The Fed-Up Landlord, what to do when things go wrong…
For every landlord that gets a great, hassle-free return on their property investment, there is probably another that hates everything involved in being a landlord these days.
Many so called accidental landlords didn’t ever set out to own an investment property, many simply couldn’t sell (or not at a price they wanted at least) an existing property but needed to move, or they inherited one or no longer had use for a property housing a relative. Whatever the reason, finance website This Is Money estimates that 1 in 14 landlords fall in to this category.
But it isn’t just accidental landlords that may rue the day they decided to rent out a property. Many landlords have seen rental income shrink as tax reliefs offered by the government to encourage the Private Rental Sector (PRS) have been abolished and anybody who has bought a property recently will also have had to face an additional 3% stamp duty (SDLT) on the entire sale price – again another measure to curb the growth of private rental.
When many landlords thought that things couldn’t get worse, the Tenant Fees Ban – widely welcomed by tenants and housing charities, if not by agents – meant that fees for tenant find services and managing the letting increased as agents looked to replace lost income from the only other available source, the much-beleaguered landlord.
Typically fees for management increased by around 2% taking an additional £17 including VAT a month off a £700 letting.
Could it get any more difficult?
Landlords and letting agents have also been hit with a raft of new legislation and guidelines to improve the quality and safety of homes they rent. Smoke detection, gas and electrical safety, tenant right to rent checks, PAT testing, suitability for habitation checks, CO alarms, EPC’s… the list goes on. Few people would not accept that these are in themselves all good things but all must be paid for either by the landlord directly, or indirectly via increased fees from their agents.
With UK politics so unpredictable lately there is a strong possibility of an election in the coming months and The Labour Party may gain power, or at least a share of it. They have stated an intention to beef up tenant protection and allow them rights to acquire their home at a knock-down price. It remains to be seen if this scenario would ever come to fruition but nonetheless, the shudder was felt in the market when this policy idea was announced.
It is little wonder that many accidental and discontented landlords have exited the market, especially as many wish to take full advantage of the substantial gains in capital values seen over the last decade. But many are stuck in a trap and it is something that prevents many from selling as they really wish.
So what is the trap?
Those landlords who are, to coin a Theresa May phrase, ‘just getting by’ with their letting, in other words struggling to break-even and unable to prop up bad months when there are extra repairs to do or the tenant is late paying, are unable to take the risk of selling.
Because many tenants are unsettled once they know a property is on the market and very often choose to leave. If they are holding over on a periodic tenancy, they can walk away with just a month’s notice.
A landlord could see their income drop from the UK average of £967.00 a month to £0.00 plus they become liable for council tax and utility bills and have to pay around £400.00 to an agent to find a replacement tenant which will be tough because the property is on the market to sell!
And even if you’re lucky and the tenant isn’t too worried by the proposed sale, the estate agent will only be able to sell to a buy to let investor who now – because of all of the issues mentioned above – make up a very small proportion of the buying public. And if those buyers need a mortgage they will have a more limited pool of lender who will all want a higher APR which, you guessed it, means that their offer will be lower than that of a standard buyer.
And as if that wasn’t all bad enough there’s another issue.
It’s rightly part of the tenancy agreement that proper notice must be given before viewings so spontaneous visits with buyers are a no-no and of course you cannot tell your tenant how to live their life so socks drying on radiators, cooking smells, untidy rooms which are all things to deter a buyer are completely allowable and in reality quite common!
So you could find yourself stuck. Afraid to jeopardise the income or able to market to a small number of buyers who must view at a time to suit the tenant and will perhaps see the property looking far from its best.
Property buying companies, well versed in swift purchases of tricky to sell homes may well step in and purchase, not caring if a tenant is in the property or not. They will make a cash offer usually without even viewing (so the tenant is blissfully unaware) and only have a formal inspection when the deal is struck.
By this time if the tenant is unsettled, it likely won’t be your concern, often sales can be completed in a matter of days or weeks at most.
It really does seem to be a silver bullet approach to solve all of the problems outlined above. But there is one issue that may deter some…
These professional property buyers will look to pay around 80% or so of the property’s true worth i.e. its market value. Most cover legal fees and of course there is no estate agent to pay but for many the drop is too much to accept. But factoring in the potential pitfalls of selling in the more traditional way and the risk of losing a tenant and all of the extra fees and costs that may incur, there is no doubt that this easy option will be grabbed by many fed-up landlords.
And once they have bought the property, what happens?
Some firms will keep the tenants and retain the property as an investment, or they will get the place vacant and sell on the open market. Having deeper pockets than the average landlord, they won’t be too worried with the place staying empty for a while, chances are that will have been factored in to their offer.
And the landlord? Well they can breathe a sigh of relief and get on with their lives – at least until they decide to look for another investment!
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