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  • Buy-to-Let

    The business risk of being a landlord

    I think this is a topic that needs more airing for two reasons.  Firstly because there is a great deal you can do to mitigate against business risk, and secondly because you cannot expect to have all the upsides of investing in property without experiencing some of the downsides.  It would be unrealistic, naive and potentially dangerous to think that.

    When you invest in property, you take on a number of business risks.  These are such issues as:

    1.  The tenant will stop paying the rent

    2.  The tenant will damage the property

    3.  You may struggle to remove a delinquent tenant due to the court system, tenants being advised by local authorities to stay in their home until evicted etc.

    These risks may be amplified depending on the tenant demographic you choose to rent to.  Professional tenants are likely (but not always) to pose less of a business risk than those tenants in receipt of benefits.

    Tenants in higher value properties are likely (but not always) to look after the property.

    Whilst I realise I might not be too popular in pointing this out, I will play Devil's Advocate, and say that I see many landlords whinging about bad tenants and outraged that they have encountered one when they should have understood and accepted this as part of the business risk you take on when you become a landlord.

    The fact is that you WILL encounter a rogue tenant at some point on your landlord journey.  It is inevitable.

    Like a professional lorry driver, you should expect to have a couple of accidents during your career.  Lorry drives accept this risk when they get behind the wheel and so should landlords.

    There are two things you can do to lessen the impact of business risk:

    1.  Mitigate against it in every way possible.  Prevention is ALWAYS better than cure!

    2.  If you do experience a bad situation, be pro-active in dealing with the problem (as problems tend to escalate if you leave them to fester) and seek professional advice to support you in solving the problem.

    The ways to mitigate against a delinquent tenant are:

    Robust referencing

    Undertake an inventory

    Undertake mid-term property inspections

    Take out rent guarantee insurance which costs circa £90.00 per annum.  This can be obtained from PT insurance partner, Alan Boswell Group, by calling the ABG team on 01603 649736 .

    Ask the tenant for a guarantor who is a home owner. 

    >  Use a Guaranteed Rent service, like the one offered by PT partner, Northwood.  This guarantees to pay the rent on time every month, even if there is a void or if the tenant stops paying the rent.

    > Maintain respectful and open communication with your tenant at all times.  This is key to stopping landlord/tenant relationships turning sour.  If the tenant starts to become problematic, I believe your first approach should be empathetic, trying to understand the tenant's problems and seeing if you can assist them getting back on track.

    If you do experience a delinquent tenant, then the first thing to do is seek advice.

    >  Ask on forums like Property Tribes.

    >  Contact a specialist service like PT partner, Landlord Action on 0333 363 8384.  (If you have rent guarantee insurance, this will take care of all the legal costs of removing the tenant).

    One thing you should not do is leave the problem to fester, as it will only get worse.

    In 14 years of being a landlord with 20 odd properties, I've only ever had to serve an S21 notice 4 times, and only one of those cases ended up in court.  I think that those are reasonable downsides/odds for all the benefits I have enjoyed through property investment.

    The bottom line is that we should make provisions for encountering rogue tenants and factor that into our financial planning.

    If we experience a delinquent tenant, accept the responsibility and learn from it.  Blaming others for our mistakes means we are not learning from them!

    Whilst being empathetic to any landlord who experiences rent arrears or property damage, as I said, playing "Devil's Advocate", being a landlord means taking on the risk of the tenant not paying the rent and/or trashing the property and we should be fully aware of that and mitigate against it.

    Prevention is always far less expensive, heartache, and stress than cure, hence the reason for my post!

    A smart landlord will use all options open to them to mitigate business risk, and, if they do experience it, they will take it as a learning opportunity to ensure that they do not make that mistake again. 

    If they are generous and community-spirited, they may even share what they learned on forums like Property Tribes, allowing other landlords to learn from someone else's mistake!

    There are some other business risks such as:

    >  Interest rate rises. 

    Landlords can take out fixed rate mortgages if they are concerned about this.

    >  Government intervention and legislation. 

    There is very little we can do to mitigate against this!

    >  Property price depreciation.

    Landlords should aim to buy at a deep discount to mitigate against this.

    What do you regard as the biggest risks of being a landlord and how do you mitigate against them?

    SEE ALSO  -        Landlord Action to the rescue!

    UP NEXT -            "Cheap is often expensive in property" - Paul Shamplina

    DON'T MISS -       Rent guarantee portfolio insurance



    I think the Biggest risk to Landlords is Not the every Day Business ? Its Govt Policy

    If you look at the past historic attacks on the BTL investment and its impact it has had in the past 3 years

    BTL as an investment with leverage is on a very slippery slope

    and If Labour comes to power we may all be heading for the door

    We could well have a General Election around the corner

    Business risk is easy to manage Risk from Govt is out of our hands


    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Agreed - sole caveat being that Kent Reliance B Soc say only 1/3rd of BTLs are mortgaged.

    There are of course risks other than S.24...


    We will have more hurdles in future

    BTL as we know it is a very young sort of investment

    and my own feeling it’s been to good for too long

    and the govt with public opinion don’t welcome us

    the govt will detur us more and more to put joe public buying second homes as an investment

    thats where the danger lies


    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    That limits the impact that tax changes may have on existing BTLs - other than possible changes to CGT.


    Good article, thanks for the info.


    Good article. Reminds us to do things the right way and not become complacent. I feel nervous with every deal. I can’t help but feel that I have been lucky on the whole - this makes me cautious - I am willing to pay a tenant to leave, fix my rates, build a cash buffer but... there is always something that can go wrong.

    I have never really felt I have bought bmv (I don’t get this as a concept) but I have seen ways to add value. Or accepted that a fair price, with the right strategy has meant a strong yield. Combined with five year fixed deals I feel that being able to raise rents whilst mortgage rates are static is a good risk mitigation tactic (along with keeping cash/shares from income as a buffer)


    Yes there are risks -  name me one business, or true investment, which doesn't have degrees of risk - but also as Moneyfacts recently said "Buy To Let is still booming, despite recent government initiatives that many thought would dampen activity. Indeed, more mortgages are available, rental yields are stable and demand is through the roof"  source

    The 'headlines' shout about detrimental income tax changes (not applicable to Ltd Company or other types of corporate structure ownerships - companies don't pay income tax, they pay corporation tax - much lower rate, not affected by the Osborne intervention), the 3% Stamp Duty surcharge (not applicable to semi commercial / commercial properties converted under PDR to resi), the new BTL mortgage specialist portfolio underwriting rules (not too onerous if you use a specialist BTL Broker who understands and can present the requirements in a very user friendly way),  and  ..... well I could go on, and as a landlord myself too, so I do truly understand the concerns but I am also aware of the mitigating strategies available to take the pain away (or at least to significantly reduce it).

    The main sea-change is that BTL'ers now need 'professionalise' their businesses far more nowadays than ever before.  And the starting point is to work with face to face specialist advisers for - tax, legal, mortgages, insurance, lettings, management, estate planning etc. 

    Get your 'Power Team' together and we can work together to help ease the process from buying, refurb'ing, keeping, selling...

    There are of course negative aspects to BTL.  As there are for ISA's, pensions, unit trusts, bonds, bitcoins, and stocks and shares. 

    And - there are positive aspects for BTL too - just as there are for these other investment strategies as well.

    So, the business risk of being a landlord is something to be managed and mitigated where possible and indeed it can be.


    I don’t think it is booming Just look at lending figs

    If your right and it is Booming The Govt Policy of more Taxation and Lending Rules is not putting off investors

    so we will get more of the same S24 Stamp Duty ect

    I know when I talk to agents and Landlords in my own area they are not buying

    I could show you streets of unsold Property that Landlords would have purchased before Osborne Law came to town

    all the agents are saying the Market has gone quite and if there are few transactions the market will fall

    We have all seen price drops in London

    a large correction is happening now

    Newcastle and other city's are looking at selective Licence for the whole city and I am sure they will not be alone

    No Landlord has paid a penny yet due to S24 but in Jan the first bills arrive

    Its far to early to say what happens next

    For me I am Happy to fund my Pension and My ISA which as you know Equity funds have drooped a lot and I can see bargains here And more important I can

    see recovery in Equity Investments over BTL in the future

    BTL is far from out of the woods and if this EU deal doesn't go through we could have an election  faster than we thought possible

    we are going through troubled times and it will go on for years to come and the first think we know is we have a crash worse then 2007

    wiping out the profits of the BTL capital Growth that has been achieved in the past 10 years

    we as landlords have little to celebrate at present More to come Much more


    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Forum Policy:

    £50 fine for using the Guru term "Power Team".


    Lol.   I don't usually but that is a term coined by Vanessa when offering a synergistic support (from the combined PT commercial partners) to all BTL'ers on this site.