To B or Not to BTL? That is the Question!
Are the Days of the Part-Time Landlord Numbered?
A recurring theme from recent podcast guests has been that the days of the part-time landlord are numbered.
In days gone by, so called ‘hobby landlords’ could buy one or two buy-to-let properties and leave them in the background while the Gods of Capital Growth worked their magic. Values would usually double every fourteen years or so, providing a tidy little nest egg for retirement.
Many of these part time landlords would casually drop by to pick up the rent (often in cash!) from their tenants and the bad ones didn’t even bother to arrange gas safety inspections, electrical checks or install smoke alarms.
EPCs were not required to let out or sell a property, landlords’ mortgage interest payments were tax deductible, and HMOs were still called bedsits.
Times have changed…
In Episode 71, Lessons Learned From Danny Inman, Danny suggested that if you own fewer than five properties, you’re quite exposed in today’s buy-to-let climate and, as such, you need to make sure you’re both working with the right people and keeping on top of changes in legislation:
"I think it's no longer worth being a hobby landlord, you know. It be used to be relatively simple. Buy one or two houses and sit on them for 10 years. Landlords for 20 years previously have probably been able to fudge their way through it. But I think there's no value in that now. And I think it's actually quite high risk, in that you could get caught by a legislative policy or you could get caught by taxation that you weren't expecting".
These days, compliance has become such a challenge that it’s often best left to the professionals. Letting out a property involves a range of legal responsibilities which include some, if not all, of the following:
Electrical Installation Condition Report (EICR)
Portable Appliance Testing (PAT)
Gas Safety Certificate
Energy Performance Certificate (EPC)
Inventory recording the state of the property and a list of the contents
How to Rent Guide for tenants
Right to Rent checks on tenants
Tenancy Deposit Scheme (TDS)
Fire and Furnishing Regulations
Legionella Risk Assessment
Housing, Health and Safety Rating System (HHSRS)
HMO Regulation & Licensing
And even if a landlord decides to outsource all of this to a professional, our guest from way back in Episode 7, Like Clockwork, Helen Godbold-Eade of property consultancy firm Like Clockwork warned:
“Just assuming that a letting agent is aware of it, has dealt with it, it's not enough, because the responsibility and the liability is always on the landlord themselves, not on the letting agent, and most letting agency agreements, you'll find that in in the agreement that they cannot be held liable, by you, for something they've missed.
"So say, for example, an EPC, which obviously is valid for ten years, but once it expires, it needs renewing. One might assume that the letting agent has dealt with it. But the landlord who makes that assumption is leaving themselves open to huge fines and and issues. I would never recommend just assuming that those kinds of tasks have been done”.
And tenancy legislation is only half the story. You’ve still got taxation, mortgages and bookkeeping to take care of.
So, all of this means that us expats investing in UK property (and those in the UK for that matter) need to be fully invested in the whole process. We need to keep listening to podcasts, participating in forums and being part of communities just to stay compliant, let alone make a profit.
Back to Danny Inman:
“I see a lot of people going, oh, I want to get into property and you go, "Well, do you know, there's an extra 3% stamp duty or in Scotland there’s an extra 6% stamp now… do you know all of these policy changes?' Now the tenancy legislation is so vast and that's a massive risk.
“Ultimately, if you're a hobby landlord, you're probably quite exposed in today's market as well. So I think a lot of those guys... one to five properties, they will be making a decision on whether it has the value for them to stay in the market”.
But before you think Danny Inman is all doom and gloom, he also says:
“If you're informed, there’s great opportunity and great returns. Rental income versus asking prices is still very strong. Tenant demand is incredible, it's the highest it's ever been. Property in the UK ticks a lot of boxes in the return it gives you, the security of the return potentially, and the sustainability of the return.
“I travel internationally, there's still a huge interest in the UK market because of the market itself, the returns and the demand are absolutely incredible compared to other international markets. I think it's an incredible place to grow a portfolio”.
And if you do choose to go all in and build a property portfolio, at a certain point you must then make a decision on whether you’re going to scale further.
That’s what Mike Lawson, a Scotsman from the banks of the River Tay in Fyfe decided to do after he became an expat first in London(!) and then in Dubai.
Mike scaled his property business (Episode 73, How an Expat Built a £10 Million UK Property Portfolio) at lightning speed after arranging a revolving credit facility with a bank. His portfolio is now worth £10 million, a position he acknowledges most people would feel incredibly lucky to be in. But it’s not without its challenges:
“Every month, I've got to find £33,000 before I make any profit. That is scary, right, for like a 38-year-old guy. I wake up, the first of the month, I've got to make £33,000 that month to pay all my staff salaries, to pay all my overheads, to pay all the mortgages, all the insurances, and that's not even covering for voids. So, it's a lot of pressure”.
There must be a few investors out there now who gave up the day job and are perhaps regretting it since the property landscape shifted with the onset of higher interest rates and the subsequent squeeze on cashflow. So, leaving full time employment may be less appealing than before.
This explains why Mike advises caution to those looking to leave their jobs and ‘go full time in property’.
As he says, if you’re desperate to leave your job, perhaps get a new job.
Are you ready for that kind of responsibility, stress and pressure that inevitably comes with building a portfolio that requires taking on staff and paying salaries? Is it really worth scaling your property business?
We all get caught up in the idea of buying more and more property, but have you stopped to think about what that looks like? How many properties can you hold in your portfolio before you need to start thinking about getting paid help? Do you want to be finding, recruiting, and managing staff, which opens up a whole different can of worms and requires a different set of skills?
So, if you haven’t got the time, experience or the contacts to become a professional landlord, then perhaps you could consider investing in or with those who do…
Personally, my wife and I are looking to scale our property business over the next couple of years but not to the extent where we’re taking on staff, and pressure and headaches.
The people I most admire in property are the ones that have found their way to make the most money in the least time with the least risk, the minimum stress and for the most admirable reasons.
So, it all comes back to your goals, objectives and motivations. Your why…
Start with the end in mind!