So you want to be a commercial landlord. Welcome to the club! Owning and renting out property is increasingly being seen as the best way to provide yourself with a passive income that can last for the rest of your life. Anybody who follows financial or political news knows that pensions are increasingly unreliable. When you’ve worked hard for your whole life, you don’t want to be left dealing with the stress of the state failing to provide adequately for you, or your private pension disappearing because the company who held it for you has collapsed.
Owning property is the most solid, dependable solution to that problem. So long as you have physical assets and tenants who are able to pay their rent every month, you’ll never be short of money. Whether you’re looking to become a landlord in your retirement or you want it to become your profession right now, the doors are wide open for you so long as you have a small deposit to get yourself started. Here are a few pointers for you to follow as you take your first steps toward building your portfolio.
Always Start Low
We're currently living through an ideal time to get started as a landlord, and that's because economic conditions are uncertain. When conditions are uncertain, house prices either remain static or they fall. Right here and now, it’s a buyer’s market for those who have the means to buy. House prices are likely to go up when the global economy recovers, and that means any property you buy will likely increase in value over the next five to ten years. Don’t fall into the trap of thinking that means you have to pay the advertised price, though. Look for properties that have been on the market for more than a month, and go in low. Look for a 20% discount on the advertised price. If you have the cash ready, sellers are more likely to accept your offer because they’re getting a quick, easy sale. The worst thing you can be told is ‘no,’ so why not take a chance?
Don’t Stockpile Blindly
It's a common misconception that being a successful landlord means having dozens (or even hundreds) of properties. There's nothing necessarily wrong with having a large portfolio, but that portfolio should be built up slowly and sensibly. Buying houses isn't the same as playing online slots. When you play online slots, you keep putting money in until luck comes your way, and you make back more than you've paid. That doesn't happen every time, though, which is why online slots websites are for gamblers and not investors! Just because a house is available doesn't mean it makes a good purchase prospect. How many homes are empty on that street? How many properties around it are available to rent, but have no tenant? Look for small gaps in the market, not areas of mass availability. If you have too much competition, rental income becomes a race to the bottom.
Pick A Long Term Goal
There are two main reasons for becoming a landlord. One is to have as much money as possible now. The other is to have as much money as possible later. It's important that you decide which of those goals you're working toward. If you want more money right now, the best way to proceed is to take an interest-only mortgage on your rental properties and therefore maximize the profit you make each month on rental payments. If you're more interested in having money later, go for a repayment mortgage and pay the balance off over the term. You'll make less profit each month, but when the mortgage is finished, you'll be able to sell the property and make a large lump sum. It won't have cost you anything to pay off the mortgage because your tenant covered the costs, and therefore all the money you make on the sale is yours to keep.
Use A Management Company
If you only own one or two rental properties, it probably makes sense to cut out the middleman and deal with the management of the properties yourself. It makes you personally responsible for all the repairs, maintenance issues, referencing, and potential tenant difficulties, but it also means you don't have to share your rental income with anyone else. When you have more properties than that, it makes sense to use a management company to deal with these issues for you. They'll vet your tenants before they move in. They'll organize repairs and maintenance work without needing you to get involved, and they'll usually even guarantee that you'll receive your rental income even if the tenant doesn't pay. It costs you a little money, but it saves you a lot of time. You'll get more out of the service than you pay for.
Keep Your Mortgages Separate
This is all about protecting you, your money, and your long term prospects. Some lenders will allow you to take out one mortgage to cover multiple properties. That might seem convenient, but it's also risky. If for any reason, you run into financial difficulties with regard to the payment of that mortgage, you could find that all of the properties it covers are at risk of being sold out from underneath you. If you have individual mortgages for each property, only one property is at risk in the same circumstances. It also makes sense to diversify your lenders. This has two benefits; firstly, it means that if a lender gets into trouble it won't have implications for all of the properties you own, and secondly, it can make properties easy to require. Some lenders have maximum lending limits, or more restrictive vetting procedures once you go above a certain level of borrowing with them. If your borrowing is spread out between several different lenders, an issue with one of them is much better than an issue with them all.
Getting started is the hardest part of becoming a professional landlord, but once you have your first one or two properties, you'll find that the rest comes naturally. If you have a good management company working for you, you barely even have to give things a second thought. All you have to do is buy wisely and let them find you a tenant, and then you can sit back and watch the money roll in!
