News and Press releases

Where did it all go wrong?

13/08/2009

*Due diligence. Too many people rushed into buy to let without quite realising how much was involved in terms of time and effort – i.e. arranging finance, viewing, negotiating with vendors, meetings with lawyers, equipping and furnishing the property; securing tenants. Consequently, due diligence was lacking, meaning they got off to a bad start

*Ignoring the adage, ‘location, location, location’. Choosing a property because of what rather than where it is was another common first mistake. The worst property in a good location is always a better investment than the best property in a poor location. The reason? An individual has the capability to upgrade a bad property but cannot do much about changing an entire district.

*Emotional involvement. As they were never going to live in them why did people buy a particular rental property because it appealed to their own particular tastes? Just because they happened to be attracted did not mean that prospective tenants would feel the same.

*Being too impulsive. So many investors have lived to regret buying the first flat they cast eyes on. By failing to fully research the number of buying options available within their budget, their prospects for rental income and capital growth were immediately compromised.

*Scrimping on interiors. Market forces mean that today’s tenants come to expect a comfortable and convenient living environment as a matter of course. Inadequate levels of finishes, furniture and furnishings put off prospective occupiers and, therefore, contributed to long period of rental voids.

*Over-spending on the interior. “Luxury” items added to the landlord’s costs but did not, in most cases, enable him or her to generate any additional income. There is a limit to the “market rent” for each category of property and adding items that the average tenant does not expect nor, necessarily, want will not result in extra rental income.

*Rental void. Too many non-professional landlords left little or no allowance for interruptions in rental income as part of their overall calculations. To be on the safe side they should have assumed a void period of at least 10 per cent during each financial year. That they did not meant that overall annual income was lower than anticipated.

*Not counting your blessings. Landlords often came to regret parting company with a good tenant who was prepared to renew a lease but not pay any more in rent. Too late, they discovered it was much better to have retained an established and trusted tenant paying slightly lower than the market rent than to have no tenant at all.

*Under capitalised. Despite rental property being a medium- to long-term investment vehicle, it appealed to too many of those looking for a way to “get rich quick”. These people, having poured over unsubstantiated media reports about huge leaps in property values, took out highly LTV (loan to value) mortgages, still expecting a substantial profit in months rather than years. Even when the housing market was buoyant this was a risky strategy – especially with new-build flats – as the high level of subsequent repossessions has shown.

*The hassle factor. Owning a property occupied by strangers can throw up all sorts of problems that even a good property manager is not always in a position to resolve. Every individual is different and success in property often depends on attitude and personality. In some cases people were unpleasantly surprised to discover that being a landlord involved keeping financial records, liasing with the tax authorities, spending time and money on maintenance and repairs and renewing interiors, and occasionally coping with “difficult” tenants – and that, in retrospect, perhaps buy to let was not for them.

Rob Trotter is group property manager at D J Alexander

THE SCOTSMAN, 13 August 2009

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