Location, Location, Location = Yield, Yield, Yield!
Location, Location, Location is the common buzz phrase related to purchasing a property. This is true of buying a buy-to-let investment also, but in this case we think the right location isn’t necessarily exclusively about a desirable area, but more about the yield, or return on investment that the property will generate for you.
This means that, when looking for a suitable property, we think you should think outside of the box, which may mean looking in areas that you hadn’t previously considered. Have a look at the Investment Properties on our website – we have calculated the gross yields for you to show potentially how good an investment they are.
Before committing to purchase your buy-to-let property you should go into more depth and understand your likely net yield. This would be your actual return after expenses have been taken into account also. Here you should factor in:
- Mortgage payments
- Service charges and ground rent (if leasehold)
- Letting agent fees
- Any other known costs
You should also take into account the potential for void periods where there are no tenants in the property, so there is no rental income to cover outgoings. Minimising void times is one of our key pledges to our landlords.Click for advice on reducing void periods, property damage and rent arrears
If buying a leasehold property, you will need to make sure there are no restrictions in the lease to stop you from letting out the property – sometimes this can be prohibited, but more commonly there may be charges for granting consent to sublet.
When viewing the property, you should take into account any work that may need to be done before the property can be let out or that would maximise the rental return for you. If you are not sure where to start with this – don’t worry, give us a call and we can talk you through what’s important and we will even view properties with you that you have shortlisted (even if we are not the selling agent!).
This should be a consideration when buying the property. As an example, young professionals usually prefer to be nearer to town/city centres and have access to transport links, whereas families generally prefer to be further away from town with more outside space.
You should also have an idea of your ideal target market before spending any money on updating the property, to make sure you are not putting off the people you are trying to attract.
Your target market will likely influence the length of time they will live in the property: Young professionals and couples tend to be more transient in nature, so move on quicker (on average) in comparison to families.
All that said, your target market may be dictated by your budget and, therefore, the property you can afford or the yield you are looking to achieve.
One potential ‘yield booster’ that more landlords are now considering is in room lets. Yields can potentially be doubled when taking this route. It does mean that usually you will need to obtain specific permissions and consent to do this and there is more financial outlay to meet the legal requirements upfront – but in the long term it can be a financially beneficial option.
Click here to ask Antony, our property investment expert dedicated to getting the most out of your property investments.
Preparing The Property
Any work that you carry out in the property should be done with your ‘target market’ in mind. As a rule of thumb, a property that is let out in good decorative order and cleaned to a professional standard is more likely to be looked after by the tenants. It’s worth noting also that, unless you are targeting a particularly ‘high end’ tenant and the property is in the correct location to do so, you shouldn’t overspend on expensive ‘all singing, all dancing’ fixtures and fittings – that’s not to say you should go for the cheapest either, but look for a balance that gives quality and robustness.
As a landlord, you will be required to ensure the property, installations, fixtures & fittings and appliances (if any) are safe for use at the start of the tenancy. You should be aware also that you are required to maintain, repair or replace any of these things should they break down during the tenancy, so you should consider if you wish to provide white goods (fridge/washing machine etc.) for the tenants to use.
As just mentioned, landlords have an obligation to ensure the property is safe before each tenancy begins. We have covered some of these points in more detail in other articles (follow links below); the following should be checked for compliance:
- Energy Performance Certificate (EPC)
EPCs are required prior to marketing the property. From 1st April 2018 ‘F’ & ‘G’ rated properties may not be rented out unless certain criteria has been met.
- Gas Safety
Any property containing a gas supply and gas appliances must pass an annual Landlords’ Gas Safety Check and have a certificate issued.
- Smoke & Carbon Monoxide Detectors
A surprisingly recent addition to legal compliance, smoke alarms need to be fitted on each story of a property where there is a habitable room and carbon monoxide detectors must be fitted in rooms with solid-fuel-burning appliances. All detectors must be working on the day the tenancy starts.
- Electrical Safety
You may hear conflicting advice over electrical safety, both in regard to fixed wiring and appliances. The Housing & Planning Act 2016 when implemented in 2017 is looking to address this and make clear that electrical testing MUST be done to ensure the safety of the tenants. In line with this, our advice remains as it always has – get it tested and keep a record of the outcome. This is the only way that you can prove later that you fulfilled your obligation to ensure it was safe before the tenancy began. This applies equally to the wiring installation and to any portable appliances in the property.
Another of the more obscure and misunderstood landlord obligations is that landlords are required to undertake and keep records of a Legionella Risk Assessment in the property prior to letting the property. In addition to this, where a risk of legionella bacteria production & dispersal exists the landlord must put in place a program to manage and, where possible, reduce the risk.
- Furniture & Furnishings
Any furniture supplied must comply with fire safety regulations. This can usually be evidenced with the fire safety tags on the furniture (leave them on to make life easier. If you don’t have the tags, keep the receipt as evidence of where they came from and when they were purchased.
- Property Hazard Assessment
You should also undertake a risk assessment of the property to ensure there are no obvious hazards – for example, trip hazards, ponds in gardens, stairs without handrails, windows without locks, etc.. We use the government HHSRS guidelines (Housing Health & Safety Rating System) as our guide for this.
Not sure where to start with this? Don’t worry, our ‘Safe & Legal’ checks cover a Legionella Risk Assessment, smoke & carbon monoxide alarm testing, a Housing Heath & Safety Rating System style property check and pre-tenancy ‘let ready’ check.
It’s not just about health & safety either, there are various other consents that may be required depending on the circumstances:
- Mortgage Lender Consent
If you are buying the property with a mortgage then make sure it’s a ‘buy-to-let’ – this will have the necessary consent. If you own the property already with a residential mortgage then you will need permission from the lender to let out the property. Depending on the lender there may be a fee to pay for this, they may also insist that the mortgage changes to a ‘buy-to-let’ which usually will have a higher interest rate. We can help with this and it may be a great time to remortgage. To arrange a call with a mortgage advisor, click here.
You should ensure that you have specialist landlords’ buildings insurance and contents insurance. If you have a homeowners’ policy because you lived in the property prior to letting you will need to upgrade your policy to ensure you are adequately covered.
- Freeholder Consent (Leasehold Properties)
When a property is leasehold it is often necessary to obtain consent from the freeholder to sublet the property. This sometimes requires a fee to be paid to them for permission to be given, this is also, sometimes, required again on tenancy renewal or on re-letting.
Another important factor with a leasehold property is that there will be a Head Lease that you are required to comply with. This lease must be provided to the tenants (or specific clauses within it) so that they may be bound by it also. Failure to do this could mean that you are in breach of your lease because of the tenants. There may also be restrictions in the lease that potential tenants will need to be aware of, for example No Pets, or no commercial vehicles.
- HMOs, Selective & Mandatory Licencing & Planning Permission
If your intention is to let to multiple occupiers, either as room lets or to sharers, you will need to comply with the local authority HMO licencing requirements. Further to this, some local authorities are introducing compulsory licensing for all landlords – not just for HMOs. Also, in some areas, C4 planning permission may be required to let to sharers rather than to families. All of these factors need to be taken into account and complied with where applicable.
Finding The Best Tenant
Once you have your ideal property and are ready to start the search for tenants you will need to make sure you give yourself the best chance of finding the best tenants – that’s where we come in! Our open house strategy is specifically geared to finding the best possible tenants for you. It starts with a sole agency instruction so that we can control the process without unnecessary complication from other agents. This allows us to create better marketing with professional photography and brochures, which leads to more enquiries. This allows us to pre-screen the applicants to invite the best ones to an open house event. The event itself generates a sense of urgency, often resulting in multiple offers that we can then discuss so that you can chose the tenants in the best situation for you. All of this is then backed up with professional and impartial independent referencing, which can further be backed up with rent guarantee and legal cover for total peace of mind.
Before The Tenancy Starts
There are some important things that should be done before the tenants move in (in addition to completing all of the legal compliance and property preparation). The main thing is to ensure that there is a clear record of the condition of the property and its contents. This is usually referred to as an Inventory & Schedule of Condition. We ensure that our Fully & Part-Managed landlords have these as part of our service – it’s not only vital that this information is recorded, but also the format that it is in. The purpose of the document is to give a clear description of the property and its condition, using text and photographic evidence. This can then be referred to at the end of the tenancy when assessing if any deductions should be made from the tenant’s deposit – without this as evidence you will not be able to make any deductions. The Inventory & Schedule of Condition should be made after all work to the property and cleaning has been completed. The tenants should be given a copy and an opportunity to check its accuracy and to submit comments or propose amendments if they find any omissions.
Other things you should do wherever possible before the start of the tenancy:
- Leave copies of any instruction manuals in the property. You can give a copy to us also as this helps us in managing the property. Without the operating instructions for appliances etc., tenants may incorrectly use an appliance or may not be able to fault-find in the event of a breakdown. A common example of this would be re-pressurising a combi boiler. If the tenants have instructions how to do this it will save a callout fee for a contractor to do it.
- Make sure all the appliances are working, especially hobs, ovens, white goods, showers, central heating boiler or electric heaters and hot-water tank.
- If you lived in the property prior to letting we recommend setting up a postal redirection service.
- Make sure you have provided us with enough sets of keys for all of the tenants and an additional set for us to hold as management keys. This also applies to gate remotes or entry fobs and parking permits.
When the tenancy starts, the tenants will come to our office to sign the legal paperwork and pay the move-in money. We will then issue them with copies of the required legal documents and other certification as required by law.
During The Tenancy
After the tenants have moved in you may think there isn’t much to do except keep your fingers crossed that nothing goes wrong and the rent is paid on time! We won’t lie – we definitely hope this too, but we also take proactive steps to make sure the tenancy runs smoothly.
As part of our managed service we will call you and your tenant a couple of days after the tenancy starts to make sure all is well and answer any questions. With you, we will make sure we are aware of any specific requirements you have, maintenance contractors, service contracts etc..
With your tenants, we will make sure they have moved in without any issues, remind them about their standing order that needs to be set up and also that they need to confirm the inventory & schedule of condition. We will give the tenants details of our online maintenance reporting system and remind them also that we will need access to carry out the routine visit due after 3 months. We will protect the tenant’s deposit in our chosen tenancy deposit scheme. We will deal with any general enquiries that arise during the tenancy, any maintenance issues reported and, after 3 months, arrange the routine visit and send the findings to you with the visit report.
We make sure the rent is paid on time and if not will chase (see rent arrears advice for more information). If all is well we will recommend renewing the tenancy at the appropriate time and we will discuss potential rent increases (see renewal advice). If you do not want to renew with the tenants then we will serve the legal notices to end the tenancy. When the tenancy ends, we arrange for a check-out appointment and report to be made so that the deposit can be settled and deductions made if necessary.
The Next Step
All of the information above may seem a little daunting and, to be honest, there is more that we can’t write here without writing an entire novel! Regulations and legislation changes on a frequent basis in lettings, but that is what we are here for. We have the time and the expertise to keep ahead of the game with all of these things and our main priority is to make sure that we do things correctly and protect all of our landlords.
Many landlords can and do manage properties themselves and we won’t insult anyone’s intelligence and say that you can’t do it. What we would say is that to do it right takes time and patience. Time to keep up-to-date with the constantly changing legal side of things and patience, to deal with tenant enquiries at any hour.
Most of our landlords prefer to let us deal with that and to spend their free time doing more exciting things!
If you have any questions or want to find out more about our lettings service, please go to our contact form and we will be happy to help.Contact us