David Alexander comment: Boosting the benefits of renting out a property

Where many new landlords fall down is the immediate post-purchase period, says Alexander.

The term was used to describe those owner-occupiers unable to find buyers but for whom – due to professional or personal circumstances – a home move became essential. So rather than service a bridging loan they reluctantly let out the property they were moving out of to cover the mortgage on it.

Since the recovery in the sales market, however, a new type of “reluctant landlord” has emerged. He or she is, typically, someone in their 40s, 50s or early 60s, a cautious saver with most of their liquid assets held in cash or safe bonds. But because capital safety currently equates to negative returns (after taking account of inflation), they have, with considerable reluctance, decided to enter the buy-to-let market to secure a positive level of capital appreciation and, hopefully, annual net rental income.

Unfortunately, for many, reluctance to enter the market has been compounded by ignorance of it, leading to wholly inappropriate investment decisions, bringing neither the expected capital growth nor income from rent after tax and expenses.

The situation reminds me of viewing one of those “property reality” programmes that followed the experience of a London postman who, on retirement, had invested his tax-free pension lump sum in a property in Hartlepool, 250 miles away, without visiting the area or doing very much research at all. The result was no capital growth and troublesome tenants in terms of paying the rent on time and their general behaviour. The programme ended with the unlucky landlord desperate to sell.

What makes this and similar examples rather bewildering is the fact that most bona fide property management companies are happy to suggest what to buy, where to buy and how much to pay, although it must be emphasised that this is simply advisory and is not legally binding. Nevertheless, agents will endeavour to offer the best advice as obviously they do not wish to have disgruntled landlord-clients on their hands further down the line.

But in some respects choosing the right property and location is the easy part. Where many new landlords – especially reluctant ones – fall down is the immediate post-purchase period and when decisions need to be made about internal presentation. Why are contemporary four-star hotels often described as “bland” yet so well patronised by mid-level business types and middle class couples and families? Basically it is because the accommodation, and especially the bedrooms, are designed to appeal to as many potential guests as possible. So in presenting rental property, the new landlord should strive to choose something in the middle – a “marketable compromise” you might call it. To those new landlords who find it extremely difficult not to decorate and furnish a rental property that projects their own personal likes and dislikes my advice is “don’t!”

Having decided on a choice of decoration, furniture and furnishing, the new landlord needs to accept that a rental property will undergo greater wear and tear than applies to their own homes so keeping it up to scratch will be like painting the Forth Bridge in the days before modern techniques – ie an ongoing job. Therefore rather than “blitz” the entire property with an internal upgrade every four or five years, focusing on a different area each year will help with budgeting and keep rental void to a minimum.

The exception to this rule would be if, in a certain financial year, it was in the landlord’s interest to keep rental income below a certain level for tax purposes and a period of rental void might be to his or her advantage and the time could be used to carry out an entire makeover. It is strategic decisions like these, relatively small in themselves, which lead to the best possible overall net return for the buy-to-let investor – no matter how reluctant.

David Alexander is MD of DJ Alexander