect from you as a landlord. Conducting regular property inspections will give you the chance to assess the condition of the property and give the tenants the opportunity to ask any questions they might have about their responsibilities as a tenant.
Once you are confident that the tenant treats the property to your agreed standards and regularly pays their rent and bills, you can discuss the option of a longer term contract with them. Long terms contracts have pros for both parties as a longer term tenant means less risk of voids and a longer term contract for them guarantees them a home. Longer term tenants also tend to treat the property more like home and may even want to help with decorating/ renovations. When drafting long term legal documents, don’t forget to include clauses stating what the landlord’s rights are if a tenant breaks the tenancy agreement.
Landlord Mistake #11: Property Voids
Just the mention of a void period is enough to send a shiver down a landlord’s spine. Voids mean a loss of rent and if the property has a mortgage to pay, the landlord will have to find another way to make those mortgage payments.
In addition to the mortgage payments, landlords have to take over bill payments whilst a property is empty. These costs can stack up quite quickly when you add up the price of gas, electric, water, and council tax. There is no avoiding these costs, especially in the winter when it is essential to keep a property heated in order to avoid problems with and damage to the property.
If you have a void property in your portfolio, it increases the security risk as thieves are more likely to target an empty property.
Property Voids Due to Short Term Tenants
You might rent to short term tenants for a number of reasons. You may be looking to sell soon but are unsure when you will get round to this, or you might offer short term rentals to mitigate the risk of finding a tenant who ends up being a bad fit for your property.
Though this business model has its benefits, the overwhelming drawback is the risk of voids. If someone chooses to leave your property and you can’t find a replacement in time, this will lead to a void. If you choose to rent to short term tenants, you should put a plan in place that aims to guarantee finding suitable replacement tenants quickly and effectively.
Property Voids Due to a Slow Property Turnaround Time
Just because you don’t rent to short term tenants doesn’t mean you won’t also face voids. If a tenant leaves your property and you haven’t prepared yourself to find a new one in time, you too will be facing a void period.
As suggested above, you should have processes in place even before you move your tenant in stating how you will replace them if necessary. Then when the time comes, you’ll know exactly what needs to be done to minimise that void period and you can get ahead of the situation. You can find more information on what needs to be done before a tenant moves in below in our start of tenancy checklist.
Landlord Mistake #12: Lack of Tax Planning
Any business owner will tell you to save money where you can, but tax savings are often overlooked as they don’t represent an immediate cost or saving to a landlord. Wondering where to get started?
First of all, you need to make sure that you’re filling in your tax return correctly whilst adhering to all the rules that apply to you and your property business. Failing to do this can lead to unwanted fines and will mean more work for yourself in the long run. We recommend learning what is expected of you from HMRC or working with an accountant or bookkeeper if you need a helping hand.
Next you will want to make sure you are making the most of your tax-deductible expenses to limit the amount of tax you’re paying on items that you buy for your business. If you don’t know which expenses are tax-deductible, you will have to do some research or make use of pre-existing tax-deductible checklists to get you started. Resources like this will give you an idea of the things you can submit to HMRC.
Lastly, our personal favourite tactic is to take advantage of specific tax reliefs available to you that will reduce your overall tax bill. You can find tax relief information in books or online. Our biggest tip is read, read, read! Educate yourself on these reliefs, educate yourself on what expenses are tax-deductible, and last but not least, educate yourself on how to correctly submit your self-assessment.
Landlord Mistake #13: Failing to Budget for All Costs
When you’re a landlord, it’s important to keep an eye on your accounts. You need to make sure that the rent you charge covers all of your running costs whilst still making a profit. Financial forecasting will give you the confidence that you need to spend on things that will enhance the success of your property business.
In saying that, it is imperative that you list everything you possibly can on your financial forecast as well as have a contingency budget for unforeseen costs. Landlords often forget to include the following costs which then messes up their forecasting and can cause financial problems for their property business. These costs include insurance, certification costs, legal fees, admin expenses, etc. Make sure to include all costs on your forecast inclusive of the ones mentioned here and make your forecast as robust as possible.
Landlord Mistake #14: Taking Their Eye off the ROI
You will want to future proof your finances to make sure you’ll be able to afford your expenses in the long term, and this means accounting for known costs as well as unforeseen expenses. You shouldn’t commit to a mortgage without confidence that you’ll be able to pay off such a long-term loan. You also shouldn’t commit to a mortgage that costs the same amount or close to your rental income, as there will be many other expenses along the way. This sentiment applies to general loans too.
Make sure that you keep an eye on your return on investment (ROI) figures, so your properties don’t become a financial sink. You’ll want to play the long game here whilst looking for a strategy that suits you. Look for properties that will provide a sustained return by looking for steady growth in historic house price increases, as you can’t rely on short-term success through capital growth when property prices are so dependent on unpredictable market fluctuations. And finally, don’t forget to account for all those expenses during this planning process.
Landlord Mistake #15: Not Having a Sinking Fund
Landlords often think that nothing can go wrong with the passion project that is their newly done up buy-to-let property, especially if it’s a new build. However, chances are you’re going to own this property for a very long time and with time comes damage alongside natural wear and tear.
Having a sinking fund in place acts as a source of finance for the big expenses that are usually unexpected and always inevitable. Having immediate access to your own source of finance will save you from taking out loans or taking money out of your own savings to cover the costs. It will also help with business cashflow, as your cashflow schedule should remain unaffected with the expense being paid out of the sinking fund.
As a good rule of thumb, a landlord should put between 5-10% of their gross rental income into a sinking fund to cover these costs when the time comes.
Landlord Mistake #16: Forgetting to Create a Strategy and Exit Plan
Nobody goes into the buy-to-let business without a goal. The goal may be to live in the property after a few years, to sell the property when market prices increase, or to build a diverse property portfolio and retire on the rental income. You may have multiple goals or not know what your end goal is yet or have business goals as well as an exit plan. We recommend choosing your main goal or goals, making sure they align and can happen alongside one another, and then making a note of them. Whatever your strategy, it is useful to have it written down in your business plan.
When the time comes to evaluate your property business or sell up, you can come back to these goals and make sure you’re still on track to achieve them.
