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- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
Everything potential landlords need to know about the UK rental market Renting Out Your Property For Dummies is the essential roadmap to successful property letting. This easy-to-read guide walks readers through every step of renting out their property - showing how to avoid legal problems, find and keep the best tenants, maintain the property and maximise their rental income. As well as lots of helpful advice, it contains a wealth of sample forms and standard letters that can be used when dealing with their own tenants. Crucially, it is fully up to date on all the latest legislation including the Tenancy Deposit Scheme and Energy Performance Certificates (EPCs). Renting Out Your Property For Dummies covers: * How to prepare a rental property for prospective tenants * Tackling rent, deposits and tenancy agreements * Deciding whether to manage the property yourself or to hire an agent * Essential information on financial management and record-keeping
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Seitenzahl: 562
Veröffentlichungsjahr: 2011
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Renting Out Your Property For Dummies®, 3rd Edition
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Table of Contents
Renting Out Your Property For Dummies®, 3rd Edition
by Melanie Bien and Robert Griswold
Renting Out Your Property For Dummies®, 3rd Edition
Published byJohn Wiley & Sons, LtdThe AtriumSouthern GateChichesterWest SussexPO19 8SQEngland
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Copyright © 2012 John Wiley & Sons, Ltd, Chichester, West Sussex, England
Published by John Wiley & Sons, Ltd,, Chichester, West Sussex
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Trademarks: Wiley, the Wiley logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc., is not associated with any product or vendor mentioned in this book.
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British Library Cataloguing in Publication Data: A catalogue record for this book is available from the British Library
ISBN: 978-1-119-97640-0 (pbk), 978-1-119-97733-9 (ebk), 978-1-119-97735-3 (ebk), 978-1-119-97734-6 (ebk)
Printed and bound in Great Britain by TJ International, Padstow, Cornwall
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About the Authors
Melanie Bien is one of the UK’s leading mortgage and property commentators in the national press, on television and radio. She is regularly quoted in the Financial Times, Sunday Times, Daily and Sunday Telegraph, as well as making regular appearances on the BBC, Sky News and BBC Radio Four. She is CeMAP-qualified and has won numerous awards. She also worked as a journalist for ten years, including five years as personal finance editor of the Independent on Sunday. Her other books include Buying and Selling Property For Dummies, Buying a Home on a Budget For Dummies and Sorting Out Your Finances For Dummies.
Melanie also has first-hand experience of renting out property, owning, and managing several buy-to-let properties in conjunction with her family.
Robert Griswold earned a Bachelors degree and two Masters degrees in real estate and related fields from the University of Southern California’s School of Business.
Robert is a hands-on property manager with more than 20 years of practical experience, running Griswold Real Estate Management. He hosts a weekly radio show, and has written for the Los Angeles Times, San Diego Union-Tribune, and San Francisco Chronicle. He has twice been named the #1 Radio or Television Real Estate Journalist in the Country by the National Association of Real Estate Editors in the US.
Dedication
This book is dedicated to my husband.
— Melanie Bien
Author’s Acknowledgments
I would like to thank Jo Jones at Wiley for her help, direction, feedback, and constructive criticism during the writing process. Also, many thanks to everyone who works behind the scenes at Wiley for their efforts in making this book possible.
— Melanie Bien
Publisher’s Acknowledgements
We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Commissioning, Editorial, and Media Development
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Commissioning Editor: Claire Ruston (Previous Edition: Jason Dunne)
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Publisher: David Palmer
Production Manager: Daniel Mersey
Cover Photos: © iStock / Daniil Peshkov
Cartoons: Ed McLachlan
Composition Services
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Publishing and Editorial for Consumer Dummies
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Introduction
Welcome to RentingOut Your Property For Dummies. Many of life’s lessons are discovered by on-the-job trial and error, but property management shouldn’t be one of them – the mistakes are too costly and the legal ramifications too severe. In this book, you can find proven strategies to make rental property ownership and management not only profitable but pleasant too.
About This Book
Although these pages are overflowing with useful advice and information, we present it in a light, easy-to-access format. This book explains how to wear many hats in this business: advertiser/promoter (in seeking tenants), host (in showing the property), handyman (in keeping up with and arranging repairs), bookkeeper (in maintaining records) and even counsellor (in dealing with tenants and their problems). Just as important, this book can help you maintain your sense of humour – as well as your sanity – as you deal with these challenges and more.
Conventions Used in This Book
To help you navigate through this book, we’ve set up a few conventions:
Italic is used for emphasis and to highlight new words or terms that are defined
Boldfaced text is used to indicate the action part of numbered steps
Monofont is used for web addresses
What You’re Not to Read
We’ve written this book so that you can find information easily and easily understand what you find. And although we’d like to believe that you want to pore over every last word between the two yellow covers, we actually make it easy for you to identify skippable material. This is the stuff that, although interesting and related to the topic at hand, isn’t essential for you to know:
Text in sidebars. The sidebars are the shaded boxes that appear here and there. They share personal stories and observations, but aren’t necessary reading.
Anything with a Technical Stuff icon attached. This information is interesting but not critical to your understanding of renting.
The stuff on the copyright page. No kidding. There’s nothing here of interest unless you are inexplicably enamoured by legal language and reprint information.
Foolish Assumptions
In this book, we make some general assumptions about who you are:
You may be an unintentional property owner – someone who, through a series of circumstances, suddenly and unexpectedly came upon an opportunity to own property. Maybe you inherited a house from a relative that you don’t want to let sit idle (the house, not the relative, that is), or maybe you transferred to a job in another city and haven’t been able to sell your home.
You may have intentionally entered the world of property ownership because you see the buy-to-let market as a cornerstone to your long-term personal financial planning and you’ve noticed that many of the most successful people are landlords.
You may have been forced into renting out your home because you haven’t been able to find a buyer but need to move quickly. You may be renting your property for a period of time until the market picks up and you can sell it.
You hope to generate sufficient income from your rental property to cover the mortgage, cover all operating expenses and provide some cash flow along with capital appreciation. You may even look at owning rental property as a way to supplement your current retirement plans.
You want easy-to-understand information explaining what you need to know about property management, but you’ve got better things to do (like sleeping, participating in your favourite leisure activity, enjoying your retirement or even relaxing on holiday) than become an expert on property law. In other words, you’re someone who wants to make money while you retain control over your life.
How This Book Is Organised
Renting Out Your Property For Dummies is organised into seven parts. The chapters within each part cover specific topic areas in more detail. So you can easily and quickly scan a topic that interests you, or you can troubleshoot the source of your latest major headache!
Part I: So You Want to Be a Landlord?
Managing rental property is not everyone’s cup of tea. The chapters in this part assist you in evaluating your skills and personality to see whether you have what it takes to be a landlord. This part can also help you figure out whether you should call in the property management cavalry. If a management company is the answer to your prayers, you can discover how to select one, what you can expect from it and how much the service can cost. There’s also advice regarding what you need to do if you suddenly find yourself renting out your home because you need to move and are struggling to sell it. You can also find advice on finding the most suitable properties for your purposes and tips on what to avoid. Finally, the day you exchange contracts has arrived and the ink is dry, so you find out what your immediate priorities are as you take over your new rental property.
Part II: Renting Your Property
The most important aspect of rental housing is keeping your properties occupied with paying tenants who don’t destroy them and terrorise the neighbours. In this part, you figure out how to prepare the property for rent, set the rents, protect the deposits, develop a comprehensive yet cost-effective advertising campaign and show your rental property to prospective tenants. Because all tenants look great on paper, we fill you in on some tricks and techniques for establishing tenant selection criteria.
Part III: The Brass Tacks of Managing Rentals
This part takes you from moving in your new tenants to moving them out – and everything in between. You get some strategies for collecting and increasing rent, retaining tenants and dealing with those few tenants who give you a headache whenever your paths cross. Minimising vacancies and retaining tenants is the key to success as a landlord. But when your tenant complains incessantly, decides to repaint in garish colours or stops paying the rent, the real challenge of being a landlord begins. In this part, you discover techniques for dealing with these issues – and more.
Part IV: Techniques and Tools for Managing
One of the most important keys to your success as a landlord is assembling the right professionals to help you – and that includes contractors and handymen. Maintenance can be one of the largest controllable expenses you face. In this part, we discuss how to ensure that the property is maintained to a suitable standard. And because safety is such a major issue for landlords, this part also reviews the issues of crime, fire protection, gas safety, environmental hazards and the safety and security of your properties. Finally, we also look at insurance so that you can cover your back in case things go wrong.
Part V: Money, Money, Money!
Raising the finance to buy your rental property is one of the most important considerations you face when making a go of the rental business. In this part, we guide you through the ins and outs of buy-to-let mortgages. Even more likely than a lawsuit is taxes. So in this part, you can find out how to avoid property taxes – completely legitimately. We also offer advice on using a company to hold your property. And finally, because you probably want to know just how much cash flow your rental empire is generating, we provide you with some basics on rental accounting and record keeping.
Part VI: Only for the Daring
Many landlords automatically refuse to open their doors to tenants receiving Housing Benefit, those with pets or smokers. But done correctly, letting to tenants who are considered undesirable by the majority of landlords can give you a niche. In Part VI, you find information on the advantages and disadvantages of letting to tenants on Housing Benefit. Niche rental markets – like those catering to students and tenants with pets – are also worthy of your consideration, and we let you know how you can use them to your advantage. We also include a section on houses in multiple occupation and the licensing and health and safety laws you need to consider.
Part VII: The Part of Tens
Here, in a concise and lively set of condensed chapters, are the tips to make the difference between success and foreclosure. In these chapters, we address the benefits of owning rental properties, tips to rent your empty property quickly and techniques to increase your cash flow.
Part VIII: Appendices
Here you’ll find all the organisations and resources you’ll need to help you rent out your property. We also provide you with templates for all the forms and letters you’ll need as a landlord.
Icons Used in This Book
Scattered throughout the book are icons to guide you along your way and highlight some of the suggestions, solutions and cautions relating to property management.
Keep your sights on the target for important advice and critical insights into the best practices in property management.
Remember these important points of information and you’ll stand a better chance of being a great landlord.
This icon highlights the landmines that both novice and experienced landlords need to avoid.
This icon covers the boring stuff that only anoraks would ever know. You can skip paragraphs marked by this icon without missing the point – or you can read it and impress your friends with what you know.
This icon highlights the real-life anecdotes from many years of experience and mistakes, made by ourselves and friends who are landlords. While we should all learn from our own mistakes, it’s even better to learn from other people’s – and we share some of them with you here.
Where to Go from Here
This book is organised so that you can go wherever you want to find complete information. Want to know how to evict a problem tenant, for example? Head to Chapter 13. If you’re interested in how to improve security at your rental property, go to Chapter 16 for that. You can use the table of contents to find broad categories of information or the index to look up more specific things.
If you’re not sure where you want to go, you may want to start with Part I. It gives you all the basic information you need to get started in the rental property business and points to places where you can find more detailed information.
Part I
So You Want to Be a Landlord?
In this part . . .
Managing rental property isn’t for the faint of heart, but it can be very rewarding for the right person. The chapters in this part guide you through the process of figuring out whether you have what it takes to manage rental property or whether you’re better off leaving it to an agent – someone you hire to do the dirty work for you. We also fill you in on what you need to know if you’re taking over ownership of a rental property, including how to deal with the current tenants and inform them of your policies and procedures. This is the part for you if you’re just starting to think about purchasing a rental property or becoming an accidental landlord, but you’re not quite sure what it entails.
Chapter 1
Do You Have What It Takes to Manage a Buy-to-Let Property?
In This Chapter
Being aware of the advantages of owning rental property
Identifying the differences between owning property and managing it
Assessing your own management skills
Congratulations! Either you already own rental property or you’ve made the decision to buy, or rent out a property you own. Property is great whether you’re looking for a steady supplement to your retirement income or a secure financial future. Most buy-to-let landlords want to become financially independent, and property is a proven investment strategy for achieving that goal.
But after you sign your name on the dotted line and officially enter the world of owning rental property, you face some tough decisions. One of the very first concerns is who will handle the day-to-day management of your rental property. You have properties to let, rents to collect, tenant complaints to respond to and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own buy-to-let property or whether you should employ a managing agent. In this chapter, we give you the low-down on some of the advantages of owning rental property. Then we’ll help you assess whether you have what it takes to manage your own property.
Recognising the Advantages of Owning Rental Property
A great advantage to building wealth through property is the ability to use other people’s money – both for the initial purchase of the rental property and for the ongoing expenses.
Although the availability of buy-to-let mortgages has suffered since the downturn, more lenders are re-entering this market, so choice is increasing all the time. You will need to raise a deposit and then borrow the rest of the money from a mortgage lender.
The deposit required for a buy-to-let mortgage tends to be higher than that needed for a residential mortgage, and is significantly higher since the downturn. Expect to pay at least 25 to 30 per cent of the purchase price for the best rates, although some lenders request as little as 15 per cent.
The ability to control significant property assets with only a relatively modest cash investment is one of the best reasons to invest in bricks and mortar. For example, you may have purchased a £100,000 buy-to-let property with a £20,000 cash deposit and a mortgage for the remaining £80,000. If the property’s value doubles in the next decade and you sell it for £200,000, you will have turned your £20,000 cash investment into a £100,000 profit. This is an example of capital appreciation, where you are able to earn a return not only on your cash investment but also on the entire value of the property.
Rental property also offers you the opportunity to pay off your mortgage using your tenant’s money. If you’ve been prudent in purchasing a well-located rental property in a stable area, you’ll have enough income to pay the interest on your mortgage, as well as all the expenses, maintenance and insurance. Over time, your property should appreciate in value while your tenant is essentially paying all your expenses, including the interest on your mortgage.
Your lender and tenant aren’t the only ones who can help you with the purchase of your rental investment property. Even the government is willing to offer its money to help your cash flow and encourage more people to become landlords. In calculating your income tax obligations each year, the government allows buy-to-let landlords to offset their rental income against interest payments on their mortgage and certain expenses. For example, you can claim 10 per cent of the annual rent for wear and tear on fixtures and fittings in furnished properties.
Over time, rental income generally outstrips operating expenses. And after your tenants have finished paying your mortgage for you, you’ll suddenly find that you have a positive cash flow – in other words, you’re making a profit.
Being Honest with Yourself about Your Skills and Experience
One of the first steps in determining whether to completely self-manage your rental property or delegate some or all of the duties to other people is to analyse your own skills and experience. Many very successful property owners find that they’re better suited to deal-making, so they leave the day-to-day management for someone else. This decision is a personal one, but you can make it more easily by thinking about some of the specifics of managing property.
Property management requires basic skills, including marketing, accounting and people skills. You don’t need a university degree or a lot of experience to get started, and you’re sure to pick up all kinds of ideas on how to do things better along the way.
Examine your own personality. Are you a people person? Serving as a landlord is a labour of love; you must love people, you must love working with your hands, you must love solving problems. Most of all, you must be able to do all this without getting much in the way of appreciation.
If you’re impatient or easily manipulated, you aren’t suited to being a property manager. Conveying a professional demeanour to your tenants is important. You want them to see you as someone who will take responsibility for the condition of the property. You must also insist that tenants live up to their part of the deal, pay their rent regularly and refrain from causing unreasonable damage to your property.
People who need people: Putting your interpersonal skills to the test
Whether you’re confident you have what it takes to be a good manager of rental property or you’re still not sure, take stock of yourself and your abilities by answering these questions. Interview yourself as though you were a job applicant. Ask the tough questions. And, more important, answer honestly.
Are you a people person who enjoys working with others?
Are you able to keep your emotions in check and out of your business decisions?
Are you a patient and reasonably tolerant person?
Do you have the temperament to handle problems and respond to complaints and service requests in a positive and rational manner?
Are you well organised in your daily routine?
Do you have strong time-management skills?
Are you meticulous with your paperwork?
Do you have basic accounting skills?
Do you have maintenance and repair abilities?
Are you willing to work and take phone calls on evenings and weekends?
Do you have sales skills?
Are you a good negotiator?
Are you willing to commit the time and effort required to determine the right rent for your property?
Are you familiar with or willing to find out about the laws affecting property management?
Are you willing to consistently and fairly enforce all property rules and rental policies?
Are you interested in finding out more about property management?
Are you willing to make the commitment to being your own property manager?
Ideally, you answered ‘yes’ to each of these questions. This assessment is not scientific, of course, but it does raise some important issues, particularly the level of commitment that you need to succeed as a rental property manager.
You need to be fair, firm and friendly to all potential tenants and those who do actually become your tenants. Treat everyone impartially and remain patient and calm under stress. Be determined and unemotional in enforcing rent collection and your policies and rules. And maintain a positive attitude through it all. Not as simple as it looks, is it?
Even if you didn’t answer with an enthusiastic ‘yes’ to all the questions in this section, you may still make a good rental property manager if you’re prepared to be flexible. Learn from your property management experiences. The really good property managers graduated from the school of hard knocks. The following sections give an overview of the key skills you need to manage your property effectively.
If your assessment revealed that your skills may be better served doing something other than managing your own property, turn to Chapter 2 for some alternatives. Owning rental property can still be a great investment, even if you don’t manage it yourself.
Making sure you have good management skills
Good management leads to good financial results. Having tenants who pay on time, stay for several years and treat the property and their neighbours with respect is the key to profitable property management. But, like most things, it’s easier said than done. One of the greatest deterrents to financial independence through investing in rental property is the fear of management and dealing with tenants.
If you choose the wrong tenant or fail to address certain maintenance issues, your buy-to-let investment may turn into a costly nightmare. By doing your homework in advance, you can reduce those beginners’ mistakes. Experience is a great teacher – if you can afford the lessons.
If you already own your own home, then you already have some basic knowledge about the ins and outs of owning and maintaining property. The question then becomes how to translate that knowledge into managing rental property.
Delegating management activities
As a landlord, you may choose to handle many responsibilities while delegating some of them to others. Look at your own set of skills to determine which items you should delegate. A contractor may be able to handle the maintenance of your rental property and garden more efficiently and effectively than you can.
The skills you need to successfully manage your own rental properties are different from the skills you need to handle your own property maintenance. Most buy-to-let landlords find that using trusted and reasonably priced contractors can be a valuable option in the long run.
Ultimately, you can delegate all the management activities to a professional managing agent. But hiring a managing agent doesn’t mean you’re off the hook. Depending on the arrangement you have with your agent, you may still oversee the big picture. Most agents need and seek the input of the property owner before they start so that they can develop a property management plan that meets the owner’s investment goals.
Keep in mind that no one else will ever manage your rental property like you will. After all, you’re more motivated than anyone else to watch out for your buy-to-let investment interests. Only you will work through the night painting your property for the new tenant moving in the next day. And who else would spend his annual leave looking through the local newspaper classifieds for creative ad ideas?
You may find that a managing agent can run the property more competently than you can. Many buy-to-let landlords possess the necessary skills and personality to efficiently and effectively manage their rental properties, but they have other skills or interests that are more financially rewarding or enjoyable. Hiring professionals and supervising them is often the best possible option.
Recognising how well you manage your time
If you’re like most buy-to-let landlords, managing your property is a part-time job. You can handle calls from the tenant, collect the rent, show the property to prospective tenants and even perform most maintenance in the early evenings or on weekends. The challenge is finding the time required to do this. The good news is that the time required to be a landlord is in your control.
If you develop proper skills in marketing, tenant screening and tenant selection, you can greatly reduce the amount of time you spend managing your rental property. You also have to work smart or you may find that your time is better spent in other areas than management.
You can save a lot of time by insisting that your tenants pay their rent by direct debit each month, with the money transferred straight into your bank account. A cheque in the post may be acceptable but is not as convenient. Some landlords collect the rent in person from the tenant but doing so can be extremely time-consuming, – and you also may not feel safe carrying hundreds of pounds in cash around.
Many of your contractors and suppliers will want to be paid immediately. But you can be more efficient and save time if you have a policy of paying all your invoices at the end of each month.
Chapter 2
Deciding Whether to Manage Your Property Yourself or to Hire an Agent
In This Chapter
Deciding whether to manage your own property
Assessing the benefits of working with an agent
Knowing what to look for in a letting agent
The TV property experts can make a buy-to-let investment sound so simple. But just as important as buying the right property for the right price, the key to success is a well-managed property. Although you may lack experience of being a landlord in the beginning, this is often the easiest time to manage your property portfolio because you have just one lot of tenants to deal with and one buy-to-let mortgage to pay. To help you decide, this chapter takes a look at the pros and cons of managing your own property (as opposed to hiring an agent to do it for you).
Even if you don’t hire a letting agent to manage the property for you in the beginning, once you build up the number of properties on your books, you may eventually decide to pass the job onto someone else. So this chapter also looks at tools for evaluating letting agents, from the services they offer to the fees they charge. It also explains the importance of experience, qualifications and credentials. Also, we reveal some of the common tricks that letting agents use to generate additional income that aren’t in your best interest.
Managing Your Rental Yourself
When you first start out, you’ll probably do all the work yourself – painting, cleaning, doing repairs, collecting the rent, paying the bills and showing the property to potential tenants. After looking at some of the advantages and disadvantages of being a Jack of all trades, you can decide whether you want to go it alone or hiring an agent is for you. If you decide on the latter, check out the information later in this chapter about working with a professional letting agent. This is one of the most important decisions you’ll make as a buy-to-let landlord, so take time to look at all your options.
Even if you ultimately decide that you are the best manager for your rental property, the more you learn about how the professionals manage property, the better you’ll be at management yourself.
Recognising the advantages of self-management
If you have the right personality traits for managing property, such as good people skills and attention to detail, have the time and live close to your property, you should definitely do it yourself. Managing your own rental property has some definite advantages. For example, by managing your own property, you don’t have to pay a monthly fee to a letting agent, which can be as much as 15 per cent of the annual rent, payable upfront, for a full management service.
If you purchase a small flat as an investment property, you might not be able to generate enough money to pay for a letting agent and make a profit – at least not right away.
By keeping direct control of the management of your rental property, you also may save on maintenance costs, because you decide who does the repair work or mows the lawn. Doing your own maintenance is usually a good idea; if you hire someone else to do it for you the cost can eat into your profits.
Develop a list of reliable handymen and gardeners who do good work and charge low rates. Even if you hire someone to let your property for you, you’re better off choosing the maintenance contractors yourself, if possible, rather than turning over the decision – and your money – to a letting agent.
Paying attention to the drawbacks
If you’re just starting in the world of property management, you may be thinking of it as a part-time venture – something you’ll do in addition to your day job. And if you want, you can maintain that situation by keeping the number of properties you own to a minimum. But you may find yourself spending far more time on managing your properties than you anticipated – either because you’ve bought more of them, or because you just didn’t anticipate the time requirements.
If you earn your living from something other than managing your rental property, managing that property may not be worth your valuable time. If you’re a high-income, full-time professional, rushing off on weekdays to handle some minor crisis at your property is not only impractical, it could also be downright damaging to your career. Most employers have little tolerance for a second job, particularly one that often involves unpredictable and unscheduled demands.
As a jobholder, look at your annual income and work out approximately what you earn per hour. Do the same for the cash you’re saving by managing your own property. Unless your management efforts produce significant cash savings compared to your job, you may be better off hiring a letting agent to manage your properties. The same guideline holds true even if you’re self-employed. Your schedule may be more flexible than the fixed workday of a 9-to-5 employee. But if you’re earning £50 an hour as a consultant, devoting hours of your productive work time to managing property, which may only amount to savings of £100 a month, may not make sense.
Managing your property from a distance
If you own rental property at the other end of the country, you may initially consider managing it from afar. As long as your tenants pay their rent and make only a few maintenance demands, this arrangement can work – but it’s a fragile one. One major problem can turn the job of managing the rental property into a nightmare.
We know someone who had a very bad experience when he rented his own house to tenants after being transferred by his company to a job overseas. He found a nice family to rent to, and everything was fine for the first six months. Then one day he got an urgent call from his tenants, complaining that torrential rain had caused the roof to leak, making the house uninhabitable. As he was still abroad, he asked his tenants to assist him in hiring someone to repair the roof. The work was botched, and he wound up flying back and forth twice to straighten out the mess before he finally managed to get the roof fixed properly. This negative experience ended up costing thousands of pounds, easily wiping out whatever small profit he could have made.
Think twice about handling your own rental property maintenance from hundreds of miles away. You need to be in the immediate area to routinely inspect and maintain a buy-to-let property, especially when a roof leak or broken pipe demands immediate attention.
Exploring Professional Management
Many first-time buy-to-let landlords frequently drift blindly into self- management by default, because they assume they can’t afford to use a letting agent. ‘Why pay someone to manage my rental property when I can keep the money myself?’ is a common refrain.
Other owners would really prefer to hire a professional to manage their properties, but they’ve heard so many horror stories that they don’t know whom to trust. Many of their concerns are real – some letting agents mismanage properties and appear to have a total lack of ethics. Luckily, a detectable pattern exists that can help you avoid hiring the wrong letting agent. It makes sense to choose an agent who is affiliated to a recognised trade body such as the Association of Residential Letting Agents (Arla) – in order to join Arla, agents must demonstrate a thorough knowledge of their profession and conduct their business according to best practice. You could also ask fellow landlords in your area who use an agent whether they would recommend them.
If you think that hiring a letting agent may be the right choice for you, take the time to study this option. Here are some advantages to using a management firm:
They have the expertise and experience to manage rental property, plus knowledge about relevant legislation and safety regulations.
They’re able to remain fair, firm and friendly with tenants.
They have screening procedures and can typically screen tenants more objectively than you can yourself.
They handle property management issues throughout the day and have staffing for after-hour emergencies.
They have contacts and preferential pricing arrangements with many suppliers and contractors who can quickly and efficiently get work done.
They handle all bookkeeping, including rent collection.
They have well-established rent collection policies and procedures to follow when tenants’ rental payments are late.
They can be excellent sources of knowledge on additional properties to purchase because they’re often the first to know when their current clients want to sell.
Of course, there are some disadvantages to using a letting agent as well:
Using a management company for small rental properties that you’ve recently acquired may not be cost-effective.
They often won’t have the same care, consideration and concern you have for the rental property.
They may take longer to find tenants for your property if they have several other vacancies they’re dealing with at the same time.
Letting agents may not be as diligent in collecting late rent as you would be.
Some letting agents may try to falsely impress you by not spending enough on repairs and maintenance needed to keep your property in good order.
Be sure to consider the pros and cons to determine whether working with a letting agent is right for you.
Knowing what to look for in a letting agent
Size isn’t the determining factor in whether a professional letting agent can deliver quality service. Some letting agents specialise in large rental projects, whereas small operations may focus on managing small family homes and one-bedroom flats. Don’t assume that a big letting agency will do the best job for your property or that the small company has the credentials, experience and knowledge that you need. Try to find letting agents familiar with your kind of buy-to-let property. With a little research, you can find the right fit for your property.
Professional letting agents normally handle a wide range of duties. If you opt for full management, you’ll typically get the following services:
Preparing, advertising and showing the property
Arranging the Energy Performance Certificate and Landlord’s Gas Safety Certificate
Introducing, vetting and selecting the tenants
Preparing the tenancy agreement
Advising on inventories for furnished properties, changes in legislation and Council Tax
Collecting the rent and paying the balance to the landlord’s account
Providing regular accounting reports
Regularly inspecting the property and overseeing repairs
Enforcing the property’s rules and regulations
Dealing with complaints from the tenants
More limited management services are also available from some letting agents. Maybe you just need help with finding tenants in the first place and are willing to pay a basic fee for this. Or you may want help finding tenants and collecting the rent as well. Each letting agent has her own scale of charges and terms and conditions.
A good letting agent may be able to operate your rental properties better and more efficiently than you can on your own. Her superior knowledge and experience can result in lower costs, higher rents, better tenants and a property that’s well maintained. Using letting companies more than pays for the costs, and you have more time to pursue additional properties or focus on your day job. Of course, a poor letting agent cuts into your profits, not only with her fees, but also with improper maintenance and poor quality tenants who’’ll run your property into the ground. A bad letting agent can leave you in worse shape than if you’d never hired one in the first place.
Telling the good from the bad and the ugly
Management companies accept the responsibility for all operations of the property, including advertising, tenant selection, rent collection, maintenance and accounting. The right letting agent can make a big difference in the cash flow your property generates, because she finds good replacement tenants quickly and makes sure that maintenance is done in a timely manner without breaking your budget. You need a letting agent who’s committed to helping you get the optimum results from your properties. As the heading suggests, cowboys do exist.
Be sure to visit the office of the letting agent and spend time interviewing the specific person who’ll have control of the hands-on management of your property. Make a few extra phone calls to check references and don’t sign a management contract until you feel confident that the company you hire has a sound track record. Checking with the letting agency’s chosen referrals isn’t enough. Ask for a list of all their clients and contact the ones with rental properties similar in size and type to your own. Make sure the landlords you contact have been with the letting agent long enough to have a meaningful opinion on the quality of the service.
The following sections cover what you specifically need to look for in a letting agent.
Do they manage property exclusively?
Make sure that the firm you hire has an established division, which manages property exclusively. An increasing number of traditional estate agents now offer property management services because of the slowdown in the housing market; however, property management is often a loss leader (meaning that it costs more for the estate agent to manage your property than they’re charging you for that service, because they’re hoping to get your business later on when you’re ready to sell and the market picks up). Some letting agents who work in estate agents don’t have the same credentials, experience and expertise that an employee of a company that focuses entirely on managing properties would have. The skills required to represent clients in selling property are entirely different to the skills required to manage property.
What are their professional affiliations?
You should ensure your letting agent is affiliated to a national body. Not only does this affiliation give you peace of mind, but you’ll also know that she works to a certain standard. In addition, if a dispute arises, you have the right to appeal to a third party.
Examine the letting agent’s credentials. Is she a member of the Association of Residential Letting Agents (Arla), the professional and regulatory body solely concerned with residential lettings? Members are kept up-to-date with changes in legislation and are governed by Arla’s Principles of Professional Conduct, providing a framework of professional and ethical standards. To gain membership, agents must, among other things, demonstrate that their client accounts are professionally managed. They must also offer a full management service to landlords on top of basic letting and rent collection. Other accreditation to look out for is membership of the government-backed National Approved Letting Scheme (NALS), the Royal Institution of Chartered Surveyors (RICS) or the National Association of Estate Agents (NAEA).
Are they properly insured?
Verify that the letting agency is properly insured. The company should be a member of the Client Money Protection scheme, which provides professional indemnity insurance. This safeguards both the landlord’s rent and tenants’ deposits should the management company run into difficulties or even go bust. The management company is your agent and will be collecting your rents and deposits, so they should also have fidelity insurance to protect you in case an employee embezzles or mishandles your money. Most property managers use a single master trust bank account for all properties on their books but controls on client accounts are very strict for Arla members, so this shouldn’t be a problem. Every penny must be allocated to the right client at any given moment.
What’s their policy on handling emergency repairs?
In most management contracts, letting agents have the ability and right to perform emergency repairs without advance approval from the owner. This situation allows the letting agent to take care of problems that occur unexpectedly. Most management contracts contain clauses that allow letting agents to undertake day-to-day repairs, such as replacing a faulty boiler, without the owner’s advance approval. When you’re in the early stages of working with a new letting agent, make sure you closely monitor their expenses. Even though they may have the legal right to use funds up to a certain amount, they should always keep you informed as the owner.
Other important questions to ask
The quality of your letting agent directly affects the success of your property investments and your peace of mind. Here are some important questions to ask as you interview letting agents:
Can you provide a list of exactly what management services are provided, including dates I will receive reports, and a breakdown of management costs?
Can I contact several of your current and former client references with rental properties that are similar in size and location to mine?
Is your firm a member of the Association of Residential Letting Agents?
Who will actually manage the day-to-day activities at my property? What are her qualifications and does she exclusively manage properties?
Do you provide 24-hour on-call maintenance services with email capability?
Given that maintenance is usually provided in-house or by an affiliated firm, do you only charge the actual cost of labour and materials without any surcharges, markups, administrative fees or other such add-ons?
Do all funds collected for applicant screening fees, tenant late charges and other administrative charges go directly to the landlord and not the letting agent?
Do you have fidelity insurance for all employees?
Are all individual clients’ monies accounted for at all times within your single master trust bank account?
When you hire letting agents, treat them well – but be sure they know that you’re paying their wages. They should ask before spending significant amounts of your money, and they should keep you informed on a regular basis.
Paying your letting agent
Letting agents are paid in a variety of ways, and the type – and amount – of fees vary widely throughout the country. Make sure that you understand how your letting agent earns her money, but never evaluate the management company based on the management fee alone as, more often than not, you get what you pay for. Don’t be afraid to negotiate the fee either, especially if you have several rental properties.
Letting agents essentially charge for services based on the amount of time that is required of different staff members to manage your property. An experienced property management company owner will know the average number of hours that the property manager, the accounting staff and other support personnel will spend each month on managing your property. The owner will then calculate a management charge that should generate the fees necessary to provide the proper management company resources to effectively manage your rental properties.
Most management companies operate on a ‘no let, no fee’ basis, receiving a percentage of the collected income for managing a rental property. However, a few companies also charge a flat fee per month. Try to find a company that has a management fee that is a percentage of the collected income; this kind of fee is a strong motivator to the management company to ensure that the rents are kept at market rates and actually collected on time. Never pay a management fee that’s based solely on the potential income of a property.
Management fees are typically tied to the size and the expected rental collections of the property. However, for properties that may be more difficult to manage, the letting agent may have higher management fees or additional charges for certain types of services or for a certain period of time. Management companies may also propose charging a minimum monthly management fee or a percentage fee (opting for whichever of the two is greater). For example, a property that’s in very poor physical condition and requires extensive repairs and renovations will require a significant increase in the time spent by the property manager in supervising the improvements. This additional time is worthy of separate compensation to the property manager.
