Don’t get crunched

Landlord and property author Toby Hone tells Andrew strange how buy-to-let investors can cut costs, boost earnings and beat the credit crunch

Andrew Strange

“Make sure you understand letting agent charges as Toby says some could cost you as much as 32% of your rent.”

Toby Hone was a landlord with a portfolio of 18 properties in South Africa before the struggling economy and the high crime rate persuaded him to sell up and move to the UK.

Toby now has 30 properties spread across the East Midlands and, like all landlords, he faces new challenges from the global downturn. However, with a degree in economics and a keen understanding of the situation, he decided to put ideas on paper that could help landlords continue to be successful, rather than focusing on the negatives.

His new book, How to Beat the Credit Crunch: A Survival Guide for Property Investors and Landlords, provides expert insight and practical advice to help landlords cope with the turbulent economy. Here, he provides some tips from his book.

Maximising rents

You need to maximise your rents and one of the ways to do this is to check what other landlords are charging in your area, he explains. If you are charging less, you should look to increase the rent.

“When dealing with tenants and rent increases, you shouldn’t simply send a letter saying you’re going to put the rent up. You should talk to the tenant and explain your reasons to them and, in most cases, they will be more receptive,” says Toby.

He adds: “If there’s a market for Houses in Multiple Occupation (HMOs) in your area, you could easily double your rent. It’s a bit more work but could be well worth it.”

Bigger deposits

Landlords can’t afford to be out of pocket because of breakages so it’s important to make sure that you ask for appropriate deposits.

Toby says: “If you have the option of letting privately for £500, or of letting to Local Housing Allowance claimants and getting £550 and two months’ rent as a deposit instead of one, it’s worth considering.”

In his book, he outlines key measures to take when dealing with such tenants. He says it’s important to make sure that you have an accurate inventory. And any deposits must now be kept in one of the three Government-approved schemes.

Reduce operating costs

If you are using a letting agent, you could be giving away as much as 32% of your rent, according to Toby.

“Besides the standard 10% management fee, there are other hidden costs to consider, such as drawing up a tenancy agreement: many will charge between £50 and £150. There is also the hidden cost of voids. In a year your property may be void for one month but, by marketing it yourself, you will be more motivated to find a new tenant than an agent.”

Toby’s book also includes 18 tips to reduce operating costs and highlights how to find your own tenants quickly and economically.

What about mortgages?

As fixed rate deals expire, some landlords could see mortgage repayments rise by as much as 30%, says Toby. “The US sub-prime problems have effectively strangled funding around the world, hence, lending rates have gone up even though interest rates have come down.

“If you prefer to have a steady cost, you might be better off with a fixed rate mortgage; however, if lenders do start dropping rates you will lose out. On the other hand, if rates go up, you will have limited your exposure. Ultimately each landlord should do what is best for their situation.”

Making extra money

In turbulent economic times it is essential to keep as much money coming in as possible, which could mean finding new ways to earn an income. For example, Toby purchased a terraced house for £75,000 that had been converted into two flats, which were on the same freehold. He renovated them and put them on individual leases. In doing so, he increased their value to £130,000.

He adds: “There are more development opportunities around as stock projects are offloaded and, if you are able to identify them, they can be a gold mine. Also, in the current climate there are people who need to realise equity and are prepared to sell well below market value in order to attract a buyer.”

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