Bye-to-let? Changing nature of rental market calls time on traditional landlords

Bye-to-let? Changing nature of rental market calls time on traditional landlords

ARLA provides advice for new generation of learner landlords

The economic downturn has prompted a wave of new entrants into the buy-to-let (BTL) market and these learner landlords need to do their due diligence, claims the Association of Residential Letting Agents (ARLA).

The YouGov SixthSense Buy-to-let: Landlords and Mortgages report* reveals that the buy-to-let market has shifted somewhat from long-term investors to more novice players with three distinct profiles emerging: 'Investors', 'Good Parents' and 'Reluctant Landlords'.

Investors remain the predominant landlord - over three quarters (76%) of all landlords own a rental property with the main motivation being investment - but the profile of this group has moved towards shorter-term gain.  The findings reveal that, in 2013, over half (56%) of new landlords consider their buy-to-let property as a short-term investment as they look to capitalise on low interest rates and schemes such as the Government's Funding for Lending programme.

The 'Reluctant Landlord' - homeowners forced to rent out their homes because they've had difficulty selling - has also grown in size since the downturn.  Almost three in 10 (28%) of landlords who entered the market in 2012 did so reluctantly with at least one of the properties they owned.

'Good Parents' who have moved into BTL to offer financial support or provide a financial legacy for their children now account for over a quarter (29%) of the market.

Susan Fitz-Gibbon, President of ARLA said: "The economic downturn has brought new entrants to the buy-to-let market and has also had an impact on the way in which existing players invest. With more landlords entering the industry, less experienced individuals need to ensure they have thoroughly researched and fully understand that there are risks and responsibilities associated with the role.

"It is important to have realistic expectations of what returns you are likely to receive from your property; it is also important to remember the significant responsibility in adhering to regulatory requirements.

"Speaking to an ARLA agent should be a vital part in the research process.  It will provide individuals with expert insight into the risks and responsibilities involved and they will receive important information and guidance on the process."

With this in mind ARLA has prepared the following top tips for each of the landlord categories identified:

Investors:

• Do your sums. Arrangement fees tend to be larger than those of residential mortgages and so do deposits.  You should factor in all costs and be realistic about the level of rent you will achieve to avoid any nasty surprises
• Factor in void periods.  The latest research from ARLA shows that average void periods have actually increased - up from 2.9 weeks in the first quarter of 2013 to 3 weeks in the second quarter**
• Talk to your local ARLA agent to see what type of tenant your property is likely to attract, then tailor the property to the tenant's needs and tastes
• Aim at a specific market, whether it's students, young professionals, corporate tenants or families.  Different markets will have different needs; students will need clean and basic accommodation; young professionals might not want the hassle of a garden and will want to be near good transport links; and families will expect the house to be of a high standard and not too far from schools
• For the investor looking to take on a bit more risk to increase their returns it's always a good idea to try and identify future hot spots.  Keeping up-to-date on regeneration plans and new transport links provide opportunities for house prices to increase above the average rate

Good Parents:

• Be aware of the risks and plan for interest rate rises.  Property prices and interest rates can go up as well as down; you need to ensure you will still be able to afford the repayments if interest rates do rise
• To ensure you have a successful rental property you should always remember the basics and put yourself in the tenant's shoes.  Ensuring the buy-to-let property is in a good location and a place where people would like to live will improve the chances of occupation and demand for your property

Reluctant Landlords:

• Seek advice from an ARLA agent and look out for the logo.  If your only option is to rent your home then talking to an experienced and accredited letting agent will enable you to get a good idea of the kind of rent your property should achieve as well as providing you with vital information on the legalities, regulations and obligations that apply to landlords and tenants.

Whatever your motivation, with any property you rent out you need to make certain that you follow all legal requirements and building regulations.

ENDS

*YouGov SixthSense Buy-to-let: Landlords and Mortgages report (survey dates: 24-30 April 2013). For this report, YouGov SixthSense commissioned a survey among its online proprietary panel of over 350,000, drawing on a sample of 1,003 landlords aged 18+ and a range of primary and secondary source material. SixthSense, part of YouGov plc, is a provider of comprehensive business intelligence. 

**The data from the ARLA Members' Survey of the Private Rented Sector, covering Q2 2013, was drawn from 507 member offices.  Together with the ARLA Survey of Residential Investment Landlords, June 2013 - conducted among 1,224 landlords - the report forms the ARLA Review and Index. The Review and Index is available at:http://www.arla.co.uk/buy-to-let/buy-to-let-review/2013/

About ARLA

The Association of Residential Lettings Agents (ARLA) was formed in 1981 as the professional and regulatory body for letting agents in the UK. Today ARLA is recognised by government, local authorities, consumer interest groups and the media as the leading professional body in the private rented sector. ARLA is a sister organisation to the National Association of Estate Agents (NAEA).

In May 2009 ARLA became the first body in the letting and property management industry to introduce a licensing scheme for all members to promote the highest standards of practice in this important and growing sector of the property market. Both ARLA and NAEA members are governed by Codes of Practice providing a framework of ethical and professional standards at a level far higher than the law demands, and both Associations have their own complaints and disciplinary procedures so that any dispute is dealt with efficiently and fairly.

Susan Fitz-Gibbon was appointed President of ARLA in June 2013, has been a property professional for over 30 years and is director of Fitz-Gibbon.

The ‘Accidental Landlord’

…..becoming a Landlord brings with it a whole raft of roles and responsibilities which many landlords to do not expect and are completely unprepared for.  This is a particular shock to the system for the majority of ‘Accidental Landlords’ as they never planned to take on this role in the first place!

The term ‘Accidental Landlord’ is an interesting one and basically relates to those who have inadvertently become a Landlord without any desire or intention to do so.  It may seem bewildering to many that someone can become a Landlord in this way, however there are numerous ways in which this can happen. Inheriting property is a good example whereby property is often acquired unexpectedly and those who will inherit the property decide to rent the property rather than sell it.  It all seems rather simple to find some tenants and then start collecting rent, however many of those who acquire property in this way are often unaware and unprepared for the statutory (legal) requirements and responsibilities (which I will explain later), that they will be required to meet once they become a Landlord.

Relocation is another example of how someone can become and Accidental Landlord.  A career opportunity may result in the need to relocate which provides a dilemma for anyone who currently has a property.  There is always the option to sell, however a better choice for many will be to rent the property, thereby giving the opportunity to return in the event that things do not work out. All of a sudden a new Landlord is born, again with all of the statutory requirements and responsibilities that come with it.

Over the last few years it is fair to say that the housing market in the UK has been exceptionally flat (although we are now starting to see signs of improvement).  Trying to sell a property in a flat market is incredibly difficult and some will take the decision to rent out their existing property until the market improves whilst at the same time take advantage of the slow market by purchasing another property.  Whilst rental income will often cover the cost of one of the mortgages, some will not understand that they are now making themselves Landlords, and as with the examples previously discussed they will also be required to take on all of their new roles and responsibilities.

When the housing market in the UK was booming through the mid to late 1990’s there was a scramble to purchase property, so much so that people were prepared to buy before a property was built, something referred to as ‘buying off plan’.  This proved to be very lucrative for many because property prices at the time were increasing at such a rate that the value of property purchased in this way would often have increased (sometimes substantially) by the time construction had been completed.  Fast forward a few years when the property market crashed, some of those who had purchased properties in this way suddenly found that they could not sell them, and for many renting them was the only option.  They never planned to become Landlords, however they too had to take on all of the roles and responsibilities that they were never prepared for. They were Accidental Landlords.

Accidental Landlords may be more common than you would think. The most recent census, published by the Office for National Statistics, shows the number of private renters in England and Wales increased by 88% between 2001 and 2011:

Accidental landlords make up around 30% of all landlords according to Rightmove’s figures and are largely seen as a casualty of the credit crunch. However, rising rents and lack of voids have alleviated their plight to such an extent that when asked what their plans are for their current rental property, 12% of this group responded that it had gone so well that they are looking to buy another property, with a further 69% reporting that we would be holding onto their rental property and just 16% stating that they still want to sell it as soon they can.

Source: http://www.rightmove.co.uk/

High demand and a shortage of housing together with difficulties in securing finance for property purchase, in the UK has created a strong rental market, where in many areas rental incomes have continued to rise at a steady pace. Landlords (even accidental ones) are currently benefiting from this situation however managing rental property and tenants requires knowledge and understanding and is something that a Landlord cannot afford to ignore.  So what can you expect or indeed what is expected of you if you become a landlord?

Firstly, you need to choose your tenant’s carefully.  No Landlord wants a Tenant who will not pay their rent on time or fall into rent arrears or indeed will cause damage or disruption to a property.  In the event that this happens there are legal procedures that can be instigated in order to remedy the situation, however these can be time consuming, costly and stressful. The likelihood of this happening can be significantly reduced, by taking the time to undertake background checks before allowing a tenant to sign a tenancy agreement.  This should include obtaining references (and checking them!), asking for proof of income to prove that they can afford the rent and in some instances asking for a guarantor. The next thing to consider is taking a deposit from the Tenant. Most Landlords take a deposit of one month’s rent, which the Landlord is legally obliged to protect in a government-supported deposit protection scheme.  The landlord must provide the tenant with the required information within 30 working days of the beginning of the tenancy, as per the Tenancy Deposit Schemes (Scotland) Regulations 2011 (http://www.legislation.gov.uk/ssi/2011/176/regulation/3/made)

A tenancy agreement will need to be signed by the Tenant which should provide details/information in respect of the amount of rent and when it should be paid, the type and length of the tenancy, the notice period required when the tenant decides to vacate the property, occupation details, Landlord responsibilities and so on.  Basically, the tenancy agreement is a legally binding contract, which a Landlord should ensure is carefully worded to provide clarity and protection for themselves and indeed their Tenant.  There are a number of 'off the shelf’ tenancy agreements that a Landlord could purchase however, a new or inexperienced Landlord should take the time to research the content of the agreement to satisfy themselves that they understand what to expect from their Tenant as well as what responsibilities they will be taking on.  To the new or inexperienced Landlord this might seem to be quite a daunting task, however, never be tempted to take on a Tenant without a robust tenancy agreement in place.  There are many examples where poorly worded, often confusing tenancy agreements have resulted in disputes, which have proved very expensive for both Landlords and Tenants alike. This is such an important document that it is always worth getting professional advice to ensure that the agreement is adequately drafted.

A Landlord also must comply with their statutory (legal) responsibilities in respect of ensuring that any property they rent is safe and habitable for the Tenant to occupy. This includes the requirement for gas safety checks every 12 months, ensuring that the electrical installation is safe before the start of the tenancy (as well as during the tenancy), making ‘reasonable adjustments’ to a property to accommodate tenants with disabilities and meeting licensing requirements for Houses in Multiple Occupation (HMO’s).

In summary becoming a Landlord brings with it a whole raft of roles and responsibilities which many landlords to do expect and are completely unprepared for.  This is a particular shock to the system for the majority of Accidental Landlords as they never planned to take on this role in the first place.  So next time you see a property related programme which suggests that it is easy to buy property, refurbish it and rent it out, you will hopefully appreciate that there is much more to it than just collecting the rent and increasing your bank balance!

HMRC increase focus on landlords and tax

The taxman’s annual take from buy-to-let income is up by more than 10% on the back of more scrutiny of landlords by HM Revenue & Customs, which is expected to intensify.

Issuing the alert, advisory UHY Hacker Young said buy-to-let investors paid £2.02bn in income tax on their rental income in 2010-11, up 13% from £1.78bn in the previous year.

The jump in the amount of money that HMRC receives from buy-to-let investments – which contractors often use instead of or with a pension – reflects its growing scrutiny of the sector.

Ensuring property investors are not evading their tax obligations has already inspired the formation of two dedicated HMRC taskforces (one in the South East, and one in Yorkshire).

But in what the advisor fears could be a “precursor to a wider initiative”, HMRC is now running a ‘property sales campaign,’ under which people who have not declared a property sale (other than their main residence) are urged to come clean.

“Once the deadline of September 6^th 2013 has passed, we expect HMRC to become far more aggressive in pursuing undeclared rental income as well as property disposals,” explained Mark Giddens, head of private client services at UHY Hacker Young.

He added: “Buy-to-let investors need to be aware of HMRC’s increasing concern about tax evasion by landlords. Their actions to date show that they are quite capable of matching Land Registry records and data from letting agents with taxpayer files and picking out discrepancies.

 “[And] as buy-to-let increases in popularity, there is inevitably more for HMRC to investigate. Some might simply fail to understand what their liabilities are and how to calculate them properly; others might think that they will be below HMRC’s radar.

4 landlord tricks for getting rid of small damages

Damages are something that all landlords have to deal with, and a large percentage of the time they are only small, however this doesn’t mean they are any less annoying. Even small damages can end up costing you money, especially due to the fact that they happen frequently. However, there are some clever tricks of the trade that you can use in order to fix small damages and have your properties looking their best again in no time:

Spills and Stains

Stains range from the small blemish on the carpet to a massive mark on an expensive piece of furniture. However, they often look worse than they actually are which means that getting rid of them can be relatively easy. We’ve all heard that if you spill red wine you can remove it with white, however there are some more practical and cost effective methods. For example, salt is great for soaking up stains and is completely odour free which means that you won’t have to air out your house or worry about it harming any materials. Diluted white vinegar is also popular among those that don’t want to use products that contain strong chemicals, however if you do use this you will need to make sure you clean it up properly afterwards or it could leave a smell in your house!

Burns

Fire is one of the biggest concerns for landlords as it can destroy a property in a matter of minutes and also ruin people’s lives. However, it’s not just fires that landlords have to be concerned about but also burns from appliances such as irons, hair straighteners and baking trays can all quickly scorch both carpets and furniture in your properties by being placed down on an unsuitable surface. If your tenant realised their mistake quick enough then they will have hopefully moved the item before it has caused more than just surface damage which is quite easy to fix. For instance, carpets that have small burns can be spruced up by using a coarse brush in order to fluff up the fibres again. Meanwhile, scalded wooden furniture can be given a new lease of life with a bit of sanding!

Pet Hair

If you have decided to allow pets in your houses then you will find that fur and hair will find its way everywhere! Generally, landlords that choose to allow pets in their properties add a clause in their tenancy agreements that states the tenants will have to pay for extra cleaning at the end of their tenancies. This can come in extremely handy especially if the pets in question were particularly messy and you need to call in a professional cleaner, however if it’s just pet hair you are concerned about you can use some of this money to buy a dedicated vacuum cleaner. These types of vacuum cleaners come with special attachments that pick up pet hair easily, meaning you won’t have to spend hours on the job!

Scuffed Walls

If your property had a number of tenants living there all at one time then it is highly likely that you will find scuffs on the wall once they move out. These come from people bumping into the wall on their way in and out, especially if they are carrying things such as shopping bags, bicycles or even just their coats! Getting scuffs off of walls is actually quite easy, however if you don’t use the right products you could end up doing more damage than good. Some people swear by using warm soapy water to clean their walls, however if they are decorated with certain types of paint you could end up stripping it, especially if you scrub too hard. Your local hardware store will have ‘decorator’s wipes’ or ‘sugar wipes’ which are specifically designed to remove dirt and grease from walls without damaging the paintwork. However, before using these across your whole wall you should test them on a small discreet patch so if they do cause any damage it won’t mean you have to repaint the whole wall!
If your tenants damage your property during their tenancy your landlord insurance and their deposit will help pay towards getting things back to normal. Howe

RENTAL PROPERTIES AND GARDENING

Now that it’s the summer people are finally starting to venture out into their gardens, and if there is one thing that we love here in the UK it’s spending time in our gardens and having a barbecue! However, during the winter your properties’ gardens were probably left unattended and even forgotten about by most of your tenants, but that doesn’t mean it will cost you a fortune to get them back to their best! Follow our easy tips and you can have your gardens rival the Hampton Court Flower Show in no time (well, almost)…

Whose Responsibility?

There have been many arguments between tenants and landlords when it comes to gardens and whose responsibility it is to maintain them, which is why you need to make this clear in your Tenancy Agreements. Many landlords state that it is their tenants’ responsibility to keep their gardens in a suitable state especially if they have a long term tenancy, however sometimes it is easier for landlords to do it themselves.

For example, landlords that specialise in short term or student lettings may find it more hassle than it’s worth to ask their tenants to maintain their gardens. This is especially true if your tenant is only staying for a short period of time as they probably won’t be using the garden very often anyway. On the other hand, if you are letting upmarket properties or are in a particularly competitive market offering yearly maintenance for gardens is essential.

Know your Properties

Depending on the size of your property portfolio you may have a range of houses all with different types of gardens, which means that you will have to carry out various forms of work on each one. For example, if you have a property with a large back garden you will have to spend more time on this than the others, however properties with front gardens should always be prioritised as not only does an overgrown garden make your property look bad but can also get you in trouble with local councils.

The best way to organise what needs to be done is to make a list of all your properties which includes the type of gardens they have and what work will need to be carried out. Not only can this help you stay organised but also save you money if you plan to have work done on properties close to each other at the same time!

Understand your Tenants’ Needs

If you have a young family in one of your properties then they will want their children to be able to play in the garden while the weather is good, so it’s important that the lawn is kept well. However, children are notorious for pulling up flowers, breaking pots and climbing trees so including these could end up being a poor investment! At the same time you may have a house in an upmarket area which would look even better with a few hanging baskets outside, especially if it’s currently on the market.

When it comes to properties with decking you need to be extremely careful as if it is not well maintained it could lead to damp in your properties or may need to be completely replaced in the long run. Generally, all you need to do is make sure your decking remains in good condition is to apply some decking treatment once a year, however make sure you let you tenants know when you are carrying this out as they won’t be able to use their decking until it’s dry!

Talk to Tradesmen

As a landlord you probably have a list of tradesmen that you know and trust, however during the summer months they are often extremely busy! This can leave you in a difficult situation, as it means you may have to hire a tradesman or gardener you have not previously used. The best way to handle this is to ask around and see if anyone in your local area knows someone that can help you, or go online and visit websites that help you find local tradesmen and see previous customers’ reviews.

Remember, before any work is carried out on your properties it is imperative that your landlord insurance is up to date, as if any damage is caused you will need to make a claim. If you have garden furniture or other expensive items in your gardens it’s also a good time to check that they are covered too!

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