Deposits

An unfortunate tale here, but one in which all landlords should be interested. It shows the challenges we (landlords and their agents) face on a daily basis, and also demonstrates why some 'accidental' landlords become so fed up with the whole process so quickly. With my lettings agent hat on, this is the sort of thing we often get a lot of criticism for, when in reality it's completely outside our control.

At the end of the tenancy, there's often a dispute between landlord and tenant regarding the allocation of the deposit. We encourage both parties to negotiate and ultimately encourage landlords to settle - for reasons that are clearly visible below. Since 2007 all deposits have to be registered (by law) and if landlord and tenant can't agree at the end there's an 'independent' adjudication process. Here's something that happened to a landlord in Northampton.

• The tenant had taken on a modern 3 bed property in very good order. It was decorated magnolia throughout.
• During the course of the 18 month tenancy, he had painted the whole place white, despite there being a crystal clear clause in the tenancy agreement prohibiting this. There was no need to redecorate - just personal choice. 
• The paint job was patchy in places (more coats required). And he had splashed emulsion on the woodwork in every room.
• There was a tenancy deposit of about £800. The landlord sought the whole deposit on the basis that 1) they'd breached the tenancy agreement and 2) they'd made a right mess in the process.
• The tenant disputed the landlord's entitlement to any of the deposit.
• The adjudicator gave just £150 to the landlord, leaving him to foot the rest of the bill himself. 
• The full adjudication (with personal details removed) is viewable here.

From the landlords perspective, this is an absolute nonsense - the property has been fundamentally damaged by the tenant, but the award against the tenant is only £150.00. For the record, the tenant didn't pay the rent either and whilst this was eventually recovered through the courts, the costs of the proceedings were practically the same as the amount awarded. Whilst it's quite right that a landlord shouldn't be able to run off with a tenant's deposit, we now appear have turned full circle and ended up in a situation where a tenant can do pretty much what he wants and get away with it! Organisations such as Shelter who argue tenants need more protection really should be treated with a degree of skepticism!

Insurance

Over the years, one of the most common things I've seen landlords misunderstand is the extent to which they are insured. Of course, they don't realise this until the point of claim, and by that point it's too late. The situation isn't helped by insurers using very similar terms to describe very different things. I've tried on a number of occasions to simplify this for my landlords but given that problems still occur, I've clearly not been that successful! I'm hence going to give it another go here. Equally, we (Belvoir) sell insurance and it's actually really good. We've always tried to not be pushy regarding this, but I'm going to sell the benefits here as I'm aware of how many landlords choose rubbish cover and regret it later.

Buildings Insurance

• "Landlords" buildings insurance is not the same as buildings insurance on a property you live in yourself. "Landlords" buildings insurance has an element of public liability cover in it. So if a tenant falls downstairs and makes a claim against you, your "Landlords" buildings insurance will cover you, whereas a normal domestic policy won't.
• Some policies also cover "loss of rent". This will be following an incident such as a flood or a fire. It's unlikely to cover rent when a tenant doesn't pay it.
• A cheap policy will exclude cover for any damage the tenant causes, or anything their pets do.

Belvoir's buildings insurance policy is comprehensive in terms of what it covers - you can't buy it on the high street - it's available to our landlords only and includes:

• automatic contents cover (up to £5,000)
• cover for up to 120 days of the property being unoccupied.
• damage by the tenant.
• damage by pets.
• following an 'incident', loss of rent and the cost of re-letting.

Rent and Legal Expenses Insurance

• Often referred to as Tenant Default Insurance.
• Covers you if the tenant doesn't pay the rent. 
• Covers your legal / court / solicitors costs in getting rid of that tenant. 
• Carries on paying 75% of the rent for 2 months after the eviction and whilst you relet.

Belvoir's Rent and Legal Expenses Insurance is again very good quality cover - it does exactly what it says with very few restrictions. Common areas of misunderstanding are:

• "I can get a cheaper policy elsewhere". Actually you can get a free one if you search hard enough, but if you think you're comparing apples with apples, you're being optimistic. You get what you pay for, and as anyone who's needed to claim will testify, £130ish per annum per property is cheap. 
• "I'm already covered under my buildings policy". Possible, but highly unlikely. Your buildings policy will pay your rent following an insurable incident (eg a fire). It won't pay simply because your tenant hasn't.
• "But my tenant's been OK so far". A couple of landlords cancel cover each year for this reason. But then what if the tenant loses their job, or the couple in the property split up and one moves out? It's like saying you don't need cover for flood because it's not raining at the moment. 
• "If they can't pay the rent, they'll just have to leave". Yes, but it can take several months to make that happen if the tenant isn't co-operative. And the costs of eviction from someone like Landlord Action can be close to £1000, and in the meantime 4 months of no rent at £600 a month is £2,400. Evicting a non payment tenant is not a cheap business. 

Expectations

I have already said that everything rents. Whilst we can’t predict the future, we can only see the demand for these properties increasing when you consider:

• The population continues to grow, but not enough housing is being built.
• The number of single person households continues to increase, and the number of families occupying 2 houses (due to marital breakdown) increases also.
• The amount of money required to purchase a property is more than many people can afford. This is resulting in an increased demand for ‘family properties’ as people increasingly turn to rental to meet their long term housing needs.

Condition of Property

We mention it again, because it’s important. Tenants would rather live in a well presented shed than a dilapidated palace! This doesn’t mean you have to spend a fortune on improvements, just make sure it’s clean, neutral, and the kitchen and bathroom are modern.

Size of Property

A 4 bed house will rent, but there’s always most demand for smaller units – studio or 1 beds close to town or 2 or 3 bed properties in the suburbs. There’s an increasing demand for 3 bed family properties out of town. People who rent don’t want hassle so are generally more concerned with the practicality and ease of a property, rather than having something they can fall in love with.

Price of Property

The bottom end of the market is in particularly high demand. A nice room in a shared house will cost about £600PCM including bills, but some people want their own space and don’t want to share. For that reason, anything you can offer to the market that’s inexpensive (under £600 plus bills or under £700 including bills) will always rent well. It doesn’t matter if it’s tiny as long as it’s self-contained. Landlords who cut larger properties into selfcontained studios do particularly well.

Housing Benefit

There’s massive demand for properties that accept tenants in receipt of benefits, particularly 1 beds and 2 beds. The Local Authority waiting list is currently in the thousands

Leasehold

Some landlords seek to avoid flats, or other leasehold properties. There are valid reasons for this, namely:

• There’s a monthly service charge to factor in, which will negatively affect your return.

• There’s a lease that’s depreciating, and if you need to renew it, there’s an associated cost.

However, some Landlords make good money out of leasehold units. That’s because they are careful about what they buy and factor in the associated costs. They would argue:

• Leasehold properties usually cost less than their freehold equivalents to start off with.

• If the property has a long lease, this is unlikely to ‘bite’ you during your period of ownership.

• Leasehold properties tend to be more modern and as such in better internal order.

• Leasehold properties rent just as well as freehold ones. Many tenants like the ease of renting a flat.

Landlords: Rent hasn't arrived? Here's what you do

We've been contacted by a number of landlords in the last week who have stopped receiving money from their lettings agent, without reason. The agent is also not returning phone calls, and their shop is shut. Clearly the agent  in question has stopped trading, or is very close to doing so, but where does that leave the landlord, and what should he do?

From a tenancy perspective, I'd recommend the landlord do the following:

• Contact the tenant, and tell the tenant to stop paying the agent with immediate effect. This will stop any more money going missing.
• Either appoint another agent and give the tenant the new agent's details, or give his own bank details and contact details - effectively managing the tenancy themselves.

What other problems could the landlord face?

• Where is the tenancy deposit? If the agent has it, or rather doesn't have it, the landlord could have a problem, as he would be liable to his tenant for the full value of the deposit.
• Where is the gas safety certificate for the property? This is really important. The landlord may have a copy, or there should be a copy in the property. If a copy can't be found, the landlord is better off instructing a new certificate himself. I can help with that if required
• Where is the inventory? If the landlord wants to make a claim on the tenancy deposit, he'll need a copy of this.
• Where is the tenancy agreement? The landlord or tenant may have a copy. Legally the tenancy can exist without it, as a tenancy agreement can be verbal. However to prevent disputes between landlord and tenant it's worth getting a new copy signed if one can't be found.
• Does the agent have a set of keys? A landlord should try to recover these.

What can a landlord do to recover the money he's lost?

• Assuming the tenant has paid the agent, but the agent hasn't paid it on, the landlord needs to take some legal advice. I suspect the prognosis isn't good.

What can a landlord do to stop this happening again?

Quite simply, use an agent who is a member of SafeAgent  www.safeagents.co.uk/ All members must have their client accounts checked on a regular basis and also have to carry Client Money Protection Insurance - so if the agent is experiencing financial problems, any loss suffered by the landlord is insured.

Should I take a tenant in receipt of benefits?

Most landlords who have been renting property for a while will have been asked this question, and my staff  get asked on a daily basis whether a given property will accept people who are receiving benefits. Quite simply that’s because there’s huge demand for properties that will accept benefit claimants – Local Authorities in Kingston Council have ‘waiting lists’ running into the thousands which continue to grow. It is a specialised area of the market, and one that you must not enter casually. However for some of our landlords it is a very lucrative market, and they are now buying to meet the tenant demand.

These tenancies can work well, but it’s really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. I’ll go through these below.

Should I, Shouldn't I?

The main question Landlords should ask is ‘do I need to accept Housing Benefit Tenants to rent my property’?, For the vast majority of Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords generally need to consider a tenant on benefits :

• if their property is in an area where there’s low demand from private tenants, or
• if the local market is such that there’s a shortage of private tenants generally.

What are the advantages?

If your property isn't in the best area, there are many!

• You can get a premium rent for your property – Local Authorities have a set ‘scale’ they pay against, based on the size of the property, and not based on the area. As such if you've got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.
• In many cases the Council will provide a guarantee bond instead of a deposit. This is usually capped at 1 months rent, but in certain instances can go as high as £6,000. The bond scheme with Kingston Upon Thames works well, and pays out.
• Housing Benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, the world is by no means your oyster! As such when tenants get somewhere nice, they tend to stay longer.
• In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to funds, whereas a private tenant on low income and in / out of work, may struggle more to pay.
• More often than not, we can arrange to receive direct payment from the Local Authority, which mitigates the likelyhood of the tenant not paying.

What are the disadvantages?

There are a few here also. It's important you understand these in advance.

• Rent is paid in arrears, not in advance.
• Local Authorities make 13 rental payments a year instead of 12. You still get the same amount of rent annually, only in smaller chunks.
• Without wishing to over generalise, tenants often struggle to deal with issues that arise (such as their benefit entitlement being changed) and deal with this by ignoring it, or burying their head, rather than coming and telling you.
• If the Local Authority overpays housing benefit, they will take it back from whoever they paid it to. As such if we’re getting direct payment for your tenant, and the LA subsequently decides the tenant wasn't entitled to that money, they will deal with it by simply taking the money back – that's democracy for you!
• Local Authorities aren't geared up to communicate with landlords, and very much see the tenant as their ‘customer’. If the tenant's entitlement to benefit changes, you can bet the local authority won’t tell you – the first you’ll know is when the money stops coming in. As such Housing Benefit tenancies can take a lot more management.
• If you want to / need to get rid of your tenant, you can bet the Local Authority won’t help you – you’ll very much have to rely on the court process unless your tenant is happy to play ball!
• As an agent we lose a little bit of flexibility on which tenant we let to – the Council doesn't like to see us making arbitrary decisions, and rejects any form of 'discrimination'.
• The secret to success is hence understanding the above and managing it. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord, problems can ensue!

As such there can be problems with accepting tenants in receipt of housing benefit. It’s not a market that suits everyone and if you’re the sort of landlords that treats their rental properties as extensions of their own home, it’s not the market for you. That said, you can pick up a cheap property in one of the less upmarket areas of town and rent it for good money. We have a number of landlords who operate successfully in this market and I have a couple of places myself that I let out to tenants in receipt of benefit. Nearly all of us get our fingers stung occasionally. However all of us come out ahead overall. 

Can't sell it, should I rent it?

One of the main sources of new properties to the rental market over recent months has been from people who can’t sell their property for a price they are happy with, so rent it instead. These properties are usually popular with tenants as by their nature, they tend to be family properties in nice areas. As such finding a tenant isn’t usually an issue. However if you are an ‘accidental landlord’ the overall success of letting your property depends to a large extent on your understanding and acceptance of what being a landlord involves.

What do I need to do before I can rent my property?

The vast majority of this will be covered by a competent lettings agent when they visit to appraise your property. Getting a couple of ARLA agents round will identify key points that come up again and again – these are the ones that really need your attention.

• Switch your buildings and contents insurance to a Landlord specific policy. Your insurer won’t pay out if you haven’t told them the property is rented.
• Get the relevant safety certification sorted out for your property. Again a competent agent will assist you with this.
• Sort out any little imperfections that you know exist in the property, and that you put up with yourself – once someone is paying you money to live there, they won’t put up with it like you did. Cupboard doors that don’t quite close properly are a classic example!
• Think health & safety! A small pond in the garden may have been fine whilst you lived in the house alone, but is not fine if your tenant has 2 small children. You must protect your own interests by dealing with issues such as this.
• Clean it! This isn’t always the easiest thing to get across to someone who’s lived in a property, but look at it this way – if you pay for a professional clean before the tenant moves in, you can expect the property back with a professional clean done too.

Will I be satisfied with the rental experience?

We find that ‘accidental landlords’ are often less satisfied with the whole rental experience than people who have bought property specifically as an investment. To an extent this is inevitable as renting the house is not ideally what they wanted to do. To make it work, your expectations need to be realistic:

• Detach yourself! Although you may have lived in the house for 10 years, at the point you rent it you need to make a bit of a mental adjustment – the property is no longer your home and is now a commercial investment! If anything it’s someone else’s home. The key thing for you is making the investment pay.
• Be flexible. Although you may love your flowery green carpet, this isn’t something that will necessarily appeal to a tenant. Don’t be offended if your agent politely suggests changing things like this – they only make suggestions like this because they know if will enable them to find YOU a tenant more quickly.
• Accept that a tenant rarely cares for a property quite as well as an owner. You should not expect damage, but you should expect wear and tear. If you rent to a family with young children, spills, scuffs and scrapes are inevitable – this is part and parcel of renting a property. In particular tenants rarely maintain a garden like an owner does – if you’ve spent the last 20 years developing prize winning flower beds, don’t be surprised when the tenant doesn’t share your enthusiasm!
• Don’t drive by every day and worry! If they don’t cut the front garden or clean the front windows quite as often as you did, you can’t insist on them doing this, unless they are fundamentally neglecting things. What matters is that the property is returned to you at the end of the tenancy in the same condition it was given, minus reasonable wear and tear.

What does an agent do?

Most ‘accidental landlords’ choose an agent to manage their property, rather than doing so themselves, as they don’t have experience of letting, and don’t know much about tenancy law. It’s always a good idea to get a couple of different ARLA agents round and listen to what each has to say – in that way you’ll get a flavour of what each can offer. Remember that finding a tenant is the easy bit – the skill is in looking after the property on an ongoing basis. You’ll find ARLA agents are better geared to do this than estate agents who have opened a lettings department.

Don’t make the classic mistake of choosing the cheapest unregulated agent in town. Your rental property is one of the biggest financial commitments you’ll make in your life, and you want some assurance firstly it’s being properly looked after, and secondly that you have some redress if it isn’t. 

Buy to Let - Top Advice for Landlords

If you’re lucky to find a good deal, you need to get it bought quickly before someone else steals it. I’ve seen people buy property in 7 days and I’ve seen it take 7 months. Sometimes (usually if there’s a chain) it’s out of your control, but often the length of time taken to purchase a property is something you can influence through the decisions you make.

Mortgage Companies

We all want the best rate, but in a competitive mortgage market you should also pay attention to which mortgage companies lend easily. A good mortgage broker will know this and you should take their advice. I know from purchasing myself that lenders such as The Mortgage Works move at pace and can get an offer out in 10-14 days.
 
Alternatively Barclays / Woolwich ask LOTS of questions and seem generally more reluctant to lend. From personal experience I’d favour a good rate with an easy lender rather than an excellent rate with a difficult lender, every time.

Surveyors

If you want additional reassurance regarding a property, a survey is important but you must be realistic regarding what that survey will show. The surveyor won’t want a situation where you accuse them of missing something at a later date – so they’ll mention everything! You need to be realistic that, for example, most Victorian properties will
have a “higher than average damp reading”. Don’t panic when you receive the report - when you get a list of problems, you need to ascertain if there’s anything on that list that doesn’t apply to every other house on the street.

Conveyancers

The best conveyancer is not the cheapest. You can buy conveyancing online for £99 but we’ll all still be here in 6 months whilst they look for the paperwork they’ve lost. A good conveyancer will get the deal done quickly - if you don’t have one, we can recommend a couple. Also, don’t forget your conveyancer works for you. Often people allow the conveyancer to set the pace of the transaction. You should be telling your conveyancer you’re looking for a quick transaction before you instruct them and chasing them regularly. People who do this purchase properties more quickly.