What Makes a Good Tenant?
So, before beginning the search for your ideal tenant it’s worth defining what actually makes a “good” tenant.
In this case “good” is subjective and relative to what you personally want but in our experience good tenants are reliable, pay their rents on time, have steady and stable employment and have capable incomes relative to their monthly rent payments.
To get this person we generally vet them both on and offline, in person and via the information they’ve provided during the application phase. This information usually includes their job, and place of work, their income, previous addresses, and if possible previous landlord testimonials.
Please be aware, regarding that last point, that previous landlords could be giving falsely positive reviews to move a bad tenant from their problem to yours. It has happened before and could happen to you so don’t rule it out.
Finally, in our experience it’s probably best to avoiding renting to friends or family. We’ll leave you to make the judgment call on this…
How to Find Tenants in Northern Ireland
Now that we’ve defined the type of tenant we want it’s time to start the search.
To do this we’d generally recommend using a mix of the tools available and this would include the use of local property portals, websites like Gumtree, Facebook and last but not least, ugly boards.
You’ve read that correctly. One of the most effective ways to advertise for new tenants, even in 2017 and beyond, is to stick up an “ugly” board outside the property asking for tenant contact or applications. Try it and be very surprised…
Regarding local property portals here in Northern Ireland we’d recommend using Property Pal and Property News.
After sourcing the right tenant (and please bear in mind that experience also plays a huge role in determining good over bad tenants) your next decision will be to manage the tenant yourself or to outsource to a local estate agent.
We’ve listed the pros and cons of each below:
*You will pay more tax if you manage your own properties. Letting agency fees are a tax deductible expense. In effect if you were paying £50 per month to your letting agent to manage your property you would pay £10 less tax as a 20% tax payer and £20 less tax if you were a 40% tax payer. It could be argued therefore, that the management fee would cost you £40 or £30 depending on which rate of tax you pay.
Finally, when you’ve sourced good tenants and decided on what management method to use, it’s important to maintain good relationships because the best tenants are worth their weight in gold to your business.
How do you maintain good landlord tenant relationships? First, we would highly recommend that you focus on keeping rents at an acceptable rate year on year. To do this you should be aware of the local markets surrounding your property and weigh-up what losing your current tenants could mean to your business if you do raise rents to an unaffordable level for them.
After that we would recommend that you focus on securing long-term tenants as they generally build a home and look after the property in question.
Finally always try to keep open lines of communication throughout the relationship and deal with maintenance issues as promptly as possible.
Until Next Time...
Analysis of a potential investment property is essential.
Before buying any property, you should clearly identify your strategy (buy-to-let, serviced accommodation etc.), target tenants, location, nearby amenities, cash-flow figures and also, crucially in this case, what needs to be done to add value and raise the overall price of the property post-purchase.
In the case of analyzing for potential refurbishments you should either have experience in that world or a close trusted partner who can provide the required guidance.
With this analysis you’ll be able to draw up plans regarding the work needed, expected costs and potential future benefits for the property.
Getting Bang for your Buck
Which leads us nicely onto point two… Getting bang for your buck!
When renovating or refurbishing your own home you will clearly want a high level of quality and expect to pay a cost relative to that.
The same, to a certain extent, can be said when refurbishing an investment property however here you will want to make the biggest possible impact for the least amount of money as every pound spent will eat into your future profits, whether cash flow or capital gains.
How do you achieve this? The key is to source tradesmen and materials at the cheapest price possible whilst still maintaining the standards and guarantees needed and if you lack the relevant experience to do this you may need to draw on your own property power team or trusted colleagues.
How to Add Value to your Buy-to-Let
As mentioned above, experience is an important element in this part of the property investing process but, for those of you just starting out, we thought we would highlight some of the key areas of refurbishment potential.
Kitchens and Bathrooms
It should come as no surprise, even to those with almost zero interest in property, that kitchens and bathrooms are huge variables in the value of a property.
These two rooms, due to both importance and appliances required, are generally the most expensive in any house and as a result they will have a major bearing on your future property value and potential rental incomes.
This reality means that buying an investment property with terrible, or inadequate, kitchen and bathroom facilities can represent a great opportunity if you have the know-how required, or can draw upon it, to improve both in a cost-effective way.
What are these improvements? We would suggest you focus on providing clean, modern appliances paired with stylish, but inoffensive, interiors.
Attic conversions are rife with legislation from planning regulators but, if it’s possible in your new property and you think you have the required space, it can represent a huge opportunity.
Depending on size and accessibility, you could sell the new attic conversion to potential tenants as a spare bedroom, an office space or simply more storage space, which is generally always a positive.
If and when properties lie in the hands of non-existent landlords, tenants who don’t care, or owners with other priorities, the outside spaces (gardens, backyards etc.) can quickly fall into disrepair.
Depending on size, privacy and what’s on offer, redevelopment and refurbishment can represent an opportunity to add value to the property and make it more desirable to your target tenant or future buyer.
Also, in most cases this work won’t require anything more than good old-fashioned “elbow grease” meaning you could do the work personally or at a cheaper cost.
Potential tenants, buyers and property investors all appreciate warm, energy efficient homes and as a result improving the eco-efficiency of a property can have long-lasting positive impacts on value.
This could include the installation of double-glazing (if it doesn’t currently exist), the purchasing of new doors or even the installation of a new heating system such as gas if it’s available.
It’s also worth remembering that poor energy efficient homes may fail the adequate standards for rentals in the future so it pays to make them as energy efficient as possible.
The opportunities mentioned above are all, in general, extensive jobs requiring specific materials and expert tradesmen in certain cases but that doesn’t mean smaller opportunities don’t also exist.
Depending on the condition of your investment property the interior décor can be improved with the aim of raising the value.
Tenants nowadays generally want a clean slate on which to build their own home, so we would recommend decorating in a clean, modern and minimalist way. This would mean focusing on using basic, modern furniture and clean, inoffensive colours, amongst other things.
The final issue to consider when planning any potential refurbishments or work to your property is that, as this is a property investment business, all work (including materials and labour costs) are tax deductible.
Something that could always come in handy when you’re sitting with your accountant at the end of the next tax year…
Until Next Time...
As with many aspects of property investing and development, experience is a vital element and factor in future successes.
Over time, through various deals and experiences, you’ll develop the knowledge and know-how to truly gauge what will add value to an investment property and how to do it in a cost-effective way.
With that in mind, it’s all about getting started because you can’t gain that experience without getting out there and operating.
Check out our Belfast Property Meet events and Property Success University if you’re unsure of how to begin or want to rub shoulders with other real-life property investors.
Can you feel that?
That’s progress you’re feeling because we’re creeping up to the halfway point of The Journey, our six-part blog series that aims to take you from absolute beginner to real life buy-to-let property investor with our help every step of the way!
If you’ve followed along from the start you’ll know that part one focused on getting organised (you can access it here) and part two (accessible here) focused on the property hunt.
Now, with our target investment property in mind, we’re going to journey through the buying process, from start to finish…
Picking Your Investment Property
Picking the perfect investment property isn’t a science.
In reality it’s more like a dark art where experience and know-how play major roles in the likelihood of future success.
There are so many elements and factors to consider when choosing your target property and that’s why we dedicated the entirety of part two of The Journey on this very subject. If you haven’t read it, and are interested in conducting a proper property hunt, you can check it out here!
After you’ve picked your target property it’s time for action!
Organise a Mortgage
Let’s face it, you can source the perfect property or the perfect investment deal but without the capital or finance, you’ll be able to do nothing more than dream about what could have been.
With this in mind we would highly recommend that you have some awareness of what buy-to-let mortgages are available before you begin any specific buying.
Be aware that buy-to-let mortgages are more expensive and generally require higher deposits. These deposits can be anywhere from 25-40% for the best deals. Generally speaking your typical buy to let mortgage would requires a 25% deposit, other fees include a brokers fees of approximately £500, stamp duty of at least 3% depending on purchase price plus legal fees of approximately £1000.
It is important to be aware of theses further costing when calculating your numbers to ensure the property in question is a good investment.
If you are considering building a buy to let portfolio it is vital that you get the right advice from a financial advisor who understands your vision and what you want to achieve (ideally an advisor who invests in property investor themselves). This is because there is a process to follow in obtaining and maximising the availability of mortgages.
It is very important that you understand the numbers and that your property will cash flow. We recommend that you aim for £200 per calendar month (Expenses less Rental Income = Cash Flow).
If everything still adds up then get ready to move forward.
Engage Your Property Power Team
We’re almost there but before making your first offer you might want to consider engaging your own personal property power team, if you have one established. If you don’t know what a power team is then click here, if you do, read on below.
Engaging with your property power team can be seriously beneficial in identifying issues or opportunities you might have missed.
By discussing your potential deal with your power team members, which may include your solicitor, accountant, broker and building contractor. They may help you identify that the deal isn’t viable, or, on the other hand, the potential you may achieve if you purchase and obtain this property.
There could be years of property knowledge and experience all around you, utilise it.
Making the Right Offer
You’ve made it!
You’ve inched forward, from getting started to finding the right deal, and now you’re ready to make an offer. Congratulations but don’t get too excited.
This isn’t your dream home, it’s a property investment so don’t dive in at the deep end and offer the asking price straight away, and don’t buy on emotion. Making the right offer means making the right offer for YOU.
To do this, consider your calculations (mentioned above) in relation to your mortgage repayments as well as factoring other elements into the equation.
Analyse what might drive the price up or down and move accordingly.
Plan for all Eventualities
Finally, even if you’ve had an offer accepted, please plan for all eventualities…even if it’s just in your head!
Deals fall through, sellers change their minds and properties come and go so don’t let any of the above impact on your decision-making.
After you’ve calculated your figures, identified the opportunities and possible obstacles that may present itself and ensure all avenues are explored. Proceed with your offer and sale process. If it doesn’t happen, simply begin the property search again. Be undertaking the process and learning from it you will learn so much from the process and will become a competent buy to let investor.
Until Next Time...
As always, it’s worth remembering that The Journey is simply the theory of property investing and nothing more.
To truly get going you need to get your hands dirty and get out there into the big bad world. It’s not as scary as it sounds!
For property networking we would highly recommend our very own Belfast Property Meet event. We might be biased but we recently celebrated our 6th birthday, no small feat in the events world, and have an incredible, engaged community that would be happy to talk to you, share stories, swap strategies and advise where possible. You can check out the monthly events, and more information, by clicking here.
On the other side, if you don’t live in Northern Ireland or the Republic of Ireland and don’t fancy travelling to Belfast Property Meet, you could check out our Property Success University by clicking here. PSU offers in-depth coaching and guidance that actually drives your property investing forward to achieve tangible results and we’d be happy to have you.
Next time on The Journey, as we begin to see the finish line in sight, we’ll look at how to “add value” to your newly purchased investment property.
See you then!