The rise in Buy to Let property investment has been phenomenal in recent years, waning only lately due to the lack of available credit insofar as mortgages are concerned.
Many rushed into the idea fairly blindly after going to seminars, hearing it was "a good idea" and generally being told by the media that it was the future for day to day retail investors.
A common question now though is, (particularly with the financial world being so turbulent), what is the best way to manage a Buy to Let portfolio, and the pros and cons attached?
What are the options?
The management of Buy to Let is usually approached in one of two ways. One is to appoint a property management company to look after the property and tenants on behalf of the investor, (Hands off approach) and the other is to maintain the property themselves, (Hands on approach). Here we explain the pros and cons of both of these options.
Hands off approach – Appointing a property management company
A full service management company usually takes care of a Buy to Let investment property by finding tenants, collecting rents and dealing with any problems they may have, relieving you of having to deal with tenants personally. They will also maintain the property to a habitable condition, according to relevant health and safety codes and take a certain degree of responsibility for that. The company will usually work with local tradesmen on a regular basis so any repairs to the property will be carried out to a high standard, again, the management company taking responsibility.
The up side
This type of management is ideal for investors with a large number of properties, or property at some distance from their home, where it would be difficult to travel to in order to maintain. Short term lets, such as holiday rentals also benefit from this sort of management process, where the changeover of "tenants" is more regular and the property will need maintaining more often.
The down side
Companies charge around about 10-15% of monthly rental income for the service, plus maintenance. One important point to note is whether or not the management costs include any insurance that for the property and the letting of it, so it is vital to check contracts and ask the management company any questions that may be relevant.
Hands on approach – Managing your own rental empire
Managing your own rental property is often a lot more involved than most people initially think. When you have a paying tenant, you don’t have the liberty of "doing it tomorrow" as you might with your own home, and you have to meet certain legal standards for the property to be rentable and avoid lawsuits or reasons for non payment of rent.
The up side
One of the advantages to personal property management is the feeling of involvement. Investors are able to keep up to date with what the tenants require and what needs changing within the property. They are more likely to build a relationship with their tenants and this may lead to the tenants respecting the property and taking more care of it and retaining a paying tenant for longer. This of course will depend on the sort of relationship formed between tenant and investor.
The down side
Being a residential landlord is a time consuming task. If you choose to look after the property yourself, it will require you to be available for tenants, chase late payments, deal with finding new tenants and cleaning and so on after former tenants leave.
Managing your own rental property also requires other skill sets. Even if you have bought a brand new property, chances are something will need fixing or replacing sooner or later, so a competent knowledge of DIY or a list of reliable tradesmen that can carry out any work on the property are a must. It is also imperative that you keep up to date with the legal requirements of letting out a property because you could be prosecuted if these are not met.
From a sheer practicality point of view, this option is really only for investors that live within a short distance to their property as it will require them to visit the tenants and the property itself on a regular basis.
Other factors to consider
When deciding on the options it is important to check the conditions of your mortgage, some mortgage providers stipulate that a management or lettings agent must be used when investing in a Buy to Let property. If this condition is not stated then the decision is down to the investor’s preference and view of their investment.
Overall, both options have positive and negative points. Ultimately, for most Buy to Let entrepreneurs, the decision will be dictated by circumstance. If however you have the choice, there is one final thing to consider – What is your time and energy worth to you? If you can afford to be hands on and relish the work it will provide, great. If, however you find that you have perhaps bitten off a little more than you can chew, the management route is always there.
- Tuesday 15 June 2010