Harvey Jones reckons you must have a screw loose if you want to become a landlord.
There was a time when everybody was either becoming a buy-to-let landlord, or talking about it. I even considered jumping on the bandwagon myself, which is always a sure sign that an unsustainable bubble has developed.
One thing stopped me then, and one thing will always hold me back. Quite simply, you would have to be mad to be a buy-to-let landlord. It is a crazily effortful investment, and here are seven reasons why.
1) Tenants from hell
Most tenants are highly responsible folk who will treat your property with care and respect. But at some point, you will attract the tenant from hell.
Shave years off your mortgage
They won’t pay their rent on time, if they pay at all. Or they will upset the neighbours with loud parties. Or trash the property. Or maybe all three.
And after you finally eject them, they will leave behind imaginative graffiti and a curious fishy odour. Your faith in human nature will be knocked. So will your bank balance.
Alternatively, your tenants might be the loveliest people in the world, but can’t make the rent because they’ve lost their jobs. What do you do then? And there might be times when you can’t find tenants at all. Void periods can cost you dear, because you have to keep feeding that mortgage.
Remember what Sartre said: “Hell is other people.”
2) No growth
Before the credit crunch, the hassles of being an amateur landlord were offset by the rewards.
House prices were soaring and rental yields were solid. It was a heck of a return, but now those days are over. The property market has been been kept afloat by a public deficit so big even the Greeks are shocked and a currency that is losing value against the Zimbabwean dollar.
The true pain will come after the election, when the new Cable-Osborne-Darling Treasury coalition will hike taxes and slash spending. If that doesn’t hit property prices, then I’m Gordon Brown’s hole-punch.
3) Maintenance woes
Perhaps I’m a little jaundiced about property ownership.
Three years ago, I bought a charming old house that turned out to have rot in the basement, rats in the cellar and mice all over. It all cost me tens of thousands of pounds. Most landlords won’t be so unlucky (or stupid), but if you buy an old property you might need to spend more than you think doing it up, and won’t be able to rent it out until the last builder leaves.
Even if it’s in decent nick, a strong wind can blow off roof slates, a neglected bath can flood half the house, a cold snap can freeze the pipes, and you’re the person responsible, day and night. You will also have to repair or replace freezers, washing machines and boilers when they go bust. It all adds up.
4) Lousy letting agents
I’m even more jaundiced about letting agents, who will take 15% of your rental income as payment for mismanaging your investment.
I’ve had several friends who rented out their homes and still rant about incompetent agents. Unpaid rent, bunking tenants, lengthy void periods, unreported damage and mislaid deposits are all to be expected, as one spotty and bored trainee after another takes over your account.
Of course, you don’t have to use a lettings agent, you can always do the work yourself. That’ll be fun.
5) Pricey finance
Setting yourself up as a landlord is expensive.
You may struggle to get a competitive buy-to-let mortgage with less than a 25% deposit, and rates can be around 2% higher than on a residential loan. Plus you have to pay a mortgage arrangement fee, which may be up to 3% of the property’s value - that’s £4,500 on a £150,000 property.
Finally, you have to pay Stamp Duty on any property costing more than £125,000, plus legal fees.
Property isn’t just expensive, it is also illiquid, you can’t sell in a hurry if you need the cash. Why go to all that expense and trouble?
6) Red tape hell
And then there’s the red tape. Landlords have to meet stringent new regulatory demands when renting out houses in multiple occupancy (HMOs), and comply with tough new standards on fire regulations.
Yawn.
7) Easy street
Why go to all that trouble and effort when you can buy a FTSE 100 share yielding 6% a year with the prospect of capital growth? It’s a no-brainer. Or an investment fund that pays rising dividends year after year. And all without having to worry about tenants, mortgages, roof slates, stamp duty, letting agents and red tape.
Why endure so much risk and effort when you can can get a fixed 5.1% a year for the next five years from The AA? You can find the Top 20 savings accounts and cash Isas here.
As I said, you would have to be crazy to get into buy-to-let. If you’re still tempted, try Googling “Grant Bovey, Anthea Turner, buy-to-let, bankrupt”. They went bust so that you don’t have to.