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Being a buy-to-let landlord can be very rewarding and profitable. You can learn a bit more about this in our Guide to Becoming a Landlord, where we discuss some tips and considerations if you’re just getting started in the sector.

To be successful, it’s also important that you stay clear of certain mistakes. Because you need to be aware of which pitfalls to avoid, Gorilla Accounting compiled a list of what not to do when running a buy-to-let business, which you can find in this article.

Forgetting You Own a Business

One of the costlier pitfalls for buy-to-let landlords is to forget that they’re running a business, which leads them to make suboptimal financial decisions. This may happen because investing in (and renting out) buy-to-let properties is not considered a ‘conventional’ business. Still, it’s critical to keep track of your finances and to ensure that you’re not spending more than you have to.

If you go over your budget, your profits will suffer. There are many expenses to consider when you’re a buy-to-let landlord, such as costs involved in maintaining a property, so keep them in mind when making decisions.

Under or Overpricing the Property

Be realistic when charging rent. Several factors will determine the amount of rent you should ask of your tenants, such as property location, the physical state of the home, whether white goods are included, if the house has a garden, the number of rooms there are, current market prices and how much similar properties cost to rent.

Without taking these into account, you run the risk of under or overpricing the property, which can both cost you. If you underprice the home, you miss out on potential revenue and, if you overprice it, you’re missing out on opportunities to rent, since people will go with another property instead.

Research the market and stay on top of the latest developments, so that you’re making the most of your home.

Making the Wrong Property Choice

The right location is incredibly important. No matter how good a property looks or how competitive its price is, if it’s not located in a nice area or if it’s in the middle of nowhere, you may struggle to rent it – and may even have to lower the rent in order to attract potential tenants. This will seriously cost you money in the short and long-term, especially as you will continue to have running costs.

While it’s impossible to say with one hundred percent certainty that a property will find success in a particular location, it’s also true that you can increase those chances by taking a few things into consideration.

For example, drive by the property both during the day and at night to see if it’s a safe area. You also want to check out how much rent is going for, since this will help you to figure out whether the rental income is worth it against the cost of the home.

See if the property will be near transportation links, if there’s a school nearby and if there’s a pub right around the corner (which can be noisy) as well. In addition, if you like to fix the property yourself, you will need to live close by, so that’s something else to keep in mind.

Overinvesting in the Home

Another thing you want to avoid is putting more money into a property than necessary. This is, of course, complicated by the fact that you need to maintain the home, pay fees and do regular gas tests, for instance. But you should only spend as much as you need to make it an attractive option for tenants. Going above and beyond can make you go overbudget and eat into your profits.

Calculate your expenses and be realistic about your budget and what you can achieve with it. Prioritise investments that will add value to your property and keep in mind that you may have unexpected expenses too. A boiler can stop working and you’ll need to spend that money in repairing it or having it replaced, or the roof may start to leak, which you’d have to fix immediately.

Failing to Keep on Top of the Property

At the same time, you want to make sure all the necessary maintenance tasks are carried out, no matter how much they end up costing you – this is why you need a budget that accounts for these types of expenses.

House key with home keyring in keyhole on wood door

If you fail to stay on top of your property, it’s unlikely your tenants will want to stay there long; you may even have trouble attracting tenants in the first place. As a buy-to-let landlord, it’s your responsibility to keep the property in top condition, which will also increase its value. After all, if a home is falling apart, you can hardly charge a high amount of rent for it.

Not Selecting the Right Tenants

If you fail to vet your tenants properly, you may get trouble in return. The right tenants will guarantee the success of your buy-to-let business, since you can avoid damage to the property and, therefore, you’ll keep profits high.

Do your research before choosing people to live in your home. This includes asking for references to check whether your potential tenants behaved in ways you’re unhappy with in the past. The same goes for rent – being a buy-to-let landlord is a business, which means that, if you choose a tenant that doesn’t pay on time, you are losing money.

The ideal tenant will look after your property as if it’s their own home, so don’t rush the process. You can also choose certain types of tenants, such as young professionals or students instead of families with pets. It’s up to you. You can decide to take in only non-smokers as well, considering smoking can damage the home too.

Once you have selected your tenants, make sure they know what you allow in the property and give them your email or number so that you can communicate with one another should something happen (instead of letting issues accumulate). If a lock stops working, for example, you can get on it and fix it immediately.

Not Calculating Costs Properly

When buying a property or choosing how much rent to charge, it’s vital that you have your maths down. Good cashflow doesn’t just happen, so don’t assume that rent will cover your mortgage costs and then you don’t have to worry about anything else. You have to work hard at it! Estimate all your costs and expenses and figure out whether you’re getting enough profit or losing money.

The cost of purchasing a property is one thing to consider; after you take mortgage fees, maintenance costs and solicitor’s fees, for example, out of the equation, how much is the home really going to cost you? Are you going to benefit from a nice return on investment if you buy the property? Or will you be sinking capital into it without seeing any return?

Ongoing expenses like mortgage costs, insurance, and letting agents’ fees if you chose to go with an agency, add up, so don’t underestimate how much you’re going to pay for the property.

Keeping a close eye on all expenses and profit will help you to understand whether you’re making money or not; it will also help you to know whether to increase rent or if one of your rental properties is not worth it anymore and should be sold instead.

Not Considering Your Tax Obligations

Becoming a buy-to-let landlord comes with many benefits, but it also has many responsibilities, including taxation.

You may need to submit a self-assessment return, depending on how much rental income you’ve received. While you don’t have to pay tax on the first £1,000 (and, therefore, don’t need to tell HMRC about it), you will have to contact HMRC if the income was between £1,000 and £2,500, since they may just collect through your tax code. However, if you’ve made over £2,500, you need to fill out a return.

It’s always important to consult specialist contractor accountants that can help you with the intricacies of self-employment, including all the legislation you need to stay on top of. For instance, our article “What is Section 24?” can help you understand this key rule.

You may also be eligible for tax relief on some expenses, which is another reason to get in touch with a professional accountant.

buy to let landlord using a calculator

Forgetting What’s in the Paperwork

A sin for any buy-to-let landlord who wants to be successful is to be unfamiliar with their paperwork. Be aware of what’s in your rental agreement at all times, since this can prevent you from accidentally breaching contract or from spending money on items or services that aren’t included in the agreement.

Reading the contract carefully and remembering what’s on it will also help you to ensure that your tenant stays compliant. If the contract says ‘No Pets Allowed’, you can act quickly if your tenant breaks that rule.

Not Wanting Insurance

Another mistake is foregoing insurance. There are several risks inherent to being a buy-to-let landlord, from fire to damage caused by tenants, so you’ll want to be protected against them. Whether you pay monthly or yearly, make sure that you budget for this expense, which will also contribute to your peace of mind.

While you’re not obligated to get insurance, you can lose a lot of money if something happens, accidental or otherwise, and you’re not protected. Get your property covered so that unexpected events won’t force you into spending a lot more money than you intended – or even force you to quit your business if you find yourself out of pocket.

Not Having the Right Accountant

In order to increase your chances of success, having an accountant (and the right one at that), is crucial. Accountants specialise in different fields, so make sure that you choose the one that understands property and all the legislation associated with the sector.

There’s Stamp Duty Land tax to consider, as well as VAT on property purchases, which means that there is a lot to take into account. You may end up missing something or spending too much of your time trying to figure out all the ins and outs of UK tax law, which tends to change often anyway.

A specialist accountant will sort everything out for you, freeing you up to focus on your business.

At Gorilla Accounting, we provide accounting for contractors on a wide range of industries, including property. Not only do we offer specialist advice, but we also ensure that you’re not paying more than you should for your accounting.

And, with our flexible pricing, you will pay a lower fee if you have a lower number of properties. For example, if you only own one or two homes, our prices start at £25 + VAT for sole trader or £40 + VAT for limited companies.

As accountants for landlords, we can help your business to become more tax efficient. Just get in touch with our professional team today to learn more about what we can do for you and start maximising your profit.