The Complete Guide to Property Investment

by Rob Dix

  Even after following these tips to put a good agent in place, I still strongly recommend understanding at least the basics of lettings law and practice – because again, it’s you who’ll be on the hook for any mistakes, so it pays to keep an eye out for anywhere that they may have slipped up. And mistakes can happen: even if the company has come highly recommended and the owner is a property investor herself, you can’t guarantee that they won’t get busy and leave the 17-year-old Saturday boy in charge of drawing up your tenancy agreement.

  Successful self-management

  Self-management can be seen as a sliding scale. At one end, you’ve got what probably first comes to mind: doing every last thing yourself. If that’s what you want to do, that’s fine – but it’s only one option.

  At the other end, you’ve got what I used to do in my self-management days: retain overall control but outsource every individual job. It was still my phone number that the tenant was given, but whenever something needed to be done I instructed someone else.

  Granted, by the time you’ve outsourced all the main jobs, the price difference between that and just paying an agent will probably be minimal – but if you prefer to keep hold of overall control, it’s a way of escaping the binary choice of “do it all yourself” or “hand the whole thing to someone else”.

  In the middle of these two extremes, there’s plenty of leeway: you can do the bits you want to do, and put someone else in charge of the rest. It’s up to you where on the spectrum you want to fall – but my intention is to show you how to keep your focus on investing, and not let you get sidetracked by counting teacups or combing through an applicant’s bank statements.

  What can you outsource?

  Finding a tenant. As I’ve already said, depending on the property’s location you can probably find an agent to offer a “tenant find” service for around the £250 mark. The alternative is to advertise the property on the portals yourself for £50–100 (via a service like Upad), but you need to see if you’re still saving money after factoring in the cost of your time for doing all the viewings and administrative chores.

  Referencing. Search “tenant referencing” and you’ll find all manner of companies who will undertake a full reference for around £25. This typically includes checking their identity and verifying their current address, searching for adverse entries on their credit file, checking affordability, and taking up references with their employer and previous landlord. Why on earth would you choose to do that yourself instead of paying £25?

  Inventory. A quality inventory (correctly known as an “inventory and schedule of condition”) is absolutely essential. Without one, you’ll automatically lose any claim to make a deduction from your tenant’s deposit – because you’ll have no record of the property’s condition at the start of the tenancy. A good inventory is thorough, impartial, and contains plenty of date-stamped photos so there can be no arguments about its contents. If you don’t fancy doing this yourself, just search for “inventory clerk [location]” – prices will start somewhere around £80 and depend on the size of property and level of furnishing. The check-out at the end of the tenancy can be outsourced to an inventory clerk too.

  Repairs. I’d say that the most valuable members of your team are a reliable jack-of-all-trades handyman and a plumber/gas engineer: the most common problems I come across fall under the categories of leaks, hot water problems and “general stuff”. Unless you’re operating at the kind of scale where you can offer someone so much work they’ll never fail to pick up the phone to you, finding someone reliable who’s not busy when you need them is a constant challenge. If you don’t already have the right person on hand when disaster strikes, I recommend using a site like mybuilder.com or checkatrade.com. You place your job, contractors bid, and you can see their reviews from previous clients to assure yourself that they’re up to the task.

  Bits and bobs. For those random tasks that require an in-person visit, there’s normally a way to find someone else to do it. In London there’s taskrabbit.co.uk, nationwide there’s gumtree.com, or you could try posting a request on a local message board like streetlife.com. You could even decide to outsource periodic inspections in this way, by sending in someone armed with a simple checklist and ask them to snap photos on their phone of anything that looks important.

  Rent collection

  Rent collection isn’t something to take a laid-back attitude about. Even if you’ve got plenty of breathing space between the date the rent comes in and the date your expenses go out, I recommend getting on the tenant’s case the instant – not quite 12.01am, but as close as is socially acceptable – the rent due date has passed. You’ll have tenants who are always going to be a dream and tenants who will always cause you trouble, but there are a large proportion in the middle who can easily go either way. If you fail to demonstrate that paying the rent is a non-negotiable ingredient in them having a quiet and pleasant life, it can easily slip down their list of priorities.

  Call me heartless, but I really don’t have any sympathy for late payment: I keep my side of the bargain in providing a good home and making repairs promptly, and I expect the tenant to keep theirs in paying the rent as agreed. I’m amazed by the number of landlords who accept erratic payment dates, part-payments around Christmas and an extra tenner a month here and there to reduce arrears. While in some sectors of the market it’s probably a reality of doing business, in most cases it should be possible to find a tenant with the means and willingness to pay on time, every time. There’s wanting to be understanding and recognising the fact that anyone can fall on hard times, and there’s being a soft touch – and I genuinely think that more landlords than necessary fall into the latter category.

  A nice option is to take payment by direct debit using gocardless.com. You send the tenant a link to set up the arrangement, you get confirmation that it’s been set up, then – and here’s the clever bit – you also get a notification if the arrangement is cancelled. The fee is £2 per payment, and is well worth it because it puts you in control: rather than wondering if a standing order has been set up or if it’s been cancelled, you’ll know exactly what’s going on so you can take action before the rent just doesn’t show up one day.

  Communication

  A lack of communication is where many landlord/tenant relationships fall down. If a tenant feels like they’re not being listened to, they’re more likely to leave and less likely to take pains to look after the property.

  But there are limits. I don’t recommend giving out your personal mobile number, nor taking calls outside office hours. If you answer the phone at 11pm once, you can expect more 11pm calls in future – even if the problem isn’t urgent.

  (I know I’m coming across as a heartless ogre in this whole chapter, and most tenants are great people who have no desire to unduly bother you or take advantage. But I think it’s helpful for everyone to know where the line is drawn – and providing a good home doesn’t have to mean being reachable on demand 24/7.)

  Instead, I recommend either getting a separate phone number, or – better yet – using a professional call-answering service who can pass messages on to you. If you search for “call answering service” you’ll find companies who will charge by the call (somewhere in the region of £1 each time) instead of a monthly fee – so it’ll cost you very little.

  Where possible, it’s actually better to communicate by email. This isn’t something that all tenants will be willing or able to do, but I consider it ideal because it doesn’t interrupt whatever you were doing and it establishes a trail of proof in writing just in case it’s needed. Again, set up a dedicated address that forwards to your main inbox.

  Aside from the logistics of communication, the main principles of communication are to be responsive, professional and honest. You can find yourself having conversations about emotionally charged issues – like wanting to increase the rent, or the tenant having a difficult change in circumstances – and those conversations will be easier if you�
�re clearly a decent human being yet aren’t their best buddy. If a tenant isn’t comfortable talking to you, they might end up withholding important information out of embarrassment or mistrust – which leads to worse outcomes when the truth comes out.

  The management process

  Whether you decide to use an agent or do it yourself, it’s important to understand the main tasks that go along with managing a property. If you’re self-managing, this section can serve as a checklist of what needs to be done. If you’re using an agent, you can use it to make sure they’re doing what they’re supposed to do (and simultaneously be grateful that you don’t have to do it yourself).

  There’s a heck of a lot of detail behind all of this – but as I’ve said, that’s a book in itself. Where more information would be useful, I’ve linked to the official UK government site. It doesn’t cover every topic in massive detail, but you can at least be sure that it’s been updated with any changes in legislation since your copy of this book was printed.

  Quick note: certain aspects of property management differ between England, Scotland and Wales. In this section I cover what’s applicable in England, so if your property is in Scotland or Wales you should check to see what differs locally. (You might find the National Landlords Association (landlords.org.uk) a useful place to start.)

  Before marketing a property to let

  Get any consents you need, such as from your mortgage lender (if you’re using a residential mortgage) and freeholder (check your lease to see what your obligations are).

  Obtain an Energy Performance Certificate (EPC) – which is legally required before you can market a property. These last for ten years and you can search epcregister.com to see if the property already has one.

  Pre-tenancy

  Conduct thorough reference checks.

  Check that the tenant has the right to reside in the UK (see gov.uk/check-tenant-right-to-rent-documents).

  Register the deposit with an approved government scheme within 30 days of receiving it (see gov.uk/tenancy-deposit-protection/overview).

  Issue the tenant with the “prescribed information” provided by the tenancy deposit scheme within 30 days of receiving the deposit.

  Issue the latest version of the government’s “How To Rent” leaflet (gov.uk/government/publications/how-to-rent).

  Draw up a tenancy agreement and get the tenant to sign it (see gov.uk/tenancy-agreements-a-guide-for-landlords/tenancy-types).

  If the property has a gas supply, make sure the last gas safety certificate was issued within the last year and give a copy to the tenant.

  Make sure an electrical safety check has been carried out within the last five years, and conduct a visual check of the electrical installation.

  Draw up a thorough inventory with date-stamped photographs, and give the tenant seven days to request any amendments.

  Check that smoke detectors and carbon monoxide detectors are working on the first day of the tenancy.

  Inform the utility suppliers of the change of occupant and supply them with opening readings.

  Inform the local authority’s council tax department of the change of occupant.

  During the tenancy

  Inspect the condition of the property regularly (at Yellow Lettings we do it six weeks after move-in to make sure they’ve settled in, and every six months thereafter).

  Check the smoke detectors and carbon monoxide detectors on every visit.

  Chase up any late rent payments immediately.

  Respond promptly to any notifications of repairs that are needed.

  Renew the gas safety certificate annually.

  At the end of a fixed term, negotiate a rent increase if justified (see gov.uk/private-renting/rent-increases).

  At the end of a fixed term, decide whether to leave the tenancy “rolling” or ask the tenant to commit to another fixed period.

  Ending the tenancy

  Issue a Section 21 notice two months before you require possession of the property, which can’t be any earlier than the end of a fixed term (see gov.uk/evicting-tenants/section-21-and-section-8-notices).

  Check the tenant out by comparing the condition of the property to its condition in the opening inventory – ideally with the tenant present.

  Make sure all sets of keys are returned.

  Agree any deductions from the deposit with the tenant. If you can’t reach an agreement, apply to the deposit scheme for dispute resolution.

  Release the balance of the deposit within ten days of deductions being agreed.

  Extra protections

  As a landlord you’ll need buildings insurance (unless it’s included as part of your service charge), and you might optionally decide to insure your contents if you let the property furnished. On top of these, there are extra policies you can take out to smooth out the bumps of property ownership.

  One such policy, which has become increasingly popular over the last few years, is rent guarantee insurance (RGI). As the name suggests, it’s a way of guaranteeing your income stream: if the tenant stops paying the rent, the insurance will kick in and make monthly payments to you. It will continue until the tenant either gets back on track or leaves, and some policies also cover the legal costs of the eviction process.

  In principle, I’m a massive fan. Some people argue that insurers will only take on “safe bets” in the first place (they insist that the tenant passes their referencing process), and note that the insurance company needs to build in a margin so in the long run you’d be better off without. This is all entirely true, but I’d far rather come off worse in cash terms in exchange for having the worry of non-payment completely removed. Taking out RGI also means you can afford to hold a smaller reserve fund: rather than potentially having to meet eight months of expenses with no income (a nightmarish but entirely possible amount of time to evict a non-paying tenant) the insurer will pay you and you can use that money to pay the bills.

  In practice though, RGI policies often come with a giant list of caveats, exceptions and excesses. They often won’t take effect until payments are a month in arrears, might then take another month’s payment as an “excess”, and sometimes expect the deposit to be used to cover the missing rent before they start paying.

  At Yellow Lettings we have a bespoke policy that takes effect the day the rent becomes late, with no excess at all – so I benefit from that, as do all our landlords. If I had to pick from the offerings available on the open market, I’m not sure what I’d choose to do – but it’d start with a lot of research. Search for “rent guarantee insurance” and you’ll be inundated with options. Don’t just go for the cheapest: read the terms in detail to check what’s covered, and make sure you’re happy with the peace of mind you get for the price.

  Another type of insurance of which I’m a definite fan is emergency cover. Policies vary, but this typically covers emergencies relating to heating, hot water, electricity, sanitation, security (external doors and windows) and pests. The idea is that you’re given a 24-hour phone number to call in the event of an emergency, and someone will come out to resolve the situation free of charge.

  As they’ll only do whatever is necessary to stop the situation from being dangerous, it doesn’t mean that you’ll never need to pay for another repair again. But even if they’re unable to permanently resolve the issue, by avoiding an emergency call-out charge and being able to arrange a proper repair later you’ll save the year’s premium at a stroke.

  The other big advantage for self-managing landlords is that the 24-hour number can be given to your tenant, so if the boiler breaks down at 11pm, you won’t get the call – the insurance provider will. All being well, you won’t even find out about the problem until it’s already been fixed.

  I use Surewise (surewise.com) and have never had any problems with them, but if you search for “landlord emergency cover” you’ll find lots of other options. Just bear in mind that, like with all insurance, they make it easy to buy and not always so easy to claim. Read
the small print to find out what is and isn’t covered – with boilers, for example, it often must be under a certain age and be serviced every year.

  Chapter 13

  Tax and accounting

  Seldom has a chapter had a less prepossessing title, but please don’t tune out: this chapter has the potential to save you more money than any other.

  But still, bear in mind that I’m far from being an accountant and I’m not qualified to give financial advice. Anything to do with tax comes in lots of shades of grey (and not even fun ones), so my only intention here is to explain the very basics and get you thinking about how tax might apply in your own situation. Before taking any action, you should read much more widely and take professional advice.

  As this chapter goes on, you’ll see why I didn’t take tax into account for any of my scenarios in Part 1. Even though each property generates the same amount of income irrespective of who the owner is, the tax arising from that income will be totally different for an individual compared to a company, could be different for the same individual over time if they’ve built up a loss elsewhere or if it tips them into a different tax bracket, and can be affected again by whether the property is split between a married couple who have different levels of earnings.