Avoiding the pitfalls of being a first-time landlord

PEOPLE are turning to letting as properties fail to sell– but many are unprepared for the complications

Frustrated home-sellers are letting out their properties in ever-growing numbers as the housing market recovery remains elusive – but many underestimate the scale of a challenge that is set to become harder over the coming year.

Reluctant landlords – home-owners who have moved and been forced to rent out their property after being unable to sell – have been a prominent feature of the post-credit crunch housing market.

The dramatic slowdown in home sales, particularly first-time buyer properties, has given movers little option but to let out their property and, with few signs of an upturn in housing market activity any time soon, reluctant landlords are increasingly influential in the lettings market.

However, the phenomenon has coincided with a surge in complaints about letting agents that experts believe reflects problems with inexperienced landlords.

Scottish complaints about letting agents soared by 40 per cent in 2011 compared with a 26 per cent spike across the UK as a whole, according to the Property Ombudsman.

It said the bulk of the complaints were around deposits, administration failures and tenancy agreements.

The problem is that many are entering the lettings market unwillingly – and it shows, according to David Alexander, owner of letting agent DJ Alexander.

“Most of the difficulties that arise are because of novice landlords who forget that it is a commercial venture. Some are totally unrealistic and think everything should be in exactly the same condition at the end of the tenancy; they can’t expect that.

“It’s not a simple case of taking the rent and not spending money on the property.”

David Alexander even advises tenants to do their homework on their prospective landlord.

“If you’re a tenant dealing with a letting agent it’s worth asking if the landlord is a commercial one or a reluctant landlords who might sell up as soon as the housing market turns,” said Alexander.

Other letting agents have raised concerns over the impact on the market of the recent influx of first-time landlords.

Ross Hadden, of Hadden Rankin, said: “I agree that private landlords without agents do sometimes find it difficult to cope with the level of regulation that now applies to the lettings market, and it may well be the case that they also don’t fully understand what are reasonable deductions from deposits.”

Alyson Macdonald, of the Edinburgh Private Tenants Action Group, urged reluctant landlords to remember that tenants have a right to privacy, and the right to have the property maintained in a safe condition.

“These are rights protected by law, and every landlord has a duty to find out about the minimum legal standards they are required to meet – even if they are inexperienced, or have got into the property letting business accidentally,” she said.

“The regulations aren’t there to inconvenience landlords, but to keep tenants safe and ensure that they are treated fairly.”

Julie Greave, managing director at Braemore Property Management, said landlord awareness of regulation and policies – such as health and safety requirements and what can and cannot be deducted from deposits – remains sketchy.

And she warned that a new wave of guidelines coming into force over the next year would pose problems for inexperienced landlords.

“There’s a lot more to it than meets the eye. And as more regulation comes in, it will become harder for self-managed landlords and small letting agents.”

Grieve was referring to Scottish government proposals for tenants to be given a mandatory information pack and to the tenancy deposit scheme coming into force this summer.

The scheme is similar to the system already operating in England and Wales and requires deposits paid to landlords to be transferred to an approved scheme within 30 days of the tenancy starting.

Landlords will also have to provide the tenant with confirmation of the amount paid in deposit and details of the scheme in which it is held. They must also provide proof of registration with their local authority at the time of paying the deposit.

Deposits will be held by the scheme administrator and an independent dispute resolution service will be on hand in the event of disagreement over the return of the deposit.

The outcome for landlords is more paperwork and potentially increased costs.

“Audit trails will be so important when making deductions from the deposit because adjudication will be written only, so landlords will need detailed paperwork,” said Grieve.

The impact of the new scheme will really be felt next year, when tenancies set up prior to the deposit rules coming into force begin to come to an end (the average rental term in Scotland is now around 20 months).

“In lots of places there will currently be no inventory or audit trail. Next time their tenancy is up for renewal many landlords will need to provide a mandatory information pack, get their head around where the deposit needs to go and understand what’s legal in terms of what they can and can’t charge for.”

But the changes in the pipeline for the coming 12 months or so shouldn’t deter people from renting out their homes, said Grieve.

“Some people are now seeing renting out as a key part of their income. If you rent out any expenditure is tax deductible so it’s attractive, but whether people continue to do it when the housing market improves is hard to know.”

1.Find a licensed agent:

Look for a local agent who abides by a code of practice and importantly, is subject to a redress scheme, and offer client money protection like all licensed ARLA members. This will ensure you receive strong and independent advice and, equally importantly, that your money is protected.

2.Be realistic

Rental properties are untenanted for an average of three weeks. But it is advisable for first-time landlords to budget for eight weeks per year to cover times between rental agreements. If your void periods are less, the extra return is a bonus.

3.Be competitive

Make sure the property presents itself well to the market in terms of the décor, the condition of the furnishings and also the mechanics of the house – such as the heating. Many properties fall down on simple things like this, so it is wise to make the most of the opportunity and get the property to the best standard. You’ll also need to comply with all health and safety requirements for gas, electricity and furniture and furnishings

4.Check up on tenants

Make sure you have sufficient information about your prospective tenant to ensure you can assess the risk in accepting the tenancy. You should also check the current and previous employment status of the individual(s), as well as renting history and any references provided

5.Insure yourself

Put specialist buildings and contents insurance in place covering the items you own in the property – without a specific reference to letting you may be uninsured. Also, consider insuring against the tenant defaulting. This normally covers both rent and legal expenses.

6.Compile an inventory

Prepare a full, detailed inventory of the property to include a schedule of condition of all the contents as well as walls ceilings doors and other fixtures and fittings, to make sure there are no surprise claims. You can get a professionally prepared independent inventory from a member of the Association of Professional Inventory Providers.

7.Don’t be lazy

It’s important to hold on to tenants for as long as possible – but that won’t happen if they receive bad service. As a landlord, you are essentially a caretaker for the property, and need to service it when required accordingly

8.Do you need a licence?

In Scotland you must register as a landlord for any property with the local authority

Source: Association of Residential Letting Agents