Political Changes
There’s no doubt being a landlord is a lot more difficult, and costly, than it once was. Over the years there have been many changes in regulation which have resulted in higher costs for landlords and there are probably a few more changes coming in the not too distant future. Landlords remain an easy target for political parties, with 4 times as many tenants looking than properties available, the old image of the landlord stashing the rent under the bed remains one that will easily garner political support during the run up to elections.
The numbers bit
The Private Rented Sector (PRS) plays a vital role in the housing stock available in Scotland. According to figures released by the Scottish Government in February 2020, there were 325,649 privately rented properties in Scotland. This is down from 340,000 as reported by the Scottish Household Survey in 2018 and is likely to have reduced again since February 2020 due to several factors including Covid, Brexit and talk of impending unemployment and inflation rises. Many landlords have chosen to sell at a time when property prices have been particularly high but many have also returned from abroad to live in their properties or taken them out of the Private Rented Sector and into the Short Term Letting market.
So, is it still a good time to become a landlord?
Generally, yes, but consider wisely before you purchase to try to ensure the maximum rental yield (monthly rent charged compared to value of property or price paid) and to ensure your rental income exceeds your annual costs to enable you to build a reserve pot for major outlays both planned and unexpected.
Consider the area you wish to purchase in:
If you intend to self-manage your property, as many landlords do, it often makes sense (both financial and logistically) to purchase close to where you live. This makes it easier to deal with any repairs or emergencies which may arise and you will probably already have contacts with local plumbers, electricians, gas engineers etc. If you don’t live local to your rented property, it’s still possible to self-manage but it may take a bit more time and effort and you may choose to appoint a letting agent to look after your property on your behalf.
Consider the size of the property you wish to purchase – House v Flat:
If you have the budget to purchase a family size property you should consider access to amenities, schools and facilities. With an average of 60% of rental properties being flats, family size properties, often in more rural areas, are always sought-after. Families tend to be longer term tenants as it’s often more difficult to secure an alternative property so void periods should be fewer. However, in your budget calculations you should factor in heavier wear and tear as family life affects the life expectancy of your décor, appliances and flooring.
There will always be a demand for flats especially in towns and cities but also in more rural areas, again location is key. Consider the major employers in your chosen area such as hospitals, schools, universities, major construction sites and consider properties close to or with easy transport links to them. Other things to consider when purchasing a flat are wi-fi speeds, storage space for bikes, outside areas and parking. Flats tend to have higher turnover rates. You may be lucky and secure a tenant who will stay for a couple of years or even longer, but flats generally tend to have a shorter term of tenancy than houses so you need to factor in void periods (including the cost of utilities and, if the property is furnished, Council Tax) along with the loss of rent for the empty period.
Purchase a previous or current rental
As landlords are choosing to leave the sector and sell their properties, you may be able to pick up a property which has previously been rented. This has the advantage of having all the compliance in place, smoke alarms etc, and if you can request copies of the compliance certificates, even better. If there is a sitting tenant you will have rental income from day one but discuss the purchase carefully with your lender as they may not be willing to lend with a tenant in-situ. Make sure all compliance is in place and the property meets the repairing standard. Check for things like worn carpets, décor and dated kitchen appliances, is the landlord selling rather than spending?
And finally
Although legislation has tightened up over recent years, the changes that have been brought in are generally for the better and have raised the private rented sector on to a more “professional” platform. Gone are the days of casual arrangements and signing on the back of an envelope, but this can only be a good thing. Rental property is still a good investment while at the same time providing good quality, safe and secure homes at a time when there is a great need for accommodation in all areas of Scotland. The Private Rented Sector has a major part to play on the housing stage and it is still a good time to become a landlord if you do your homework, take professional advice, both legal and financial, and go into it with your eyes fully open and keep them open at all times. The moment you blink, something will change.