What skills will I need to be a successful landlord?

Solid people skills

Letting property is – almost above all else – a ‘people business’. Even if you never intend meeting a single tenant, buying a temporary home for someone else requires you to have some idea of how they live. Only then can you match what type of management you’ll need, to what you (or your agent) can provide.

And be realistic

There simply aren’t enough ‘professional non-smoking high-earning cleanliness freaks’ out there to sustain your hopes let alone an entire industry.

Successful investors make informed decisions. They don’t guess, or take advice from a kid in a letting’s agency. They know – long before they buy – a skill that you need to start acquiring long before you start spending.

Rush buys can be mistakes. Guesswork is for the foolish. And auction bargains are for experts – not beginners.

What this statement means is that you need to know long before you purchase a thing who your prospective tenants might be, for what kind of money and whether this figure will match the figures you have in mind to make your goals work. For a decade at least.

Never embark on the understanding (or let an agent convince you) that there’ll be wild rent hikes just down the line – that ball has rolled. You need to become self-reliant in order not to become someone else’s commission groupie. So here’s a timely anecdote!

How much will I be able to borrow?

Thinking the above anecdote through logically, takes us to another industry issue.

Many lenders rely on letting agency rent valuations and use factors of 130 per cent to calculate how much they’re willing to lend. Now, it’s all well and good oiling the wheels of your deal – but this type of borrowing can’t be based on pie in the sky figures. Rentals are supposed to make money for landlords somewhere along the way. What Buy to Let (BTL) should never be allowed to become is a way to obtain sales for estate agents. Or a commission generator for mortgage advisors. Nor indeed another way for lenders to encourage overheated borrowings. Never forget you’re not the only one here who’s looking to make a profit.

Banks don’t ‘lend’ … they ‘rent’ money. Of course, that wouldn’t look quite so attractive on the posters and leaflets – so the nice linguistic ‘lending’ has been hijacked. Take nothing at face value, especially not a willingness to ‘lend’ against a property. What’s the lender got to lose? You provide them a nice little cushion by putting up the first 20 per cent. Plus, they get interest monthly. If the whole thing goes belly up, tell me who has the most to lose – you or the lender?

First find your customers

Pricing buildings for sale or calculating likely rent is not a precise science. How much rent you’ll actually receive on any type of unit depends on the local supply of tenants – and on nothing else. (See Lesson 2: Mock advertising to learn how to value before you spend one penny.)

What market opportunities genuinely exist?

The market opportunities are vast – enormous – behemoth – colossal. Remember the old adage ‘it takes all types’, well never more so than when servicing tenants.

There is a vast range of tenants looking for homes. Some tenants are as rich as Croesus, some are very poor, and most fall somewhere in between. The ultimate determinant for landlords and tenants alike is money. Therefore learning to crunch your numbers with reasonable accuracy is essential.

This is a customer business. And that’s the only consideration that matters – because the only way to make money in the let property game is to have a good supply of them. That way the worst that can happen is that tenants will – over time purchase a building for you! Not a bad premise. (And if this isn’t your first premise you should be looking at the other, equally valid, investment types of property speculation/development, which are quicker but riskier.)

How do I begin my research?

Think about what tenants there are in the areas that interest
you

Decide realistically what slice of this vast market you’d be servicing within your budget. Clearly, the higher the budget the greater the range of options. But all the types identified here offer real investment opportunities.

Low cost units or shared housing

Less affluent tenants always have and always will fill rental property in less affluent areas. Low waged (or even no waged) tenants walk further to catch the bus or tube to save money. And believe me, low waged tenants are much thicker on the ground than well off ones. What’s more, landlords servicing this end of the market positively flourish. Youngsters don’t always dust much – or bleach the loo – but they pay out billions in rent each year. However, shared units are about to feel the hot breath of the new HMO laws, so you might prefer to buy into smaller units. The ideal rental unit is usually a studio or one-bedroom flat, though these aren’t necessarily the best bet for capital appreciation. Quid pro quo.

Most shared accommodation works on a collaborative basis and is often wrongly regarded as exclusively a young people business. But many older adults thrive in bed sits (where each unit offers a degree of privacy and separation but some facilities are shared). It may surprise you, but there’s a real place for this niche housing all over the country – even when costs of complying with HMO regulations are factored into the equation.

Families

Families are as rare as hen’s teeth in the private rental sector. Some landlords do incredibly well by working in partnership with housing associations or local authorities; usually offering accommodation to what’s inaccurately referred to as DSS but what’s actually the Housing Benefit end of the market. Many housing associations, local authorities and charities offer Head Lease Schemes to landlords, where (given the building meets certain standards) they, (sooner than any individual family), become your tenants and take over all management and repair functions, leaving you with nothing more to do than bank their regular cheques. These arrangements can offer excellent long-term renewable contracts of around five years, where rent is guaranteed by the organisation and they also guarantee to return your property at the end of the contract in good condition.

There is a limited middle-income family market – though in general most people prefer owning to renting when they need security for their children. Landlords embarking on buying property for the family market need to realise that the market is limited and a three-bedroom semi without a family may often become a house share or sit empty.

Landlords considering buying for sharers and all existing landlords need to factor in the costs of full statutory compliance and new annual Licences into their purchase/maintenance/refurbishment figures (see Lesson 13: Houses in Multiple Occupation). Sharers will still always occupy a large proportion of the market because demand is huge – so long as you are completely realistic about safety requirements.

The student market

Student landlords are another independent breed, who, up and down the country, do very nicely from their slice of student borrowings. Others wouldn’t touch it with poles.

But be wary. Many universities have made long-term commitments to creaming this money off for their own coffers and have huge building projects underway. If so, think about how you’ll compete before you buy. With a steady pool of freshers and worried parents who watched Rising Damp, universities are in a much stronger competitive position than the average student landlord is.

Good student landlords are a hardy breed. They’ll don rubber gloves and wield paintbrushes at the end of term to keep themselves competitive in a frisky market. But successful student landlords need more than that. They need to understand and probably like young people who don’t always behave as well as they might and who are often under enormous financial pressures. They also require the financial restraint to build a healthy bank balance between September and June.

Whatever niche you choose, property is never a quickie.

Do be wary of the university admissions department suggesting that you ‘buy to let’ for the duration of your daughter’s degree. These set up and disposal costs only make sense over a period of years. Prices may well have peaked in areas where this idea was ever viable. Beyond those issues – friends fall out. Your daughter will make a lousy landlord and won’t have the skills to manage her new friends. And the taxman will certainly come after any genuine rise in property value at punitive rates. Do the sums – factor in your absence after three short years and walk away if you can’t make the numbers crunch for ten!

Mid-priced units

Many landlords live and operate in the mid range of the market. Here, you’ll find hundreds of thousands of tenants on a renewing basis each year – who do thankfully – fall into a few main groups.

Under 35s

Often single or in couples/pairs, these tenants are looking for smallish units that are decent, convenient and affordable. But ignore all the two beds as a must ‘puff’. Most tenants can’t afford to rent a spare room. Tenants tend to rent the minimum that they need, not what they aspire to.

Over 50s

Often male and often with wives wanting a short bit of breathing space. Snatch them up fast – they can make excellent long-term tenants. Or you may be letting to new, older couples. Nest leavers will pay a small premium for something with a few of the comforts they’re used to at home but not too many – cost can be a real eye opener to a guy whose wife did all the decorating. I still have a tenant who fits both the above categories and he’s been a tenant since 1989. Good tenant selection, you can’t beat it!

The huge miscellaneous category

Then there are all the other people who don’t fall into any particular category. People who move job and who need to bed into an area. People who work from a small unit then go home for weekends. People trying out new lives. Families with 2.4 kids and a Labrador testing out local areas. One or two adulterers (believe it or not in this day and age) who want a little place ‘on the quiet’! As landlords, you’ll meet them all. And I guarantee that you’ll be pleasantly surprised at just how many really nice people there are out there who want nothing more than a decent place to live with a fair minded landlord. Most have no intention of trashing the place. And, despite what you hear, the vast majority of tenants live, pay rent, give notice, clean up and then move on.

High cost units

There is one caveat to the logic of becoming an independent landlord that covers this small niche. Wealthy tenants demand their money’s worth. High value units invariably have very demanding tenants who equally require very intensive management. If this is the niche you’re hoping to service, you’ll need more than hope to survive. The tiny ultra rich share of the market remains the almost exclusive territory of one or two highly specialised and long-standing agencies that have a century or more of experience in handling the (mainly London) mega rich bracket. And gosh, can this type of tenant play hardball. Many landlords come to grief by investing heavily – but still falling well short of what these tenants demand. It’s a tough cookie to crack and not cost effective for most landlords.

So, what are landlords hoping to find?

One or more properties in appropriate locations that satisfy that timeless business equation.

Time + market conditions + regulations = a chance to succeed

How to check out what you’re being told by agents and
others

Do not allow the local estate or lettings agent to quote crazy prices and wildly optimistic yields without checking them yourself. Believe nothing that can’t be proved – and preferably get everything in writing. Ask to see signed leases which prove these high rent level estimates. Check what prices recent properties have sold for by checking on the Land Registry website for factual information.

Choosing the right property at the right price can take ages. Worthwhile research takes time, accurate information and very steady nerves. That old cliché ‘spend for pleasure, repent at leisure’ just about sums up this business.

So, how do I make good choices?

Having decided what property niches in the area interest you, it’s time to start detailed checking. Read the local property to let columns thoroughly and find properties that sound similar to the ones that interest you. Isolate areas of interest and start walking. What kind of area is it? What kind of property round there is the norm? Beware of tying to buck local trends. Doing up a house beautifully will not improve its location or even necessarily the rent. Improvements need to be included in your overall setting up costs – so think carefully before you buy (nor are they tax deductible until you sell, see Lesson 15: The tax man’s take). Be ruthlessly realistic about how much rent you’ll achieve locally by mock advertising. Rental norms for the area will always outweigh your efforts with a paintbrush.