Careful planning needed to make buy to let work, says national agency

A national estate agency in the UK has warned the buy to let market that provision for regular investment into rental properties needs careful consideration and planning.

By failing to keep funds aside to reinvest the chance of void periods will dramatically increase and the returns on the investment will be seriously affected in the long term, according to Strutt & Parker.

The firm says that a sensible ‘rainy day’ fund is essential and prudent investors will factor this in when purchasing their rental investment and adopt an on-going approach to property upgrades.

In the past when a very stable and strong market swung in the landlords favour investors have been able to set aside the minimum to maintain their assets. Such competitive market conditions resulted in tenants turning a blind eye to minor defects in properties. Since buy to let was launched in the 90's, the market has changed and so has what tenants demand.

The agency points out that standards have improved and even in a market with limited supply tenants just won't accept sub standard and unloved properties. They will pay optimum rent for well presented and well located properties. Specification remains paramount. Landlords need to consider regular upgrade and maintenance works at the very least between tenancies and every three years.

‘If you regularly maintain your rental property on an annual basis, even when your tenant is situ, then overall you are likely to spend less than a major upgrade every three to five years. You are also sending a clear message to your tenant that you are a conscientious landlord that cares about them and the property. They in return are likely to look after your investment and appreciate their surroundings and do their very best to keep your property in immaculate order,’ said Zoe Rose, head of lettings for Strutt & Parker.

‘We do have a few clients that have enjoyed healthy rent increases over three to five years linked to RPI without doing much to their property during the tenancy. When the property comes back to market, they are shocked to learn that they need to spend significant funds in order to support the same level of rent achieved before,’ she explained.

‘Like any investment the return can go up or down and you wouldn't run any other assets dry and expect to maintain the same level of return. It is the same with rental property. You need to keep aside sufficient funds to upgrade and reinvest in order to optimise the returns,’ she added.

Strutt & Parker's Research team have identified that with substantial demand in the market and a cultural shift towards rental over the last decade likely to continue, there is a real opportunity for landlords to maximise on tenant demand by providing the right accommodation.

‘The increase in the Private Rented Sector across London with 79% more household renting in 2011 than 2001, shows just how large the market is. In these types of conditions investors must put back more to reap the financial benefits. Tenants are looking for longer leases too, with 17% increase in those taking longer leases in the third quarter of 2013. Therefore landlords need to invest more to fight for those tenants,’ said Stephanie McMahon, head of research.

Rose also pointed out that ultimately, renting is like any other investment. ‘It is much better to plan properly than be stung with an extended void period or accepting a very low rent just to secure a tenant. Having a well thought out maintenance and upgrade plan really does pay dividends in the end,’ she said.