Rise of the surprise landlord

Mar 2009

By Greg Gordon

When Dene Happell, a designer, finished building two family homes in August, he found himself in a position common to an increasing number of Scots — he was unable to sell at an acceptable price. His solution was to join the growing army of reluctant landlords, who, rather than give their homes away in cut-price deals, seek salvation in the rental sector.
“The market in Ayrshire, as elsewhere, had changed and after three months up for sale it was clear another strategy was called for,” says Happell. His first tenant, an air traffic controller, moved into one of the high-spec, family homes in Kilmaurs in December. The second moved in this month.
“My tenants know that my preferred option is to sell, so their rent and short-assured tenancies reflect that,” he says. “It is a situation that suits everyone. I’d prefer not to have my capital tied up in the houses but I have to be realistic.”
Happell says that in Ayrshire and most other places in the central belt, landlords could bring in a 10% profit on their rent. In our more competitive city markets, yields will be smaller because of higher purchase costs. Some landlords will be happy just to break even. “As a rule of thumb, you should be looking to bring in 125% of your usual monthly outgoings to cover the costs of letting your property,” says Happell.
According to David Alexander, a letting agent, many home-owners start to let their properties when other commitments, such as buying a new home, a family death, divorce or debt force their hand. “We estimate that 60% of our new business has come from so-called reluctant landlords — developers who can’t sell their product or individuals who can’t sell at a price they are happy to accept,” he says.
As the market enters “uncharted waters”, it is hard to say whether this situation will be with us for two, or 10 years, Alexander adds. “Letting your home is an option that could just get you through some immediate problems.”
Jim Parker, letting agent and chairman of the National Landlord’s Association (NLA), Scotland, says finding tenants for good properties is not difficult. “A good agent should have your property rented out in less than two weeks,” he says. “Becoming a landlord in the short- to medium-term should allow you to cover your outgoings until you can reappraise your options.”
According to Parker, most portfolios begin with a reluctant landlord who inherits a property and comes to the rental sector because he or she feels there is no choice. There are those who get bitten by the lettings bug, though, and for whom it can become a lucrative obsession. “Things may look gloomy now, but history tells us the longer picture is rosy,” says Parker. “Anybody buying to let now, for example, is locking in future capital appreciation rather than seeing profits now. I’d expect the market to bounce back in two years and that people who make the right investments now will be well off in 10 years.”

THE SUNDAY TIMES, 29 March 2009

*For details of D J Alexander's lettings guide for non-commercial landlords, click on "services" at the top of this page