18 July, 2007
Property investment is a growing trend and an increasingly attractive option for people looking for future financial security. You only have to thumb through the television guide to see the considerable number of property development and investment programs advising on how you can become the next property millionaire.
As it becomes more difficult for first time buyers to step onto the property ladder, the rental market appears to be flourishing. But as a potential investor, it is essential that you do your homework before taking the plunge. If your intention is to purchase a property with a view to renting it out and covering your costs through the rental yield have you really considered all the pitfalls? It is vitally important that you do not cut corners in an attempt to save a few pounds as this could come back to haunt you at a later date.
Three key issues all Landlords should give particular attention to when considering renting out their property are:
1. The tenancy agreement
This is a key document that will establish your rights and responsibilities, along with those of your tenant, from the outset of your contractual relationship. It is worth taking the time and spending the money to ensure that you have a tenancy agreement that you are going to be happy with and that will do what you want it to. The tenancy agreement will govern issues such as access, the reasonable notice period you will be required to give and the rental payment provisions. Make sure that your tenancy agreement gives you the protection you require.
When getting a tenant into your property you may be able to secure satisfactory references, but it is always advisable to get a guarantor in place too. The guarantor acts as something of a safety net if the eventuality arises that your tenant is unable to meet their contractual obligations. Landlords regularly pursue tenants who have not paid their rent and when taking them to Court they often find difficulty in recovering the rent owed to them. Having the guarantor in place significantly increases the chances of successfully recovering the money which is owed. Ensuring that a guarantor is in place should always be a key consideration when the property is to be let.
If a tenant falls into arrears with payments of rent or you wish the tenant to vacate your property at the end of their term which notice do you serve – a notice to quit, a section 8 notice a s21(1) or s21(4)? Avoid costly pitfalls by taking legal advice and ensuring that you get the notices right. The statute and case law governing notices can be a little technical and it is worth taking the time to consult with a professional who can help you ensure that the notice served is the correct one and affords the required period of time. Landlords have often fallen foul of tenants who 'play the system' when they see that an invalid notice has been served, this can lead to a sizeable loss of rental yield and the potential for significant legal costs – both of which can be avoided.
Making the effort to protect your position and ensuring that you have taken sound advice could be the difference between a prosperous move into property development and an extremely costly and disastrous experience.