Contrary to popular belief, being a landlord isn’t quite as straightforward as it once was. Various legislation changes have certainly made the game more difficult – and this means it is more crucial than ever before to ensure that you’re extra vigilant with your initial purchase.
While you can never predict the future, there are some tell-tale signs that a property deal might not be all that it’s made up to be. We will now mull over some of the most important ones to look out for, to ensure you don’t get burnt.
High ground rents and service charges
These are some of the most contentious issues in the modern-day world of renting and can wreak havoc on your initial projections.
Put simply, you’re responsible for any ground rents or service charges that come your way. Sure, you might indirectly pass these costs onto tenants, but you’ll always have a ceiling.
It’s not uncommon for these costs to be well into the four-figure level every year, which, for most projects, will bring any forecasted yields crashing down to earth.
Unfavourable lease terms
Lease terms are notoriously difficult to understand, but they’re also incredibly important.
The vast majority of leases will be for a term of 999 years, but some might be for as little as 99 years. This can have a major impact on the future value of your property, so you need to be sure you’re comfortable with the terms before you sign on the dotted line.
As soon as your lease starts to drop down to the 80-year mark, you’re completely up against it. It’s going to cost you a small fortune to extend it again and suffice to say, this is the markings of a poor investment.
A problematic area
Even the best run properties in the world can be let down by a troublesome area.
If you’re looking at a deal that’s in an area with high crime rates, a bad reputation or a history of anti-social behaviour, it’s probably not worth your while.
It doesn’t matter how well the property is managed, if the area is no good, you’re going to have major problems letting it out. Or, even if it is let out successfully, your tenant churn is probably going to be so large that it will eat away into your profits, and that’s not even considering the potential increases in your landlord insurance costs.
A rental market that has plateaued
If the rental market in your chosen area has hit a brick wall, it’s time to look elsewhere.
There’s no point in buying a property and hoping that rents will magically increase, because they probably won’t.
Do your research, look at comparable properties and make sure you’re comfortable that there is still room for growth in the local market. If you’ve noticed an influx of new properties over recent time, and rents haven’t moved, it’s a sure sign that supply has outweighed demand and it’s time to move on.