Most landlords will experience a void period at some point and in a competitive rental market this is a real worry. When a property is untenanted it quickly starts to cost the landlord money, affecting their rental yield. So what is the best course of action when a landlord receives a lower offer than expected? Should they accept the lower offer in order to let the property quickly or hold out for the asking rental and perhaps risk a longer void period which could lose them many weeks of rent in the longer term? Of course, it depends on the landlord’s own situation and the rental market in their area so there is no ‘one size fits all’ answer but there are a number of issues they should consider.
The most obvious cost incurred during a void is loss of rent – this is a particular pressure if the rental property is mortgaged and could mean the landlord ends up using their own money to continue the repayments.
For example, if a rental property is usually let at £500 per week then each month that passes with the property untenanted is costing the landlord around £2000 in lost rent. If a property is empty before a naturally quiet period such as the Christmas holidays it may be vacant for longer than expected before the market picks up again. The loss of rent clearly adds up very quickly.
There are also additional ‘soft’ costs that the landlord may not have taken into account. Utility bills – water, gas and electric – will need to be paid while the property is empty, as will Council Tax. During the winter, utility bills could be quite high as the property must be kept warm to avoid problems such as burst pipes and water leaks. An empty property is also vulnerable in terms of security.
Renewing a tenancy agreement with the current tenant is therefore often a good option. There will be no void at all between tenancies, while administration costs, such as drawing up inventories and agents’ fees, will be reduced. The landlord will also save on carrying out remedial and redecoration works which are usually necessary when a property goes back on to the rental market.
So it pays for landlords to be flexible at the end of a tenancy and negotiate if necessary. While tenants often prefer to stay put rather than go through the hassle and expense of moving, most know the market well and recognise there are plenty of rental properties available at the moment. A little hassle is a small price to pay if they can find a cheaper, equally attractive property elsewhere and save money in the longer term – so renegotiating the rent is a good compromise for both tenant and landlord.
Most experienced landlords understand the advantages of retaining a good tenant rather than focusing purely on rent increases. A good tenant who looks after the property and pays their rent on time is a real asset and it is usually better to try and keep them if possible – as well as maintaining a continuous income stream it will save the hassle of finding another tenant, who may not be so co-operative.
The best way to do this is to be a good landlord throughout the tenancy. That means making sure the property is well presented and any repairs or maintenance carried out promptly. It also means being open to requests from tenants (perhaps if they wish to redecorate the property to their own taste) and generally being co-operative and helpful.
When looking for a new tenant, there are more issues to consider than just the rent. The length of the tenancy they wish to take out is also very important. A client of ours with a rental property in St John’s Wood recently agreed a tenancy with a Japanese corporate tenant for £50 a week less than another tenant offered for the property. He did this mainly because the Japanese tenant wished to sign a longer tenancy agreement, giving him greater continuity of income, reduced void periods in the long term and a simpler life!
The key for landlords is to listen to advice from their letting agent. Market conditions can vary from month to month or even week to week – there are seasonal fluctuations as well as political events such as a General Election which all affect the market. A good letting agent will know how current circumstances are affecting the rental market in a particular area and the level at which properties are letting right now.
Choosing the right letting agent, one who knows the local area well, is also important. An agent in Canary Wharf won’t be in the best location to find a tenant for a flat in Ealing, for example. They may offer a low fee simply to get the landlord’s instruction but, with no connection to the area, they will probably urge the landlord to take the first, and possibly therefore the lowest offer, simply to secure a tenant. Clearly, specialist knowledge is needed to achieve the best rental possible, according to the local market.
Usually, we find that retaining a good tenant is the best possible solution for landlords, minimising the costs associated with re-letting and eliminating voids. This usually results in a higher income than can be achieved by holding out for a rent increase from a new tenant, as the resulting void period quickly eats into any additional income. Of course, there are exceptions but increasingly we are finding that landlords are seeing the bigger picture, recognising that there is more to running a successful buy-to-let property business than only focusing on achieving the highest rent.
For more information about how much rental properties in your area are achieving at the moment, please contact your local office.
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