I’ve Bought My First Investment Property – Now What?
Congratulations! Hopefully, to reach this stage you have sought (and taken) the best advice available to you, either from experienced friends and family (because there is a lot of well intentioned nonsense out there), or from a professional property expert.
Now all you need to do is present the property to the market in the best light, find a reputable tenant, agree the best price possible and comply with all your legal obligations. It’s as easy as… wait; it’s not that simple! It should be – but it’s often not. So I’m going to break it down for you one step at a time.
Step 1: Prepare the property for market
This goes back to my last post about seeing the property through your tenants’ eyes. While it is often simpler for the landlord to rent a property entirely unfurnished, that may not be what your target market desires – so go back to your local research again. What is commonly on offer in your area? How quickly do different types of property rent? How often do they come back on the market? A university student may well be looking for basic furnishings, but a family in an upmarket area likely has their own furniture they will want to bring. Some basics do apply though – simple colour schemes, in neutral colours that will offend no one. That flamingo wallpaper you saw for £45 a roll that you absolutely loved? Keep it for your own house! Likewise, keep carpets and curtains fairly cheap and simple. Remember to think ahead to replacements/fair wear and tear. As landlord, you will be expected to replace items as they wear out, even if the tenant causes damage. This point is often misunderstood and causes great upset, so here is an example:
You buy a carpet for £500. The first tenants live there for three years and take excellent care of it. You are delighted, and sorry to see them go. The next tenants move out after two years, and you find indelible wine stains and cigarette burns – the carpet must be replaced before you can rent again. Often, the landlord will say to us ‘I want £500 taken from the deposit’, but legally this can only be done with the tenant’s agreement due to mandatory deposit protection scheme rules. If the tenant objects, and it goes to the ombudsman for arbitration, the ombudsman will say that a carpet has a five year life expectancy, and the most you can expect is 2/5ths of the replacement cost. So £200 best case, but actually they will also likely say that carpets can be repaired or patched up, and are likely to make a further deduction for that.
So the landlord should know, right from the outset, that items in the property may need replacing, what sort of guidelines the ombudsman would use, and budget accordingly. Make the quality appropriate to the property rental value, and plan ahead in case you need to replace it. Most of the time tenants take good care of things and they last well beyond the ombudsman guideline, but if you plan now, you won’t have a horrible shock later.
Step 2: Find a reputable tenant
There are three vital elements to finding and moving in a reputable tenant.
- The first is referencing – this can be done cheaply, or it can be done well. Don’t fool yourself into thinking you can have both! Lots of companies online will offer to do basic referencing for a low fee, but this is often little more than a credit check. At Belvoir! West Bridgford we use the best referencing procedures in the industry, which also include affordability checks, proof of income, and active references from employers and former landlords, to name but a few. In this way we can build up a much better picture of the candidate, and filter out those who may well pass a simpler check. Time and again I see landlords give their business to agents who promise that they can fill the property within the week. Landlords love this, because it means they earn rent straightaway – but think about the long-term problems a bad tenant might cause. It is far, far better to wait a little longer to get the right tenant – one who can actually afford to live there long term and will take good care of your investment.
- The second is the tenancy agreement. Once again, there are companies online who will fall over themselves to sell you a cheap, generic agreement, or even give you a free one (usually to attract you to their other services). But keep in mind, this is your most valuable asset, and you should want to protect it properly. When I create tenancy agreements, I know that it has been written by our in-house legal experts, reviewed regularly, refined and where necessary personalised so that both the landlord and tenant are clear on their obligations, and able to rely on the document to be legally enforceable.
- Finally you need an inventory, and I’m not joking; if you skip this step then you are in a world of hurt. I know that many people see it as a way for the agent to charge you a few quid more, but please believe me when I say it is absolutely vital. Without a very detailed, properly drawn up and signed inventory, you would probably not be able to claim back any of the deposit if the tenant objected. The ombudsman would ask you to prove what damage had been caused by the tenant, as opposed to the condition of the property when they moved in, and you would have nothing. When I send someone to do an inventory, they are often there for between two and three hours, carefully photographing and describing every inch of the property, so that if a disagreement does arise, no argument is possible.
Step 3: can wait until next week. I’m not going to rush it now, but we are getting to the good bit – the bit where you start to earn money from all this hard work!
Next week: Agreeing the best price possible
I’ve Bought my First Property – Now What?
So, You Want to Be a Landlord?