As you start to enjoy success as a landlord it is only natural to start thinking about expanding your property portfolio. After all, investing in more properties will mean raking in even more rental income every month, and in the current market you could even expect your assets to jump in value in just a few years.
Or rather, that’s what you might assume.
The truth is that managing several homes at once brings its own share of unique pitfalls and responsibilities. There can also be much greater consequences if things go wrong: landlords who let standards slip across multiple properties often face astounding fines, jail time or even bans on letting altogether.
The first thing to consider as your portfolio grows is just how much time you have to devote to its management. Just as a successful business owner eventually needs to take on employees to pick up the slack, a landlord can eventually need help keeping each of their properties up to standard. As such, it may be worth considering whether or not you could benefit from hiring a property manager to take some of the work off your hands.
A property manager’s role covers a wide range of services, including marketing, screening tenants, organising repairs and maintenance, collecting rent and even paying taxes to the HMRC. Most candidates will offer a variety of packages, so the price will ultimately depend on what kind of service you require. You may simply need help finding tenants before handling everything else yourself, or you might decide to hire a firm to manage your portfolio permanently.
Here are a few of the things that you will need to keep more of an eye on when managing multiple properties.
Anybody who has bought a home will know about the ever-dreaded tax known as ‘Stamp Duty’. When you buy a property over a certain value, you are required to pay a percentage as SDLT (Stamp Duty Land Tax), with the exact amount depending on the final quote.
What you might not know is that buying an additional property means having to pay even more land tax on top of the standard rate. This again will depend on the value of the property. For example, you would pay an additional 3% for a home valued between £0 and £125k, while for a property worth £1.5m or more the extra stamp duty rate would be 15%.
This rule will apply if you or your partner already owns a property. The same goes for companies buying properties. However, you will be exempt if the home costs less than £40k, or if it happens to be a caravan, houseboat or mobile home. If the contract was exchanged between 26 November 2015, you will also not need to pay the extra tax.
Remember, stamp duty must be paid within 30 days of buying your new property. However, this will most commonly be handled by your conveyancer.
This may sound like a no-brainer, but when managing a portfolio of properties it is crucial to make sure that your documentation is well filed. You would be surprised how many landlords have shot themselves in the foot because they were unable to produce a specific document at a key point in time!
Remember, each property you let will have a set of essential documents which you cannot afford to lose. These include:
Because of this, it is worth getting to grips with digital property tools which allow you to store your documentation online. With a digital library you will not have to worry about losing your documentation and can download copies whenever necessary.
It can be exciting to realise that you have enough capital to expand your property portfolio. After al, this means that you are ready to move up in the world, right?
Well, it’s really a bit of a ‘yes and no’ answer. As with any business decision, it is important not to rush in blindly. Instead you should take your time in finding a good deal. You want a home which will be guaranteed to bring in tenants, even if it needs to be fixed up first.
The first step will be deciding where to buy. There are a number of ‘rental hotspots’ in the UK where the market is booming and there is plenty of money to be made. However, while it can certainly be worth investing in these areas, you should be cautious of how far they are from where you live. If you cannot get to them easily, it could be worth having a property manager on hand for if something goes wrong.
A local estate agent will be particularly helpful here. They will know more about the market in their area than any articles you can find online and should be able to recommend properties to suit your portfolio and budget. Importantly, they can also provide advice on what kind of renters you can expect so that you can shape the property accordingly. For example, young professionals may care less about you turning living areas into extra bedrooms than families who want social spaces.
Next, consider your new property’s future potential. Could you boost its value and attract wealthier tenants with a few home improvement projects? Are local prices growing steadily enough for you to be willing to tolerate a low rental yield for the first few years? Again, a local estate agent should be able to help you answer these questions - never underestimate the value of local expertise!
Going into a buy-to-let mortgage is another aspect of property management which you cannot afford to rush. You should only choose your deal after assessing the market, ideally with the help of an independent mortgage broker who can walk you through each of your options.
‘Independent’ is the key word here. Any mortgage brokers tied to banks or estate agents will be eager to sell the rates offered by their employer. If there is a better deal elsewhere, they will not want to let you know and risk losing your business. By getting help from an independent broker you can enjoy an unbiased view of the wider market, making it far more likely that you will find the perfect deal to suit you.
At this point it is also worth talking about insurance. No responsible landlord views insurance as an unnecessary expense; so many things can potentially go wrong at a single property, let alone several, that it is simply not worth the risk of going without. Most buy-to-let mortgage providers will also expect you to get landlords insurance as part of your contract.
‘Landlord insurance’ will typically protect your building and its contents while also providing cover elsewhere. For example, ‘rent cover’ will ensure that you can keep paying back your mortgage in the event that tenants are late in paying you. If you are taking on a policy across multiple properties, you should also be able to get a discount, so remember to haggle!
One final thing to mention about mortgages is that you should not take your deal as final. If you keep an eye on the market, you may eventually notice a better deal, such as one which offers smaller payments over a longer period. When this is the case, it is definitely worth considering a changeover in order to make things easier for you.
You might be surprised to hear that many modern landlords go out of their way to never meet their tenants, instead allowing property managers or estate agents to handle anything that needs face-to-face time. Indeed, it can be difficult to treat your portfolio like a business when you know your tenants personally.
However, regardless of how much time you want to spend actually dealing with tenants, they will still need an efficient way to get in touch with whoever is managing their home. At some point they may need urgent repairs, or if the property is a HMO they could end be having trouble with their housemates.
Regardless, if issues go unreported then they will usually only get worse. You should also keep in mind that if a tenant reports an issue and their landlord then fails to act on it, the tenant cannot be held responsible for a higher repair bill down the line.
To avoid this, make sure that your tenants have an email address or phone number to use in emergencies. You may even want to consider a digital property management tool; many of these offer an in-built communication feature, almost like a private chatroom between tenants, landlords, property managers and tradesmen.
Just to be even more safe, you may also want to give your tenants a list of issues which are worth contacting you or your property manager about. These include:
For a landlord, security is about keeping two things safe: your assets and your tenants. However, many landlords believe their peace of mind justifies constantly popping in to check on their properties, regardless of what their tenants have to say about their privacy.
Unfortunately, being a landlord does not quite work that way. While you are certainly within your rights to keep keys to each of your properties, you cannot legally enter them without giving your tenants at least 24 hours’ notice. Every so often a tenancy agreement is drawn up which supposedly disregards this minimum, but any clauses which do so would be considered illegal.
So, how do you guarantee the security of your properties without keeping a constant close eye on them? The answer is to make sure that all external doors, locks, windows and gates are professionally installed. For example, you can tell that a lock is top quality if it has a Kitemark from the British Standards Institution, but you would also need to have it installed by an experienced locksmith.
Another thing to consider is how you will keep track of all of your keys. Nobody likes carrying around dozens of keys and having to sort through them at every door they come across. Instead, you could consider a ‘master key system’, which will give you a master key to unlock any of your properties (each tenant will have a key unique to their own home). You can also ‘patent’ each key so that they cannot be legally reproduced without proof of ownership.
And, of course, be sure to keep a record of who has what keys so that you can get them back at the end of a tenancy!
Despite what the growing generation of renters might think, landlords do not get to just sit back and wait for the money to roll in, especially once their portfolio starts to expand. With so many factors going into managing a single property, let alone several, it can be difficult to stay on top of everything. Sadly, this difficulty will not be an adequate excuse should a mistake result in legal action.
Because of this, many landlords choose to hire a ‘property manager’. Now, this may be a sensitive topic; after all, property managers can take 8-15% of a property’s rental income as payment and there have been numerous cases of bad candidates taking their fees without delivering a decent level of service in return.
However, it is definitely worth considering the potential benefits. Property managers can cover everything from marketing a property and conducting viewings to calling in tradesmen and creating tenancy agreements. All of this depends on exactly what kind of service you need, with most property management companies offering numerous packages.
It is also worth thinking about how much money you could lose by not hiring a property manager. For one, finding your own tenants is not free or particularly safe; while there are supposedly ‘free’ websites, for example, you will usually need to pay for a premium membership to find the best tenants. Failing to find them on time could also leave you with drawn out void periods with no rent coming in whatsoever.
Meanwhile, if you allow your properties to fall below legal standards, you could wind up in court facing a serious fine or even time in prison. A local council could even arrange any necessary repair work and then send you the bill.
It may even be that donating the necessary amount of time to managing your properties would get in the way of another source of income - the majority of landlords only own one or two properties, after all!
Considering how much time, effort and money you would need to spend handling eventualities like this, it could make more sense to simply hire a property manager to take care of things.
However, that is not to say that you should just hire the first firm you come across: