Becoming a landlord can be a great investment strategy, but like every investment it has it risks. Planning for these risks can save you a lot of money and hassle in the long run. Here are just a few of the mistakes that you should be avoiding.
Buying a property you want to live in
When buying a property to rent, it’s important to keep your potential tenants in mind and not cater for your ideals. A cottage in the countryside might seem like your dream home, but it might not ideal for your average tenant who is likely to be someone in their twenties looking to cut costs on a commute. Some landlords will buy properties that they plan to move into after the rent has paid off the mortgage, but this can be a bad strategy – after years of seeing tenants move in and out of that property you may eventually grow out of love with it.
Not screening tenants
Bad tenants can put you in debt by not paying rent or damaging property. Don’t assume that just because a tenant seems friendly that they will be a good tenant. Ask for proof of income, do a credit check and ask for references from previous landlords. This could save you a lot of hassle later down the line.
Doing everything yourself
You may save yourself money by manually fixing plumbing problems, marketing the property yourself and finding your own tenants, but it could become another full time job if you’re not careful. Consider outsourcing landlord services to handle all the admin such as ensuring rent is paid on time, ensuring tenants are always in the property and keeping on top of maintenance. Having a handyman on call can also be useful for fixing plumbing and electricity faults quickly and efficiently. A legal advisor may also be useful for ensuring that your property always meets legal standards, as well as writing up contracts and being able to help you with difficult tenants.
Not planning for rising mortgage rates
Unless you’re on a cushy fixed mortgage plan, rates will rise in the future and you’ll have to meet these extra payments. This could mean raising the rent or finding the money from elsewhere if you’re not prepared enough. Set your rental payments high enough so that you’re making enough profit to prepare for any potential rising mortgage rates. Use some of your profit to overpay your mortgage if possible. It may be worth hiring a financial advisor to help you budget.
The profits made from letting could be taxable. Failing to keep records of all your earnings could get you in trouble with the taxman. Make sure that you’ve got a book-keeping routine in place. You may be able to claim expenses that can be deducted from your tax such as energy bills, repairs and letting agent fees. A financial advisor may be able to help you on what you can and can’t claim through expenses.