For anyone looking to buy a property with the intention of letting it out as a source of additional income, there are many things to consider and bear in mind.
Once you have decided on a property and how you will fund the purchase, the next big decision to make is around management. Different property types may come with management options included, whilst some will simply leave the decision as to who will manage the property to you.
In this short guide to property management, we will explore the different options available and how you can best maximise your returns.
Managing a Residential Property
Renting a home, as opposed to buying, is becoming an increasingly popular lifestyle choice in the UK. A shift in perceptions of rental properties, the facilities on offer, as well as a change in priorities for young professionals now means that there are an estimated 5 million UK households living in private rented accommodation. What’s more, this trend doesn’t look like one that will go away anytime soon, with market commentators predicting that almost one in four UK households will be renting privately by the end of 2021. In turn, this digression from home ownership has prompted both UK and overseas investors to add residential properties to their portfolios and capitalise on the UK’s growing rental market.
Though residential properties can be financially profitable, it is often underestimated how much of a hands-on experience managing them can be, as in the majority of cases the owner takes on the responsibility of furnishing, letting and managing the property. It is essential that owners of residential property investments are fully informed and committed to providing their tenant with the best service possible, whilst addressing any needs that the occupant might have. If a tenant is experiencing property maintenance issues, then it is the duty of the landlord to ensure that the faults are remedied promptly. Such factors contribute to a demanding process for landlords – and the cost of this additional responsibility eats into returns.
For those investors considering a residential property investment, or looking for a management solution for an existing portfolio, there are two options – manage the property yourself, or appoint an experienced property management company.
Option 1: Managing the property yourself
In some instances, investors make the decision to take a more proactive approach and manage their property themselves.
DIY management is popular as this method can be cost efficient. For example, while larger jobs will require a specialist, many repairs are often minor and can be completed without outsourcing a professional.
When investors choose to manage their own property, they maintain 100% control. However, it should also be considered that this option leaves owners responsible for completing other necessary elements of property management, including advertising and marketing the property, collecting rent and dealing with any problematic tenants.
Moreover, rent is paid directly to the landlord, not via an agent, and investors who choose to self-manage their property do not pay property management fees. This usually represents approximately 10% of a gross rental income and over the course of a year, equating over a 12-month period to roughly one month’s rent.
Money can also be saved as the screening process of a prospective tenant is done by the landlord independently. Assessing an applicant’s financial suitability can also be done by asking them to share the results of previous background checks and credit reports as part of the application process – rather than conducting new ones.
Despite the financial advantages of DIY Management, landlords need to be willing to sacrifice a significant amount of their time. They must make themselves available 24/7 to their tenant with the ability and capacity to take queries and maintenance requests at all times, having to deal with any problems directly themselves. Costs associated with outsourcing labour to fix bigger more complex issues can soon mount up, and the process can eventually prove to be considerably more expensive than hiring a property management company that will manage every aspect of the process. In the event that a portfolio extends across multiple properties, then this makes it harder and more time-consuming to keep control of the property, establish a relationship with the tenant, and arrange repairs.
An investor who decides to manage their property themselves must ensure that the tenancy agreement is watertight, up to date, and follows the very latest legal guidelines. Failure to do so could result in the owner encountering difficulties with the tenant paying rent, or subsequent issues when evicting a tenant from the property. Additionally, this form of property management may not be feasible if access to the property is limited, for example, if the investor is based overseas.
Option 2: Appointing a professional management company
When investing in a buy to let property, many investors decide to appoint a company to fully manage their property.
Property management is the practice whereby a third-party company is given the responsibility of maintaining a property on behalf of a landlord. Ensuring that the occupants are kept happy and adhere to the terms of their contract during their tenancy agreement.
The primary benefit of recruiting a property management company is that landlords will save a lot of time by delegating the tasks to the agent.
In addition, fully-managed properties are also appealing because they helps the landlord mitigate liability. Property management companies provide a buffer from liability when new investors are starting to build their property portfolio. There can be instances whereby tenants make fabricated allegations about rent collection tactics, illegal eviction practices, and poor maintenance. By enlisting a property management company, landlords can gain protection from false claims and keep their reputation intact.
Finding a suitable tenant independently can be a long process. A reputable management company will market a property extensively, before conducting extensive screening checks of prospective renters, and supervising the moving process. This is arguably the most important service that a property management company offers.
At the end of tenancy, having a fully-managed property can significantly reduce the period in which the property is empty. A property management company is proactive in advertising to source new tenants and will do so diligently and efficiently. They operate systems which flag key dates to serve notices and advertise properties in anticipation of a tenant’s departure. This will permit the landlord to maintain their income throughout the year by reducing the void periods.
From the tenant's perspective, a property fully-managed by an agent is often a more attractive option than dealing directly with a landlord. This approach is often deemed more professional and less intrusive for the tenant. In addition, management companies have access to a wide network of professional contractors and can swiftly provide service for repairs etc.
Property investment has the potential to be profitable for the buyer, but the experience can be hands-on. Therefore, seeking assistance from specialists within the field can be beneficial.
Alliance Investments provide an all-encompassing service that alleviates stress, allowing the investor to enjoy their experience. Our specialist team are devoted to helping landlords enhance their return on investment and maximise their rental yields.
Our full support services include, but are not limited to, assistance when exchanging contracts, advice when sourcing and screening tenants, to managing and furnishing your property.
There are a host of options available to buyers who are considering investing in the property market and identifying the most suitable investment can be challenging. Our team of experts are equipped with knowledge to provide prospective landlords with in-depth advice as to which route could suit them and their lifestyle, before they commit to a purchase.
Property management can be time consuming. Our team of professionals have years of experience and can provide advice and guidance on how to be time-efficient when managing your investment to ensure that your tenant is satisfied.
Buying a property is challenging at the best of times, more so in a country that you may not be familiar with. Our specialists will happily advise overseas investors as to which developments would be best suited for your needs, and which management option would be preferable to facilitate the smooth running of your investment.
Alliance Investments, 21/Floor, The Centrium
60 Wyndham Street, Central, Hong Kong