Owning a buy to let property has the potential to be lucrative. This is especially the case if your property is in an attractive location, such as the capital. Should you have several properties in your portfolio then there’s the potential to make a profit.
However, according to a 2018 survey by the Ministry of Housing, Communities and Local Government (MHCLG) – the first of its kind since 2010 – most landlords owned just a single property (45%) and just 38% own between two and four properties. The reasons for this come down to individual circumstances, but a lot of it could be due to the level of risk involved with owning buy to let properties.
But what types of risk are there? Here’s a look at some of the main issues that landlords face.
Cost of owning property
A major risk is to a landlord’s finances. Many landlords will use the rent they receive from tenants to pay off the mortgage on the property. If there are a few properties in their portfolio, getting the numbers right is crucial as there are serious implications if mortgage payments can’t be met.
In addition, there’s the cost of furnishing the property. Even unfurnished properties need carpets, window dressings and some white goods. These will need to be bought and then replaced over time as tenants use them.
Getting the paperwork right
There’s the paperwork to work out. Energy certificates and licences are needed. By not completing these properly, there could be legal implications.
Also, landlords will need to consider how they insure their properties. Not all insurance is a legal requirement and there are different types of cover to invest in, but choosing dedicated landlords insurance offered by a well-known provider such as HomeLet will provide added peace of mind if things go wrong. For example, if tenants don’t pay rent on time or the property has been damaged, having insurance in place can protect landlords in the long run.
Shifting economy
The way the economy looks plays a huge role in how successful investing in buy to let properties will be. Huge events, such as the economic crash in 2008 and now the COVID-19 pandemic all have an effect on the property market and house prices can be severely affected when the economy takes a turn for the worse.
It can mean that buy to let properties are less likely to be let as fewer people can afford to rent. This, in turn, means landlords have to rethink how much they rent their properties out for.
Interest rate rises
If interest rates go up, properties become more expensive. This means that the investment put in by landlords can be in a perilous position and mortgages can become more expensive. This means that landlords with several properties in their portfolio may have to up their prices or consider selling.
Is it worth it?
There is plenty to weigh up when it comes to starting out as a landlord. Knowing the risks that owners of buy to let properties face is a good starting point as it sets out expectations early on.