Pros and Cons of Being a Landlord

Just like anything in life, there’s the good and the bad. There are great aspects to being a landlord but there are downsides, too. Check out our pros and cons of being a landlord to decide if it’s for you.

Pros of being a Landlord

Options of owning multiple properties

Owning an additional property gives you a few options. If you or a family member ever needs a place to live, then you have the option of moving into one of your properties. A family member may not be able to pass credit and other reference checks, so you can help them out. Or maybe you are renovating a dream house and could benefit from moving into one of your properties for a few weeks or months.

Great for DIY enthusiasts

If you love getting dirty, knocking down walls, ripping up floorboards, painting, and gardening, then renovating properties to rent is a way to enjoy a hobby as well as running a business. By buying rundown properties and installing bathrooms, kitchens, and double glazing, you’ll soon see your investment soar.

Pension plan and monthly income

The Bank of England’s base rate has been at record low rates for over a decade now. Following the global financial crisis, the base rate fell from 5.75% in 2007 to 0.5% in 2009. It has never recovered and at 0.75% favours property investors and borrowers rather than savers that fail to get a return on putting their money in the bank. If you’re looking to build a pension, squirreling money away each month will no longer build the pension it used with previous base rates being as high as 17%.

The low base rate makes investing in property a sound plan. If you’re just looking to build a modest pension plan, then picking up a few low priced properties, should be easy to manage.

And with excellent rates on mortgages, you ought to be able to boost your monthly income to afford extra luxuries such as holidays.

Cons of Being a Landlord

Negative equity and stress

Being a landlord is a long term business. Throughout a 20-25 year interest-only mortgage, the increase in value on a buy-to-let property should easily cover the amount owing, leaving you a large lump sum. But at some periods during the first ten years or so of buying the property, you may see house prices fall to below what you paid.

If you have several properties in your portfolio that are in negative equity, you risk bankruptcy. Famously Anthea Turner’s ex-husband Grant Bovey watched his £100 million buy-to-let empire collapse and declared bankruptcy owing a further £50 million.

It’s easy to get stressed if there’s a downturn in the economy. If your tenants lose their jobs and are unable to pay, you could be faced with no income and evictions, on multiple properties.

Ordinarily, you can ride out a few years of negative equity without any problems as long as you haven’t bought at the top of the market and built your empire too ambitiously.

Tax and Accounting

There’s no escaping the taxman by being a landlord. The taxman will still want his cut from your profits. Additionally, if being a landlord is a side hustle for you aside from your full-time job, then your rental income could be taxed wholly at a higher rate.

The good news is there are plenty of tax deductibles including:

• Depreciation in the form of wear and tear (usually around 10% of the gross rental income)
• Cleaning and gardening
• Replacing water pipes and disposal duct
• Replacing damaged furniture
• Buildings and contents insurance
• Accounting processes
• Repainting
• Professional services

If you own more than a few properties, all of this could get rather complicated on your self-assessment tax forms. It can be a tedious job for many, and you’ll need to keep receipts and records accurately and logically.

Keeping data up-to-date

You must keep accessible data records. Do this physically and digitally so that if requested your tenants can:

• Request a copy of the information you hold
• Find the reason why you’re holding it
• Have the data deleted
• Stop you from using it

You can keep your records up-to-date by being organised. Make sure you delete previous tenant’s information periodically when you no longer need it, or it’s no longer accurate.

Financial outlay

More so, than many businesses, owning properties requires a substantial amount of outlay. You certainly don’t need to buy a property outright but you need to have plenty of money put aside per property to deal with unforeseen emergencies such as damage from burst pipes, storms, and rogue tenants.

Being on call

While hopefully, you’ll only get a call from your tenants now and then, that depends. If you are renting to younger people they may have very little idea of what a stopcock is, does, looks like, or where to find it. If you factor in for a call once or twice a year from most tenants, then if you have six properties, you’ll be getting calls every month from lost keys to faulty appliances and more. When you go on holiday, you’ll need to have someone hold the fort, whilst you’re gone.

Breaking up

Many married couples begin building a buy-to-let portfolio in the hopes of a golden retirement with funds aplenty. But not everything in life works out as we planned. 42% of marriages in England and Wales end in divorce. Dividing one house and mortgage in two is complicated enough. But carving up a buy-to-let portfolio with varying levels of equities and joint mortgage contributions will be a far more complex affair.

Pros and Cons: Things to remember

Here’s a quick summary of the pros and cons of being a landlord.

Pros:

• You have the option of having a second home for yourself or your family members.
• You can build a pension in a period where saving is not a particularly viable option.
• You can increase your monthly income.
• It’s great fun for DIY enthusiasts.

Cons:

• Negative equity is a risk, and bankruptcy looms for risky portfolio builders.
• You will need to be ready to on call for repairs and issues from your tenants.
• There’s still tax to pay, possibly at the highest bracket.
• You’ll need significant funds available to deal with emergencies.
• You are responsible for complying with regulations. Failure to do this and you risk imprisonment.
• Should you divorce, there’ll be a complicated carve-up of assets.

Landlord.