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  • Property-a-holics

    The true cost of being a landlord.

    New research has revealed that vacant properties, tenant arrears and unexpected maintenance charges are just a few of the many things that are costing small UK landlords[1] £2.1 billion a year[2], with the average landlord paying out over £1,500 a year in ad-hoc costs.

    The study, undertaken by Northwood, one of the leading providers of Guaranteed Rent, reveals that 84% of landlords receive less money than they thought from their monthly rental income due to unexpected costs, such as tenant arrears and having to take time away from their core employment to deal with tenants and the property.

    A property being vacant is something that particularly impacts landlords financially, with almost half revealing that they did not receive any rental income on their property for up to three months due to vacant periods, and one in ten suffering for six months or more without tenants in their property.

    The study, the first and largest of its kind in the private sector, also highlighted that over half of tenants are late with their rental payments and 59% of landlords have to chase tenants for payment at some point in the last year. This is something that creates real apprehension for UK landlords, with 91% admitting they are concerned about tenant arrears over the next two years.

    Whilst there is clearly a large financial implication on being a landlord, there are also more personal effects, with 82% of landlords having experienced inconveniences such as missing a personal event or having to cut back on social activities due to being a landlord. And one in five landlords saying they have been called out to their property four to five times a year.

    Managing Director of Northwood, Nick Cooper, comments, “Landlords have recently been under fire with accusations that tenants are victims to greedy landlords, but this research highlights that landlords too face a number of difficulties.

    “The amount of money being paid out for unexpected costs each year is staggering, and with tenant arrears and vacant properties a very real concern, landlords can be hit hard.

    “Some people become landlords due to changes in personal circumstances, the need to relocate or because of the current housing market. The research shows that being a landlord can be like having a second job that is why we have a Guaranteed Rent Service to ensure our landlords get paid, no matter what.”

    Northwood Rental Income Calculator

    Find out more about Northwood's Guaranteed Rent service >>> here.

    [1] Private rental sector only

    2 Calculated by average cost a landlord spends a year [£1532] multiplied by 1.4million landlords in the UK [according to the National Landlord Association]
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    This is so true.

    In the early days, when you're new to being a landlord, it's very easy to overlook a) maintenance costs of the property and b) voids. Initial calculations tend to be based on fully let properties that run smoothly. If the property is managed by an agent on top of this, there amount left over can be minimal.

    The lifestyle impact is variable. The easiest way to consider this is to imagine the issues that one gets with one's own home, then assume that tenants will get similar issues and more, some of which are very basic indeed. We haven't yet had to cancel social engagements, but David has had to spend a full day overseeing the fixing of a collapsed drain in the middle of winter, with visiting friend in tow. Fortunately he - the friend - was very interested and highly entertained by the whole escapade!

    We took on our first student let a couple of years ago and this has been a whole new education - for the first time calls late at night because of lost keys or being locked out of a room. It's just all part of the job.

    Confused
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    Jayne Owen @jayneowen

    Editor and Writer: Your Property Network magazine

    Investor: Mozaique Property, South & West Wales and South West England

    Occasional reviewer at The Property Bookshop (@Property_Books)

    The true cost of being a landlord is under-estimated on many levels -

    * Financial

    * Emotional

    * Stress

    There is another current thread which is a case study of a bad property deal that is causing the investors a lot of grief ... read it here.
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    If a considerable amount of this was tenants arrears thats a massive amount of tax the government is loosing out on. Direct payment of housing benefit (universal credit etc) would mean the tax man could collect a lot more money, they could moniter the payments made to landlords and save money on paying landlords direct as it must be easier paying a landlord with 10 houses than that of 10 individual tenants.

    This government and any for that matter needs to get there thinking cap on and start thinking logically
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    [Image: New-logo2.png] Manchester based investor. I buy, sell, renovate and rent investment property in East/North Manchester Wink email: mike@brentwoodinvestments.co.uk Call: 0161 681 3724

    Points well made Michael.

    But sadly "government" and "logical" rarely go hand in hand.

    When they start getting involved in regulation - which it is looking increasingly likely that they will - then landlords will most likely suffer.

    Government to start enquiry into the private rented sector

    U.K. property market is a government & tax payer fuelled Ponzi scheme?
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    I alleviate the cost to my emotions and stress levels by ensuring the financial costings are solid but have a built in 10% leeway
    If you aim your cash flow to be 10% greater than what you would like then when you fall below by 10% it does not impact on your emotions or stress level so you remain in a permanent state of peace.

    In other words. I used to get well wound up if rent was late or never paid. I dont now
    I now expect it to a tune of about 10% of total income.
    I treat it as a sunk cost and write it off.
    So much so that if it does get paid then its a bonus in my mind....... and I celebrate.
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    Jonathan Clarke. http://www.buytoletmk.com

    This topic highlights the need to underestimate rental income and look on the Dark Side. Rather than being too optimistic.


    (31-10-2012 04:53 PM)Michael_Brown Wrote:  Direct payment of housing benefit (universal credit etc) would mean the tax man could collect a lot more money,
    This is true and your looking at it from a Landlords point of view. The Government are technically being defrauded if a claim for "Housing Benefit" is made and not used for that purpose.

    They don't see it that way, though.

    Common sense in Government would mean the 8 week rule (landlord can be paid direct if T is over 8 Weeks in arrears) was not the same time as when you can legally ask court for eviction. Common sense would mean you get paid direct before Tenant is made vulnerable to court action.
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    Apparently landlords are suffering from "money illusion"!

    Landlords have unrealistic expectations of property returns and are failing to consider the effects of a range of costs, a new report has shown.

    And the proportion of landlords viewing their properties as short-term investments is "at levels last seen before the financial crash".

    The data, from YouGov's Landlords and Mortgages 2013 report, contradicts the view held by lenders that the buy-to-let market has improved since the financial crisis. Lenders claim that post-crisis investors are focused on long-term returns, rather than the quick capital gains that characterised the 2006/07 boom. Instead, the YouGov data suggested that landlords were naively counting on "illusions" of gains.

    It said landlords' total returns were in long-term decline, despite reported evidence of rising rents. In the 2002-06 period, landlords' rental returns averaged between 4pc and 6pc, it said, whereas rental returns are now between 1pc and 4pc.

    One reason for weaker returns was landlords' propensity to overlook costs. "While 93pc consider mortgage interest payments, only 68pc take account of agency fees and 46pc budget for other management expenses."

    Buy-to-let continues to grow, with the number of landlords increasing. There are now 1.5 million landlord mortgages in force, accounting for 13pc of all lending.

    Read the full article >>> here.

    I think John Corey mentioned a figure of costs of 40% of the rent as a guide line of what a landlord's net profit might be.
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    (09-07-2013 08:19 AM)vanessa warwick Wrote:  Apparently landlords are suffering from "money illusion"!

    This is very true and this illusion affliction affects us all in various aspects of our lives.

    I genuinely believe in my mind that I could have got some of the shots that Andy Murray missed in the Wimbledon final on Sunday .
    I genuinely believe i will win my next argument with my wife
    I genuinely believe I look 20 years younger than I am.

    I advise other investors and whilst most have a sense of reality as to where they are on the spectrum I do meet some who suffer from money illusion. There is a fine line between madness and genius. Some people cross that line some dont.

    “No great mind has ever existed without a touch of madness.”
    ― Aristotle
    .
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    Jonathan Clarke. http://www.buytoletmk.com

    We know that in a typical year we will lose about 20% of the rent on maintenance, voids, cost of finding tenants (through an agent) etc. But this is always a bit lumpy. We might lose nothing one month and 50% another.

    Similarly, I know I will almost certainly have to chase a couple of tenants for their rent this month - I just don’t know beforehand who it will be! I also know that I will get calls and texts at all times of the day (including weekends). It just goes with the territory and as with so many things, it helps when you know what to expect. Once you’ve been doing it for a while, it gets a whole lot easier, you stop worrying about it and enjoy all the positives that being a landlord can give you.
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    Investing takes a lot of hard work.
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    John (Singapore)
    Londonproperty123.blogspot.com