Protecting Your Investment For Buy-to-Let Landlords
- 9th July 2018
- Posted by: Loanable
- Category: Resources
In the buy-to-let property world, we have looked at some of the challenges faced by landlords. You can have one property or dozens, you are still faced with the same challenges.
As these properties you own and let out are your investment, and for some they see them as their pension and retirement, you need to protect them. Protect them from some of the specific issues that only a buy-to-let property owner would experience, and also from other more common issues.
Let’s begin at the beginning:
You have found the perfect property, a small block of flats, in a desirable part of the city. The flats are close to transportation, shopping, and other local amenities.
You secured a buy-to-let mortgage with minimal deposit, and got the loan interest only to keep the monthly payments within what you feel the rents will more than cover.
In purchasing the flats you found a few minor repairs were required, which cost you an additional £10,000, and in doing the repairs you brought the specs of the flats up to a very high standard, and included some furnishings.
This was done, to attract professionals wishing to live in the area. You have a high standard of flat, you want a high standard of tenant.
So the ads are placed as you are doing this on your own, no estate management firm for you, you will save those fees, and DIY, do it yourself.
Let the vetting begin!
As you receive calls and emails regarding the flats there are a few things you need to do and verify for any perspective tenants:
* Right to Rent: You need to verify that your tenant has the right to live in this country, which gives them the right to rent. You do this by verifying and copying certain documents.
These documents can be a passport, Visa allowing work and residency here, certificate of naturalisation, and other various documents. These need to be verified and copied.
* Employment: Obviously your tenant needs to have the means to afford the rent, utilities, and council tax. You may want to request copies of wage slips, or a P60.
* Affordability: Once you have confirmed the applicant is working, can they afford the rent and additional costs associated with leasing the flat.
* Background and Credit Checks: You may want to have a credit check run, and also either get a reference from their previous landlord, if they have one, or speak to their previous landlord. You want to know how they paid their rent in the past.
Social Media: You’d be surprised at how much you can find out about someone just by doing a search for them online, and through various social media.
You may find out they throw a lot of parties where they had lived, and your flat could become the next party central.
And lastly, ask questions, and go with what you feel. If they look like a good tenant, and had some problems in the past, or have a bad credit history, ask for a guarantor. Someone to guarantee the rent.
* The Deposit: Tenant’s deposits must be kept in accord with the Tenancy Deposit Scheme. And keep in mind, if you have concerns regarding a perspective tenant, you can request a larger deposit, if you usually ask for 6 week’s rent as a deposit, ask for 8 weeks.
* Inventory and Lease Agreement: Make sure your lease agreement is legally valid, and that you take an inventory of any furnishings that are provided with the property, and have the tenant sign these.
Estate Management Firms: There are estate agents that will handle all this for you, for a fee, usually monthly, as they will collect the rent, take care of any maintenance issues, and generally handle all matters.
If you are an absentee landlord, or live far away form your properties, it may be a wise investment to use one of these firms to protect your properties and investments.
As a landlord and wanting to protect your investments, insurance is a must. It is an operating expense associated with doing business.
It is also something you need to factor into your rent figures, and what you are going to charge for rents.
If you have a buy-to-let mortgage, the mortgage company will condition the loan on you having building insurance. Insurance to protect the building should there be a fire, storm, flooding in some instances, and other damages that may occur to the building itself.
You may wish to mention to your tenants, they should see out content’s insurance, to protect their belongings. Your insurance as a landlord only protects the building, not what is inside.
However, if as a landlord you have provided certain furnishings, such as a fridge, cooker, maybe some furniture, the carpeting, curtains, etc, then you would want a specific contents insurance policy protecting just your furnishings and items in the property.
But what other insurances as a landlord do you need? What about landlord insurance?
Landlord insurance is not mandatory, or a legal requirement, however, it would be foolish to not have some coverage in place. Landlord insurance protects you against many other claims that may occur.
Some things that landlord insurance can protect against are:
* Non-payment of rent (after a specific period of time)
* Damage to the property by the tenant
* Liability coverage should some be injured on the property
* Loss of earnings and rehousing expenses: this if the tenants must move or be rehoused after an insured event
As you can see, landlord insurance covers a wide range of events and issues that may arise.
Protecting your investments, your properties, as a landlord is apart of your business. And by following these two simple rules, such as vetting and getting the right tenants, and making sure insurance is in place for any event, your investments will be better protected.