The Worst Property Blunders Beginning Investors Should Avoid
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As the real estate market improves, more people are investing in buy-to-let properties. It can be an excellent way to make extra money, either as a second income or as a hedge for pensioners. But before embarking on the buy-to-let adventure, educate yourself so you don’t fall into these classic traps for beginning investors.
Failing to Plan
Real estate investor Andy Heller says the biggest mistake he sees investors make is not planning. Rather than finding a bargain property and then trying to decide what to do with it, Heller says to make a plan first, then look for the house to fit the plan.
If you are buying to let, decide first what area to target. Focus on neighborhoods with a lot of renters, but where there are also good employment prospects, access to public transport, and amenities — in other words, places where young adults want to live. Then spend time in the neighborhood. Find the streets that feel safest. Visit at different times of day to evaluate traffic, noise and parking situations. Don’t begin your property hunt until you have a clear idea of where you want that property to be located, and be willing to wait for the right property to come along.
Failing to Anticipate Void Periods
When new landlords decide what they can afford based on anticipated rental income, they often forget to think about what happens if the property stays empty for several months. Remember that you still have to pay the mortgage, insurance and other expenses even when there is no rent coming in! Make sure you have some money set aside for this up front.
Sometimes your tenants move out during a slow rental season; other times there can be enough work to do on the property that it can’t be let for a month or two. This can leave the new owner so desperate to have money coming in that they jump at the first prospective tenant. That can ultimately cause even more serious problems in the long run.
Failing to Understand Tax Requirements
Tax policies on investment properties are different from taxes on homeowners, and the new investor must be prepared to build the expenses into the monthly rental price. Income from rents is considered as taxable income, and it is important to anticipate this when calculating how much you are taking in from your investment properties.
Moreover, beginning in 2015, the Government is making significant changes in tax policy for buy-to-let properties. The website “This Is Money” states that mortgage interest relief, the ‘wear and tear’ allowance, and other tax relief schemes will be phased out over the next few years. Make sure you learn about these changes and plan accordingly.
Failing to Vet Tenants Thoroughly
Doing proper background research on prospective tenants is critically important, but inexperienced landlords often want to get the property occupied quickly, and hesitate at spending the money needed to verify a renter’s credit and background. Not only can you end up with a disastrous deadbeat in your house, but you can also find yourself in trouble with the law if you haven’t checked factors like immigration status (“Right to Rent”).
Failing to Keep Up the Property
New buy-to-let owners sometimes find themselves too busy to respond to maintenance issues quickly. This can lead to unhappy tenants who move out when the letting period is up, or who file complaints against you with the local authorities. It can also lead to extensive and expensive damage to the property if the issue is a leak in a roof or inside a wall. If you don’t have the time and money to handle repair and maintenance issues, investing in buy-to-let properties may not be the right move for you.
One key way to avoid many of these problems is to have a relationship with an estate agency. A good agency will not only help you find the perfect buy-to-let property for your investment goals, but will also work with you in letting the property and managing the tenants. Although working through a letting agent may reduce your profits, it can save you untold amounts of time, energy, and stress in knowing that the details are handled.
If you decide to work with a letting agent, look for one that will handle much of the routine business, such as:
–Finding and vetting tenants
–Handling move in and move out times
–Inspecting the property periodically
–Documenting and keeping up safety certifications
–Receiving and managing routine maintenance requests
–Keeping thorough documentation of inspections, repairs, and information needed for tax reporting.
An established estate agency such as StrattonCreber.co.uk has a large local operation as well as a network of nationwide service partners. This is exactly what you need on your team as a novice buy-to-let investor. With an experienced letting agent working for you, you will be able to avoid the costly learning curve that beginner investors can face on their own.
Photo courtesy of: Unsplash
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