Friday, 28 November 2008

Buy To Let - Beware Of The Extra Costs That You Have Not Budgeted For

I have been involved with the property business in England for nearly thirty years. I had been part of that sector of the community that owned investment residential property before it was fashionable and it was interesting to try out the reality in 2006 of “Buy to Let”.

The plan was to purchase a one bedroom apartment in an area with plenty of employment, close to good communications and that would not need too much capital expenditure on it. Being involved with the residential letting market in the south of England, I know that a lot of areas are being too well developed. Numerous blocks of apartments are being built and investors contact the agents and say they will buy three or four apartments in the same development.

They then wonder why they are not let quickly and often discover that in a development of say 100 apartments, only 20% are owner occupied and the remaining 80% have been bought by investors.

The prospective tenant is spoilt for choice although many investors do not want to go to the expense of furnishing a property. They need maximum return on their investment and will often approach local letting agents wanting their fees cut.

My search was therefore in a more established area, an older property that would let well and not as expensive as a brand new slightly more modern property.

Most of the research was done on the Internet and eventually a couple of suitable properties to look at found. A decision was taken immediately and as the finance had been agreed within a week the Mortgage Lender’s surveyor had inspected the property.

We had found a property that had wood laminate floors, would need decorating and some updating in the bathroom and had been let out for the past couple of years.

The process started early in August and by November the deal was completed. The decorating contractors moved in. The extra expenditure also started. On closer examination the kitchen flooring had to be replaced, the small number of tiles on the kitchen walls had seen better days and had to be replaced.

The good news was the local letting agent had found a tenant (whilst the work was going on, although we had not instructed them too early as tenants normally like to see the finished product) and this person wanted to move in before Christmas that was just around the corner.

The property looked good; the tenant moved in – a complaint within a few hours – no water pressure. There is a shower mixer tap in the bath, but although it looked good, did not really work.

I asked the contractor to take a look at it. There was no point in putting in a pump as the hot water tank was too small and the cold water feeder tank equally small. The property was built in the late 1980’s and it would take hours to fill a bath!

There was only one alternative – a new water system. Unfortunately this could not be fitted till after Christmas as it had to be ordered and with the annual Christmas closedown in the UK our tenant was not going to be able to have a proper bath or shower. Fortunately this person was going home overseas for Christmas.

In early January the job was completed. Some £1,500 of additional expenditure that was not budgeted for.

Remember Always add on an amount to your budget for additional building work or repairs that you thought would not be needed.

Allow for that fact the Mortgage interest rates seem go up more frequently than come down.
There can be void periods before or after a tenancy when bills still have to be paid.

Be flexible regarding furniture. A lot of people simply do not have furniture so check out local market conditions. You can do this by talking to a local letting agent or viewing properties on the web. In the UK there are a lot of property portals offering rental property.

Finally make sure that you take out the appropriate Landlord’s insurances.
Philip Suter is a Director of jml Property Services; a UK based company offering Insurance products on line at and a holiday home advertising service and management training within the uk. He a travel writer and is a very experienced property consultant with over 30 years work in the Residential letting business in the UK and served on the National Council of ARLA. He is a Fellow of the National Association of Estate Agents (NAEA) and a Member of The association of Residential Letting Agents (ARLA)

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