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Becoming a landlord for the first time

A landlord is someone who owns a property and then rents it out to a tenant. When things are going right it largely consists of collecting rent on time, doing all safety checks and maintaining the property. However, at its worst it can involve dealing with nuisance tenants who may damage the property, filing insurance claims and even paying out bills on a property that is empty.

Becoming a landlord for the first time requires careful consideration. Before buying a property it is a good idea to find out the going rental rate of similar properties in the area. Focus on a property which can be afforded with a monthly mortgage repayment that is equal to, or better still, less than the rent which will be received. Always budget for some renovations and plan on any expenses exceeding expectations.

Landlord insurance should be a key consideration. Speak with an insurance company as to what are the best forms of insurance for the property. A landlord whether new or experienced, should always insure against fire, flood or other relevant contingencies. Always have a lease drawn up. This should be done by hiring a professional who will draw up a formal lease that meets all the expectations of a renter and a landlord. The lease is an important legal document which will form the relationship between a landlord and tenant and needs to be taken very seriously.

An empty property will not earn any money for a landlord. As soon as possible, the property needs to be advertised. Always screen all potential tenants very carefully, this includes conducting a credit check and always explain to a tenant their responsibilities under the lease. To be a good landlord, one important thing to do is to become familiar with all the rights and responsibilities, and familiarize you with health and safety regulations. Provide good maintenance which will keep all appliances, electrical, plumbing, heating, fire alarms and security alarm systems in good working condition. Respect the tenants’ privacy by giving adequate notice before entering the property.

The main principle behind being a good landlord is to always think not as the owner of a house but as a service provider to the tenant, it just happens to be your house. Just keep in mind always that the tenant who pays the rent needs to be happy. This does not mean giving more than what the tenant pays rent for. Fairness is a virtue that is expected of you and this fairness needs to be applied to both the landlord and the tenant.

Woodworms can cause a hole lot of trouble

There are a few words that a property owner with landlord insurance will not want to hear. One of them is woodworm. When a problem has been diagnosed as woodworm, it is normal to think of a lot of worms eating the wood. In fact they are not a worm at all they are insects that bore into wood, causing damage to furniture and flooring.

It is very unlikely to see a wood boring insect in the home, because the adults will lay their eggs on wood and the larvae will then bore into the wood and stay for years before boring out of the wood again. Signs that they are there are small holes in the wood and very occasionally the dust as they emerge from the wood. These holes are in fact exit holes meaning that the beetle has emerged from and left the wood after spending time tunnelling through it as a grub. The most common woodworm is the furniture beetle. This beetle attacks softwood leaving 1-2mm exit holes. It prefers damp, rather than dry wood and the grub will head for plywood and then stay there for longer than any other type of wood. Any damp floorboards, loft timbers and old furniture are all good targets for the beetle. Woodworms work slowly, so it is a good idea to not rush out as soon as it is suspected they are in the home. Get the home properly surveyed by three or four firms who will go through with the best treatments with you and give a quote. They will not only check the infestation, they will be able to tell how much damage has already been done.

When the holes are first noticed the first thing to do is establish if the woodworm holes are a result of a past infestation that has been successfully treated, or if it is a new problem that will need treating. If it is an active infestation there will be will some fresh wood dust and holes. There are a number of DIY treatments that can be used on furniture infested by the furniture beetle. If it is going to be a DIY job, fluid will need injecting into a few holes with a special injector and, as an extra precaution, there is also an insecticidal polish to use. Remember to keep your tenant fully informed on the matter as they are the ones living in the property.

Trying a DIY method to cure the problem will not always work because a lot of the most effective insecticides can only be obtained by certified professionals. Some are very toxic and potentially damaging to the environment. It may be very tempting to go for a blanket treatment, but this is not the greenest choice. A safe and highly effective treatment is borax, this is available as a crystalline powder, which is dissolved as a 15% solution in water and then is applied to the timber that is affected. There are no health hazards with this treatment, and borax will inhibit fungal growth and kill the woodworm.

Rogue landlords taking advantage of the vulnerable

Once again the good name of millions of landlords in the UK is destroyed by a few bad apples. A recent investigation by the homelessness charity Shelter, found that a great number of tenants are being treated shabbily by rogue landlords.

Shelter claim the appalling treatment is widespread, but it is only by a small number of landlords in the private sector. Shelter carried out the survey of EHOs (environmental health officers) and found that 9 in every 10 who deal directly with private renters had problems with a landlord harassing, abusing and even evicting tenants illegally. EHOs also told of landlords who ignore responsibilities including severe cases of damp and mould along with electrical and fire safety hazards which are totally ignored by the landlords.

One landlord is renting a property which has no heating, hot water or electricity. Another landlord rents a property to a mother and young child without any kitchen facilities or fire precautions. The survey shows the importance for local councils to have good enforcement strategies in place to help the most vulnerable. The enforcement strategies should also not have to wait until there is a complaint. It looks as if in the future there are going to be more private tenants. So it is important to drive out the worst landlords in the private rented sector. It is unclear if the property owners even have landlord insurance.

Campbell Robb, chief executive of Shelter, said “It is simply not acceptable that people are handing over their hard-earned cash to live in houses that are run-down, squalid and in some cases even dangerous. Our investigation shows just how ruthless a minority of rogue landlords can be. But this is not just the odd crook here and there. We know there are people operating in cities up and down the county, and it’s clear that this is a national problem that urgently needs a national solution.”

Managing the risks associated with rental investments

Any investment that you make in the property market has a certain level of risk. Here, we give you our rundown of those risks to be particularly aware of. First look for the best landlord insurance cover for your budget.

One potential risk is that despite various landlords’ assumptions, property values are perfectly capable of falling as well as going up. Examples of this include the early 1990s UK residential property market or the property market in Japan, which has been particularly dramatically hit in the recent recession.

However, it is the mortgage with which investors may partly fund the purchase of their properties that poses the greatest risk to them of all. If your investment’s value drops just slightly, this can lead your equity or capital to disproportionately decrease.

The actual performance of the residential property market in the UK has also greatly varied over the years. A general rise in the market in the 1990s and early 2000s has been followed by great regional and property type variations.

Another of the biggest dangers to landlords is the possibility of shortfalls in rental incomes. These can and do occur, and if not sufficiently well planned for, can cripple your business. This problem has a number of possible causes. Firstly, you will not receive rent for as long as you are not able to find a tenant, even though you may still have a mortgage to pay, or indeed in the face of wider competition, you may not be able to command as much rent as you earlier anticipated if you do successfully secure a tenant. The trick to managing this risk is to strike a cautious note in the level of rent that you plan for.

An even more painful shortfall in rental income can occur when for any appreciable period of time at all, the landlord’s property remains un-let.  In this case, the landlord suffers what is known as a letting void. With the Association of Residential Letting Agents (ARLA) stating the average letting void for residential properties to be 24 days as of late 2007, such a period needs to be included in your calculations.

Inflation, meanwhile, is another factor, albeit one that is favourable to landlords. This is because an investor’s biggest ongoing financial burden of all is the mortgage, and over time, inflation effectively reduces the size of the loan. This is because while the mortgage will stay the same, in normal circumstances the value of your property should increase to keep pace with inflation, effectively reducing the size of the loan by the same percentage figure as that by which inflation has risen. The worst thing that could happen to landlords, then, would be low or no inflation or worse, deflation, as occurred in Japan for a sustained period of time, as this would of course effectively increase your loan. Although deflation remains a great improbability in Britain, the risk is always worth bearing in mind.

Regulatory risk also exists. As a landlord, you naturally have to comply with the law as well as fulfil certain obligations to your tenant. The Government has continued to add to its existing legislation over the years to tighten their control of the private rented sector. These changes threaten to diminish your potential rental return from your investment if you do not keep track of new developments and prepare yourself accordingly. Examples include the process of acquiring a House in Multiple Occupation (HMO) license, in which you will be required to extensively modify your property, potentially at the cost of as much as tens of thousands of pounds. Legislation can either introduce prohibitive costs as in this case, or reduce your yields, with increasingly restrictive future legislation naturally an ever-present possibility.

Then there are the potentially differing tax rates to consider, over which the Government has total control. A plan that depends on a particular tax regime remaining as it is in the present runs the risk of being derailed if that tax system ever changes.

Best Practices for Landlords Obtaining Tenant References

Before you let your property to new tenants, it’s in your best interest to obtain references for your them. This will help you to avoid any potential risks – e.g. tenants who have defaulted on the rent before, or damaged properties which they have lived in previously.

Additionally, some Landlord Insurance policies may be rendered void if you let to certain types of tenants -  as such, obtaining thorough, accurate references from your tenants is essential, as if you do not, it may affect your ability to claim on your insurance policy.

Below are 5 best practices to use  when obtaining references for your new tenants:

1) Previous Landlord Reference
Do you know what the person looking to rent the property was like as a tenant previously? Can their previous landlords give them a good reference in terms of regular payments and property maintenance? Were there ever any problems with the tenant during their tenancy period? Furthermore, how long has the tenant been renting for? Are they new to renting or do they have a long history in renting a property?

2) Work References
What is the prospective tenants employment status? Are the prospective tenants able to provide you with work references to validate their employment status, income and employment history?

3) Proof of Income
Can the prospective tenant provide you with income details? Ideal references to check would include wage slips and bank statements. You could then verify the payment consistency along with their working references to show that they have a stable income.

4) Identification Reference (ID)
Are you able to verify that they are who they claim to be? Ideally you need to see a form of ID from a registered authorative source or organisation. Examples include:

- A drivers license from the DVLA

- National Identity Card or Passport

5) Guarantor
In some instances you may want your tenant to have a third party guarantor who you can deal with in the event of rental default. An example of a guarantor may include a family member.

Whilst these best practices go some way to protect yourself against lettings risks, landlords might also consider obtaining additional insurance cover on their property. Rent guarantee insurance will cover you in the event that your tenant is unable to pay their rent, and rent loss insurance will cover you in the event that your property becomes uninhabitable – e.g. as the result of a fire or flood.

Click here for a competitive quote on your Landlord Insurance.