How To Stop Your Buy-to-Let Property From Becoming A Money Pit

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Buy-to-let properties are one of the most popular investments for those looking to make a passive income. However, like all investments, they come with their risks - your nest egg can quickly end up becoming a money pit if you don’t protect yourself from threats like property damage and tenant arrears. Below are just a few protective measures that all landlords should consider.

Inspect properties fully before buying

It’s important to know exactly what condition a property is in before you buy it. That way, you can determine whether future repairs are going to be affordable or a massive drain on your finances. 

Arrange a structural inspection with the help of a certified home inspector. This will cover the entire building and flag up all problems so that you know exactly what repairs lie around the corner. If it looks like a property is going to have lots of problems, think twice about purchasing it. 

Set aside a savings buffer

Some first-time landlords make the mistake of spending all their savings to buy a property. This leaves no financial buffer left to deal with issues like surprise repairs or unexpected late rent payments. 

Make sure that you have enough savings to cover at least three to six months of rental income. This can prevent you having to scramble around for funding from lenders to cover costs.

Select the right mortgage

A mortgage is typically required to buy a rental property. It’s important to choose a mortgage that doesn’t have overly high monthly payments - your rent needs to be able to cover these monthly payments and ideally you want to be making a bit of profit on top. 

Being able to put down a large down payment can enable you to pay lower monthly payments. You should also consider the interest rates - fixed interest rates will be easier to budget for than variable interest rates. A mortgage broker can help you to find the best loan deals. 

Have a reliable (and affordable) handyman on call

Being able to repair problems promptly is essential. If you don't have the skills to fix leaks and damaged electrics yourself, you’ll need to hire a professional who can. 

Finding a reliable handyman who can take care of these repairs for you can save you having to hunt down new tradespeople each time something goes wrong. Try to find a handyman who is local and that has fairly affordable rates. At the same time, make sure that they can carry out repairs to a high standard - botched repairs will cause you to lose more money. 

Consider working with a tenancy agency

Tenancy agencies (also known as ‘property management companies’) can take over all the tasks of maintaining a property for you - including sourcing tenants, vetting them, collecting rent and even finding tradespeople to carry out repairs.

You do have to pay them a monthly fee for their service. However, you could save money in the long run by using one of these agencies - such agencies can often help landlords find tenants more quickly (so that you’re not losing rent), plus they can chase up late paying tenants for you and screen tenants on your behalf. Speaking of screening…

Screen your tenants

This is vital for ensuring that you take on good tenants. Carrying out a landlord background check can help you identify red flags such as a poor credit score, a criminal record or previous evictions. You can then avoid taking on a tenant who may be more likely to not pay their rent or cause damage. 

It’s also important to make sure a tenant has a steady job and get proof of income (usually in the form of bank statements). Make sure that you have a valid and fair reason to turn down a tenant - you don’t want to get sued for discrimination. 

Set out clear rules in your contract

A well-written lease agreement can also protect you from potential financial loss. State laws regarding landlord rights can vary - a contract is a chance to set your own rules so that tenants aren’t able to take advantage of legal loopholes. 

Make sure to include terms covering subjects such as pets, smoking, subletting, tenant maintenance responsibilities, late rent penalties, and lease termination. It’s worth working with a solicitor or legal writer who can create a professionally worded contract for you.  

Know when to raise the rent

No landlord likes having to raise the rent, but if your mortgage payments go up or you need to carry out expensive maintenance, you may need to consider whether it’s necessary in order to avoid making a loss.

Rent needs to be raised gently and you need to give tenants enough notice. Make sure that you stay within local rent controls - these restrict by how much and how frequently you can raise the rent.

Don’t ignore problems

Property damage and tenant disputes aren’t going to disappear on their own. It’s important to take a proactive approach to managing your property - fixing problems as soon as you can and responding promptly to tenant complaints and requests. 

It could even be worth carrying out regular inspections of your property and checking in on tenants with messages to identify problems early. Just make sure that you’re not unduly harassing tenants.

Determine when you need a lawyer

When conflicts with tenants start escalating, approach a lawyer for advice in good time so that you can diffuse these conflicts early - letting them spiral out of control could result in lawsuits and court fees.

It’s a good idea to find a reliable lawyer before you start renting out a property. They can guide you through some of the legal requirements and recommended protective measures so that you don’t fall into any traps. You can then call up this lawyer in the future whenever you need their advice. Make sure to hire a lawyer that specializes in real estate law - a general law firm may not have the knowledge and experience required to help you effectively.