As the property and rental markets are constantly fluctuating, landlords have been warned that they need to protect their businesses by creating contingency funds. However, it has been revealed that many landlords are failing to create these types of funds, which had led to a large number of buy-to-let properties being repossessed by banks once landlords fail to make their mortgage repayments. According to the Council of Mortgage Lenders, in the first three months of 2013 alone one in five houses that were repossessed were buy-to-let properties, showing that the problem needs to be addressed soon.
Discussing this problem, Charles Brittain from the property investment company Invest Connect said: “If investors and landlords do not have a contingency fund in place to cover these unforeseen circumstances, then they could fall into financial difficulty and potential lose their property. This contingency may not be used and should not be seen as an additional annual cost, just part of the investment business plan from the outset for investment protection. Depending on the age of the property and the length of time you retain it, rewiring and re-roofing may be necessary at some point.”
“Major renovation work like this can be expensive, so unless you have budgeted for it in your investment calculations, you may not be able to afford to carry out essential work when required. Buy to let is very profitable in the long term, but only if you do your sums properly and structure your investment wisely. A property investment is similar to running a business, so you need a business plan, cash flow forecast, finance and funding.”
“Therefore it’s sensible to budget for all the costs you’re likely to encounter during the life of your investment. The maintenance costs for a new or recently refurbished property are likely to be minimal at first. But over time, those costs will grow in significance, particularly when larger scale refurbishment is required.” Landlords who want to stay successful no matter what they encounter should therefore make sure they create a savings fund, as well as keep an eye on their other expenses such as landlord insurance and mortgage repayments.
Saving money can also be extremely easy as long as you make a plan and stick to it, such as creating a direct debit that transfers part of your income into a separate bank account each month. Knowing that you have a safety net to lean back on can really help you with your business, and also protect your tenants’ homes in the future.