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Good Landlords Run More Successful Businesses

There are an estimated £1.4 million landlords across the UK, around 300,000 in London where I am based.  The latest National Landlords Association quarterly survey of landlords tells us that business expectations among landlords are good or very good and most see a positive outlook for the economy and capital growth across their portfolio.  65% of landlords in the survey were confident that they could cope with bank base rate rises to around 2.5%, which I don’t think we will see until 2018.  The average landlord owns between 2 and 10 properties, yielding 6% gross profit with a loan to value of 67% and the average mortgage is £141,778.  1 in 5 have new builds, 27% plan to purchase in the next year and 34% had voids in the last 12 months.  Interestingly 51% say they struggle to keep pace with changes in legislation and 75% say they are always looking for new sources of advice.

So that’s the UK landlord landscape.  There is a lot of good practice which I see all the time in my work for the NLA, but there is also a small minority of bad landlords.  What do you consider to be a bad landlord?  Based on the stories I hear at meetings I run and what I see in neighbourhoods where I operate, alarmingly, he or she does not bother with tenancy agreements or carry out tenant reference checks.  Rent may well be paid in cash, which raises questions of tax avoidance.  Bad landlords can be penny pinching, buying the cheapest fixtures and fittings, slapping on a coat of paint rather than carrying out a proper refurbishment and generally maintaining poor standards.  He is a poor businessman with little or no strategy, buying property randomly.  She sees tenants as a nuisance, doesn’t give proper notice to access the property for repairs and then patches up instead of doing things properly.  He may operate below the radar, failing to comply with licensing or planning controls, he imposes greedy rent rises and might have residential mortgages where they should be buy to let.

At the other end of the spectrum, a good landlord will adopt a professional attitude, work to a business model and plan and refurbish properties to a good standard.  He or she has good relations with their tenants.  This includes a pro-active approach to maintenance and where repairs are needed she is customer focussed and ensures a prompt response.  He has a balanced approach to rent levels that attracts excellent tenants and aims to keep them.

Is being a good landlord more work and more costly?  Does the penny pinching landlord keep costs low and therefore maximise profits?  I would argue it is the good landlord who runs the more profitable business and I want to show you 11 ways in which their business will be more profitable.  Let’s imagine you have the average number of properties, which is 9, a mixture of flats and houses  worth £200-£250,000 each renting for £1,200 to £1,600 per month.  You fail to carry out the following examples of good practice.

Firstly, tenant referencing costs about £25 per tenant.  The bad landlord who doesn’t bother taking it out runs the risk of getting a tenant with a history of non payment.  You increase your chances of arrears or damage to the property.  On one of your nine properties, the tenant stops paying, it takes you four months to evict them, I reckon that could cost you at least two month’s rent – that’s about £3,200.

Secondly, the bad landlord who doesn’t issue a tenancy agreement or carry out a thorough inventory check that is agreed and signed by both parties runs the risk of two problems.  An AST sets out ground rules for any dispute.  It also stipulates key details like how much rent should be paid, when and how and the rights and responsibilities of the tenant and landlord, all essential for resolving any disputes.  If you don’t have an inventory you have a zero chance of withholding any of the deposit.  Let’s imagine you are unlucky and a tenant causes damage to carpets and appliances in the property.  Without a detailed inventory you can’t keep the £1,000 of the deposit you think you deserve, because the dispute resolution service will reject your request.

Good landlords refurbish their properties to a higher standard and get better tenants because their properties stand out.  On one single property that might mean an extra £100 per month in rent, totalling £1,200 over a one year period.  The good landlord would also meet the tenant at the start of a tenancy to establish a good rapport and explain the basics of living in and looking after their new home, encouraging them to report repairs promptly.  That could save as much as £500, because a leak was prevented and didn’t cause the kitchen ceiling to collapse.

Prompt repairs also keep the tenant happy which means they may well renew for another year.  That’s a finder fee of £1,500 saved.  Your asset is also protected, keeping it in good nick and maybe getting you a remortgage valuation of £15,000 more than the bad landlord’s run down property.

Let’s imagine another property has a tatty garden or kitchen, the tenants are happy with it but it drags down the property’s marketability and valuation.  Planned maintenance to improve could provide you with capital growth,  let’s add another £15,000.  Carry out improvements whilst the tenant is living in the property and this could save you the cost of a two to four week void – that’s another saving of £1,200.

Measure number seven is your attitude to rent reviews.  The bad landlord thinks he is profiting by squeezing the tenant for as much money as possible.   But if you adopt a policy where you aim to retain, perhaps with biannual rent reviews that are just below market rent, your tenant may choose to stay longer.  That’s another £1,500 saved on finder fees.

Compliance with regulations for many landlords is about sleeping at night.  A small minority think they are clever because they are beating the system.  If you failed to license in Newham, you will now have to pay £500 per annum, where compliant landlords paid £150 for 5 years at the start of the scheme.  If your tenants complain to the local authority you could be fined for failing to remove category 1 hazards  or failure to comply with planning regulations.  £500 would be a modest estimate of the costs.  A pro-active approach to refinancing – rather than a laissez- faire leave it to my broker attitude – can also ensure that you keep trimming your mortgage interest rates.  Reducing a £200,000 mortgage rate from 4.19% to 3.29% could save you £150 per month or £1,800 per annum on an interest only basis.

Good communication with tenants and contractors can yield substantial savings when it comes to repairs.  Let’s imagine you fail to fully investigate repairs issues resulting in repeated callouts.  Tradesmen who have never met you produce shoddy work and your failure to talk to them means that maintenance is mostly patching up rather than preventative.  That could easily waste you £500 over a year.  Finally, being a member of a trade body like the National Landlords Association means access to a free advice line and discounts on services tailor made for landlords.  You might also save the cost of advice from solicitors and benefit from networking with other landlords.  That could be worth £400 to you.

That all adds up to a grand total of £43,800.  That could be a 25% deposit on a property worth £175,000 giving you the chance to expand the business.  The good landlord also benefits from a valuable feelgood factor, your properties stand out and you have pride in your business.   Your tenants will appreciate your efforts and I am a firm believer that a positive attitude brings positive outcomes.  Where do you fit on the spectrum between the good and the bad landlord?

 

 

 

 

 

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