Things To Consider Before Becoming A Landlord
If you are inexperienced within the property sector but are hoping to benefit from its potential profit returns, there are a huge number of things to consider before you take the plunge. Whether you have purchased your investment property or you are simply researching the essentials to know, there is plenty of groundwork that must be covered before you can finally benefit from the passive income and benefit from being your boss.
Being a landlord comes with many responsibilities and also problems that simply cannot be taught from reading a book. You will face problems through your experience being a landlord that no one can prepare you for, but protecting yourself from unexpected circumstances is the best thing you can do for yourself. This might be done through your knowledge, but more importantly, legally there are some insurances and agreements that should be in place to protect your property and other assets.
Here are some the most important facts to consider when becoming a landlord:
Do You Have The Spare Time?
Many people consider becoming a landlord purely for the idea of profits that can be gained from rental properties, however, they do not consider the amount of time that is required not only for setting up the home, but also maintaining its runnings and ongoing home improvements. If you currently have a full-time job and are expecting to take on a rental property, you need to consider the amount of time you might be allowed off work. You might need to leave wherever you are doing at the drop of a hat, and if you currently work at a company that is not flexible then you may be facing some issues.
Some emergencies can not be left unattended, therefore you need to take some time to consider how much spare time you can spare within your week to manage the property, or perhaps consider would the income from the property only just breaks even after all the costs or is the profit worth it to eventually leave your active income earning role. Consider your spare time before anything.
Does Your Property Meet The Basic Standards?
Whether you have purchased your intended rental property or are on the hunt for one, the standard of the property is key if you hope to have consistent tenants and avoid any void periods. Void periods are the moments of owning the property in which you have no tenants paying rent. If you wish to get your return on investment then you would strongly recommend getting the property in great condition before any tendons move in at any time. The best genre of tenant is the kind that stays for long periods to avoid any void periods. The basics of a great rental property are an updated boiler, an updated electric system, good insulation, and most importantly no signs of dampness in the walls. If any of these factors are not fixed before you get tenants in, you will find more complaints and potentially legal action from the tenants further down the line.
Is There Rental Demand In The Area?
Hopefully, you have not purchased the property without having a rough idea as to what the rental demand is in your chosen area. Buying a property in an area that not many people are renting in, or where there is not much population growth is not a smart idea. Especially if you are targeting families with a four-bed house, there must be other surrounding factors that attract them to the property such as schools and easy transport services. You can check the demand of an area by speaking to local landlords and getting a feel for how quickly properties are being let.
What Tenants Are You Targeting?
Every landlord should have an ideal target market before they decorate and list their property. Of course, it would be wonderful to have a clean family that pays their rent on time every month, but that would not be realistic if you have a two-bedroom compact apartment in the centre of a town. Perhaps you might target students and turn your home into an HMO (house of multiple occupants) for students if the property is in a student area. Be realistic with your target market, but also be strict with your tenant criteria and referencing.
Do You Know How To Set Your Rent?
Knowing what price to set your monthly rents for tenants can feel like a grey area, especially when you see other landlords setting either ridiculously high prices, or some going too low. There are always problems with setting the prices too high and scaring off potentially good tenants and also setting it too low to which you may barely break even with the costs each month. Of course, always check your competitors offering similar property types to similar tenants and base your margins on them. Also calling estate agents would be wise as they can offer an experienced opinion.
You might also consider other factors such as the amenities your property offers such as parking spaces and garden areas. If your competitors do not offer the rare amenities you offer, in this circumstance, you would consider putting your prices higher than others.
Do You Know All Required Insurances?
There are insurances that landlords are required to have for the cover of the rental property. Here are just some of the main resources you should have with your property:
This type of insurance covers any permanent damage to the building that would need heavy work or replacement. For example, if an earthquake damages the roof of your property you might be entitled to building insurance.
Also known as public liability insurance, this can protect the business from unforeseen accidents. For example, if something went wrong with the property in which you couldn’t have prevented the problem, this can cover any necessary legal fees.
Rent Guarantee Insurance
This insurance can protect you if you start having bad experiences with tenants if they stop making payments, or if you need legal expenses covered if things escalate to eviction. Landlord legal advice is always necessary for these circumstances, hence why this insurance is needed.
This insurance will cover the costs of furnishings within the property, assuming that you let the property on a furnished basis. This can cover electricals, flooring, and even wall fixtures.
Home Emergency Cover
This insurance covers the daily emergencies you would expect to see, for example, lost keys, boiler issues, drain problems, and the general everyday problem that you tend to face within your property. These are essential services that ideally can be solved quickly, but they can alway be covered if you do not have the funding or labour available.