Mistake number 1: Don’t buy a house made from Lego! (source)
The life of a landlord may look easy – buy a property – rent it out – rake in the cash – but it’s not the cash cow you might expect. If this is something you are thinking about, you need to be mindful of the advice we are giving in this article. There are some costly mistakes you need to avoid, and failing to heed them will shatter your dreams of becoming a property millionaire.
These are the financial mistakes you need to avoid.
Forgetting the hidden fees
You may have the budget to buy a property, but there are all kinds of fees you need to be aware of. From the letting agent fees to occasional maintenance work, you will have to fork out cash on a regular basis. Another question people are asking themselves now is this: how much tax do I pay on rental income? Dependant on your rental income, the new tax legislation will affect what tax bracket you fall under. So, do your research before you buy a property, and factor in everything you can be expected to pay.
Not being business minded
You’re buying a property to let, not move into, so you don’t need to blow your budget on features that might look nice, but are unnecessary for everyday living. After all, it’s unlikely you will be living in the house after you have bought it, so the plush carpeting you would have in your own home isn’t essential for your tenants. Of course, you do want to attract tenants, but there is a limit to your spending power. You also need to be sure of your rights and responsibilities. This includes safety checks on the property and having written agreements between yourself and the tenant. Buying-to-let isn’t a hobby, so seek advice from your solicitor and local government for all the advice you need.
Not budgeting properly
As we mentioned, there is more to buying a property than you think, and you need to be able to budget for it. There are expected and unexpected costs, so you need to have a separate fund to account for these outgoings. It can be quite easy to lose track of what you are spending, but a financial spreadsheet, with columns for your incomings and outgoings, is an effective start. You will then be able to see at a glance where any shortfall may take place, and you can attempt to put right anything that is going wrong. It may be that the letting agent charges you too much, for example, so you should shop around and find an agent with lower fees. Alternatively, you may be charging too low a rent, so seek advice from other landlord’s, and find out the going rate for a particular area.
Unless you want to be liable for damages (from the tenant or natural disaster), you need to insure your property. While it’s an expense you might want to ignore, you will be worse off financially if you don’t have it. The tenant will be responsible for contents insurance, but when it comes to the building, you need to find proper cover. A comprehensive landlord insurance policy will protect you from all risk to your property, so this is one expense you don’t want to skimp on.
By following our advice, and by being a respectable landlord, you may make a considerable profit on your investment. Good luck if you decide to move forward.
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