Guest blog: Is it possible for landlord investors to be completely ‘hands-off’?

This is a guest blog provided by Ben Gosling at Commercial Trust.

Is it possible for landlord investors to be completely ‘hands-off’?

Research published back in May suggested that the main objective of 50% of buy-to-let investors was to secure income for retirement; yet less than one in ten respondents have a five-year investment plan. By taking such a relaxed approach many individuals are, in effect, leaving their investment to chance. House prices do trend upwards in the medium to long term, and a landlord who focuses entirely on capital gains can still be successful.

However, being a landlord is about more than making an investment; it is about providing a service, complete with a catalogue of legal and professional obligations to your tenants. As such, a letting agent is just about essential for a landlord who wants to be an armchair investor.

Choosing a letting agent

The services that letting agents offer vary widely, from ‘let only’ services (which involve finding a tenant, drawing up an agreement and then handing the baton over to you) to full management. You should opt to use an agent which is:

a) Accredited – your chosen agent should be a member of a professional body such as ARLA (the Association of Residential Letting Agents), NAEA (the National Association of Estate Agents) or RICS (the Royal Institute of Chartered Surveyors)

b) Experienced – find an agent who has been active for several years, with good local knowledge and experience managing properties similar to your own

c) Recommended – knowing that your agent will run your property efficiently and professionally, and find you good tenants who will pay the rent on time and take care of the property, is a must. Online review sites (such as www.allagents.co.uk) are an excellent source of honest customer feedback.

Remember: Agent or no, the ultimate responsibility for the fulfilment of certain obligations – such as keeping your property safe and well-maintained – falls on you. You need to find an agent whom you can trust to run your business professionally and accountably.

Choosing an accountant

Furthermore, as a landlord you will need to pay tax on any profit you make. Unless you want to navigate the complex world of income tax self-assessment, you will also need an accountant. As with lettings agents, your accountant should be an accredited member of a professional society such as APA (the Association of Practicing Accountants) or SPA (the Society of Professional Accountants). Use the internet and word of mouth to find reviews and feedback, and consider using resources such as www.choose-your-accountant.co.uk to compare quotes. If you wish for your accountant to deal with HMRC on your behalf, you will need to authorise them to do so. See the HMRC website for more details.

Remember: Tax evasion is thought to be especially prevalent among landlords, and HMRC is currently scrutinising the sector for unpaid income tax. You should only use accountants who are reputable and qualified.

Squeezed margins

Hiring agents and other professionals cost money, and by ceding oversight to them you will decrease the profit you make from your rental income. If you want to maximise your income you may wish to take a more hands-on approach.

However, the responsibilities and obligations which fall on you as a landlord are considerable. You should only consider administering these yourself after seeking reliable education and advice, and when you are clear on where you can go for support if you or your tenants encounter problems in the future. Numerous landlord organisations exist such as the Residential Landlords Association providing information and training, and guidance will also be available from your local authority's website.  

Funding your property purchase

So we’ve established that armchair investors are likely to be seeking long-term gains. Longer game plans bear fruit when the property is unencumbered (i.e. it is owned outright), and can either be sold for a profit or rented out indefinitely. In the meantime, your buy-to-let mortgage is likely to be your biggest expense, and choosing a mortgage is one facet of the business that you really should seek advice on. Only you can make the final decision as to which mortgage you get, but an experienced broker will be able to help you find one that is suitable for your circumstances.

Many buy-to-let mortgages are taken out on an interest-only basis; however, if you intend to own the property outright when you retire, you might consider a repayment mortgage. The upside of this is that you will pay less interest over the mortgage term; the downside is that your repayments will be much larger, which is likely to mean your rental yield will be low for the duration of your mortgage. However, once your mortgage term ends, your rental yield will increase significantly, and the principal of the loan will be paid off.

Note: Part-repayment buy-to-let mortgages also exist. These allow you to build up equity in your property and reduce your interest payments by paying off a portion of the loan.

There are many more mortgage features to consider. Would you like a fixed or variable interest rate? Would you like the facility to make overpayments, or switch mortgage without penalty? Do you choose a slightly higher interest rate or pay a higher arrangement fee? How often, if at all, do you intend to switch mortgages? Until you know exactly what your goals are, you will be unable to answer all these questions. Talking to an experienced buy-to-let mortgage broker about your plans is recommended, as they will be able to help you find a suitable product to finance it.

Once you have chosen your mortgage, if you wish, you can distance yourself from the process and leave everything to a trusted, licensed conveyancing solicitor. Your home may be repossessed if you do not keep up repayments on a mortgage. Some buy-to-let mortgages are not regulated by the FCA.

Conclusion
To sum up, I shall revisit my original question: is it possible for a landlord investor to be completely ‘hands-off’? The answer is not completely: between finding a property, the right mortgage to fund it and the appropriate professionals to run it, some legwork is still required. However, with research and flexibility, you can have everything in place that you need to let your business take care of itself.

 

 


Posted by Ben Gosling, Commercial Trust on 19 August 2014

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