Good planning key for buy-to-let landlords

A solicitor asked me recently what are the top three asset management techniques for buy-to-let property owners.

The essence of this is simple: secure solid rental revenue, plan for property maintenance and seek out ways to reduce the risk of either of these two wheels falling off.

There are some 70,000 residential buy- to-let landlords in Ireland, providing a vital part of the country’s rental housing stock. Over 80 per cent of these landlords own two or fewer properties, with 66 per cent of all landlords owning just one investment property.

These small, part-time landlords, already facing increasing operating costs, now face a new threat from competitors who have both the expertise and resources to make life very difficult for them.

If they do not raise their game and professionalise to meet this competition head on, they will be left behind.

Since 2012, Ireland (and Dublin in particular) has seen significant increases in large-scale residential ownership by international funds, Reits and institutional investment companies who did their research and found that there was very little competition in the private rental sector in Ireland.

I spent years managing a portfolio of diverse property assets in central London, with hundreds of tenants, from PLCs to small family-run cafes. One thing remained constant regardless of the property type or tenant: you can never eliminate risk, but you can install procedures that significantly reduce the likelihood of costly disputes over rents, maintenance and deposits.

Property management

Despite the government allowing buy-to- let investors write off the cost of professional property management, many investors do not avail of this, preferring to manage the business themselves. In property asset management, 80 per cent of the landlord’s time is taken up by only 20 per cent of the tenants.

What are the main time-takers and how can co-ordinated property asset management help?

Let’s start at the beginning of the tenancy: many landlords and letting agents do not thoroughly check potential tenants’ references or ask for the right references at all.

A landlord can enter into a letting agreement for up to four years and pay dearly if they find out they have a trouble tenant. This can be avoided by using a professional reference-checking service, which are inexpensive and could save landlords thousands of euro in unpaid rent and repair costs.

Unpaid rent can leave smaller landlords in dire straits with their lenders, as the Private Residential Tenancies Board (PRTB) process can take many months to conclude and involve significant legal fees.

This risk can also be limited by making sure the tenant signs a direct debit standing order for rent payment prior to handover.

It is widely understood that landlords must repair and maintain properties, but the exact details of this are rarely spelled out and often the terms in a lease agreement are littered with Latin, leading to uncertainty and wasted time.

Plain language

To overcome this a landlord can prepare a “tenants’ handbook”, which is given to the tenant at the outset and sets out important information in plain language, such as how the services operate and, importantly, who is responsible when something is broken. Where a handbook is in place a tenant has a point of reference for queries, other than contacting their landlord with small matters.

I would also suggest that instead of a mid-lease term inspection, the landlord carries out an inspection 15 days after the beginning of the lease. Most queries will come to light within 15 days and it is an opportunity to see how the property is being cared for, before any major damage can occur.

One of the most contentious and time- consuming parts of buy-to-let is the tug-of- war over deposits. This problem can be mitigated by carrying out a “check-in report”. This is a brief photographic and written report, independently produced and signed by both the landlord and the tenant at the outset. It is then relied upon at the end of the lease to negotiate the ratio of deposit to be returned.

These simple check-in documents are inexpensive and often the costs are split equally, with the tenant paying for the initial report and the landlord paying for the updated version at the end of the lease.

By spending a bit more time researching their tenants, stating explicitly in an independently prepared written document who is responsible for what, and establishing a regular automated form of payment landlords can reduce the risk profile of their investments, and win back much of the time they are needlessly spending on what is typically a part-time business. Michael Conran is a founding director of McAdim Property, which specialises in development, investment and property asset management