The financial outlook for 2023 is uncertain, with no end date in sight. The cost of living crisis has had a knock-on effect on the property market, and landlords are finding themselves facing tenants struggling to pay their rent. However, there are ways that landlords can protect their income during uncertain times and ensure that their buy-to-let investments are secure.
Invest in Rent Guarantee Insurance
Rent Guarantee Insurance, or Tenant Default Insurance, is a policy that safeguards your rental income in the event that a tenant can’t pay their rent. Naturally, each insurance provider will have their own policies, but typically a landlord will be protected against any missing rent regardless of what they charge, covering the missing payments up to a set value or time period. Some policies may even protect against legal fees or costs incurred in resolving the missing rent. Landlords should do their research to find the most suitable policy that ensures their property investment is covered.
Get a Schedule of Condition put in place
A Schedule of Condition can protect a landlord’s income by providing evidence of the state of a property at the beginning of a tenancy. This can help to avoid disputes with tenants over the condition of the property when the tenancy ends, as the condition of the property will have been clearly documented.
Having a Schedule of Condition in place ensures a landlord has evidence that any damage or deterioration to the property that occurs during the tenancy is clearly attributed to the tenant. This can help the landlord to recover the cost of any repairs or refurbishments needed at the end of the tenancy (which would otherwise come out of the landlord’s income). It’s also protection for use in any legal proceedings that might occur, supporting the landlord for a successful outcome.
Carry out affordability checks
Making sure that the tenants you have in a property or those you’re about to take on can afford the rent is essential. And in times of economic crisis, it’s vital that you make sure that thorough affordability checks are completed. Instructing a qualified letting agent is one of the most efficient ways to do this, but it’s also important to look forward and consider what the economy may look like in the months to come.
When the risk of recession is looming, it’s worth remembering that your tenants’ jobs may be under threat or their monthly income might be reduced. Talk this through with your agent so they can check how secure the tenant’s income is before signing them on to the property.
Split larger properties for increased profits
If you have a larger property in an area that’s in demand for single professionals rather than families, you may find that you can earn a larger income by splitting your property up and renting out rooms individually. It may mean making some adjustments to your property, such as putting in en-suite bathrooms or changing the layout of the kitchen to incorporate more storage. Alternatively, if you have a larger one-bedroom property, you may be able to turn it into two to maximise the rental income opportunity.
Minimise void periods with a well-maintained property
You want to minimise void periods with your property because the longer it’s vacant, the more money you’re losing on your investment. So, keeping the property in the best condition will attract tenants and minimise the chances of your property sitting empty.
A property management firm can stay on top of repairs and cleaning for you, to make sure that tenants are looking after the home as much as possible, but you should also schedule in regular checks of the property to touch up any painting that needs doing and book in a deep clean at least a few times a year. The better your property looks, the more you can charge for it and the less likely you’ll struggle to find tenants to move in.
Speak to a tax professional
Every landlord needs to stay on top of their taxes, particularly during times of economic difficulty. You need to be sure you’re paying the right amount of tax because property taxation can be complicated. Seek out the advice of a tax professional to see where you can reduce your tax bill. For example, allowable expenses include letting agents’ and accountancy fees, utility bills, buildings and contents insurance, cleaning services, or repairs needed.
Taxes are non-negotiable when you rent out a property, but that doesn’t mean you can’t make savings along the way by working with someone who understands where you can cut costs and increase your profits.
Review rents regularly
Another way that landlords can protect their income and maintain a strong positive reputation as a landlord is to regularly review rents to maximise your investment. You want to ensure that you’re bringing in a healthy income without overstretching your tenant’s affordability, and rent reviews enable you to stay on top of this to strike the right balance.
Some landlords skip over rent increases, for years in some cases, but this can actually cause problems for landlords and tenants alike, reducing profits for owners and making it harder for tenants to afford other properties if they choose to move in the future. Instead, offering fair rent reviews and perhaps discounting rents so that tenants get a deal and you still keep in line with the market is a compromise that suits all.
Becoming a landlord and successfully bringing in consistent rental income is not without its challenges, particularly when the property market is rocky. But landlords can make changes to how they manage their portfolio to protect their income as much as possible and prevent the risk of a loss on those monthly earnings, from making sure tenant affordability checks are carried out before a contract is signed, to finding ways to maximise income opportunities and maintaining the property well to minimise the risk of it being empty.