A Guide For New Landlords (Part 1)
We read so many rags-to-riches stories about property moguls in the papers, and it makes us think that it’s very easy to achieve the same kind of success. But before you take the plunge, here are some lessons to consider on what it’s really like to be a landlord in the UK.
New landlords often think that getting into the rental business is a “get rich quick scheme.” Don’t fall into this trap.
Being a landlord doesn’t mean earning millions in an instant, it actually takes years before landlords actually get a return on their investment. In fact, private landlords hold on to a property for an average of 19 years. However, if you get the right business plan for your property, even a small scale landlord could earn enough to be the envy of his family and friends.
Another common misconception is that, since rental properties earn you “passive income,” owning a property doesn’t take too much effort or work. This is completely wrong.
You can’t just make an investment and watch it grow on its own. Rental business is no different than any other business.
To run a good rental business, some landlords do the hands-on approach. They do everything connected with their rental property such as researching key locations, purchasing the property, finding the right tenants, and dealing with any requests. Some investors don’t mind the work, since it just takes a few hours a week to sort out these details. Others, on the other hand, seek the help of letting agents to manage the property and deal with any of the tenants’ request. Finding a third party to this unfortunately slashes 8-15 per cent off the gross rental yields.
As I’ve said earlier, it’s important to find and match the right game plan for the rental property you own to have a successful rental business. Obviously, there is more than one way to manage and handle rental property, and, most of the time, how you run the business depends on your target market.
Here are a few examples of common renters in the UK:
- Student lets
2. International or post grad students
3. Invest for income benefit or high yield
4. Pension investors
5. Young professionals
7. Tenants on benefits
New landlords must also learn from the beginning that being a landlord is a numbers game. Understanding the figures and what they mean is one of the most important aspects of any form of investing.
The 3 metrics that every landlord must master are mortgage cost, rental yield, and tax incentives.
Probably, the most critical among these 3 is the rental yield. A newbie landlord must know know much rental yield he can get every month then relate it to all of the costs that is attached to operating a rental property.
If you took out a mortgage for your property, you must assess how much rental income goes to your debt, the rate of interest you need to pay, and you should know the difference between the initial pay rate and the APR.