Everyone knows that property is one of the most popular forms of investment. Unlike shares, bonds, trusts etc. property has an extra safety-net in that people will always need somewhere to live. That said, this by no means guarantees that any property investment is a good one. House prices fluctuate, as do the rental returns – not to mention the fact that mortgage interest rates are also variable.
All things considered, property remains high on the list of possible investments for many and perhaps one of the biggest factors in making the investment a success is – THE TENANTS! Before you start hiring moving companies, here are five tips for potential buy to let property investors:
Always Use a Contract
When you are first setting out in the property investment world, it can be tempting to cut corners to save a few pounds. Furthermore, you may already have possible tenants in mind; friends, family or even work colleagues. I previously lived with another couple back at University in my friends house and things actually got pretty ugly when it was time to leave. The other couple had informally agreed to live there for 6 months and wanted to leave after 4. There was no contract in place between ‘friends’ and as a consequence the friendship was no more – Don’t mix business with pleasure if possible.
Others will try and wrangle their way out of contracts on technicalities. In the UK a number of ‘standard’ contracts exist, so you won’t have to pay a lawyer to write one from scratch and solicitor’s rates can actually be pretty reasonable. If you want to save more money, you can actually download one of the tenancy agreements online and edit it yourself – although it might be an idea to have a lawyer check it over.
Get the Mortgage Overpayments Right
When you are investing in property, it can be tempting to get too carried away with the numbers. While paying of your mortgage(s) early is a great idea in principle, ensure that you don’t set yourself up for a fall. Reduced term mortgaged (15 years instead of 25 years for example) are very popular, but can also get you into deep water if the interest rates rise or your property goes through a period of being empty. Check with your mortgage provider, but you can often make overpayments within a given limit (usually 10% of the balance) without paying a penalty. This way, you can take a 25 year mortgage and overpay as and when you can afford to – you are not obligated to meet the higher monthly repayments.
Have a Contingency Fund
Unlike with stock and shares, an investment in property often requires ‘topping up’ to ensure that it continues to provide a sizable return. Curtains, carpets, walls, furniture, gardens etc. all need repairing and fixing at some point. Many landlords will charge tenants from their security deposit if they are directly responsible for the breakage of something, but soft furnishings all get tired with time. It might be a good idea to keep a ‘spares and repairs account‘ for the unexpected replacement of an appliance or to help you pay the mortgage if there is a gap between tenants.
Use an Agency or Do It Yourself?
The temptation when buying property as an investment is to think that you can manage it all by yourself. As your empire starts to grow, the demand on your time will also increase. Agencies charge a small fee, but can take care of many of the tedious tracks in the process. You don’t want a criminal or somebody who was evicted for trashing their last flat moving right into yours do you? Agencies can provide background checks for a fee – which you can usually pass on to the tenants and also take care of any midnight call-outs – not to mention finding the tenants in the first place!
Ensure That You are Insured
While this might seem blatantly obvious, it is by far the most important consideration of the lot. In my five years experience of being a student, I know of at least two groups of people who caused a fire and had to move out while the fire damage was repaired. Taking the toaster into your bedroom when you are blitzed may seem like a good idea at the time; but bed covers and heating elements don’t go well together! Many specialist companies like CIA Insurance can offer policies and advice to ensure that you have the right level of cover. The last thing that any property investor wants is to owe the bank a mortgage for a property that was destroyed. Fire is not the only force that can be of detriment to your rental – flooding, mold or disastrous tenants can all cause your property value to plummet!