5 of the Most Common Landlord Risks and How to Mitigate Them
Property ownership is a common investment opportunity in the UK. Over the years, property prices have continued to rise, and many people have turned to property ownership as a means of wealth creation. Property ownership can take different forms, including residential and commercial properties. Residential properties include flats, apartments, and houses, while commercial properties include offices, shops, and warehouses. As a property owner, you can rent your property and become a landlord or sell it for profit.
Becoming a landlord has many benefits, including a regular income stream and the potential for capital gains. However, it also comes with its risks. As a landlord, you are responsible for the upkeep of your property and ensuring that your tenants are safe and secure. You must also ensure you comply with all the relevant laws and regulations. Failure to do so can result in legal action, financial losses, and damage to your reputation.
For this reason, one must recognise the most common risks landlords face and how to mitigate them. These include:
#1 - Standard Insurance Is Insufficient
One of the most significant risks that landlords face is property damage. This can result from natural disasters like floods and storms or tenant negligence, such as smoking or leaving the tap running for long periods. Standard home insurance policies may not cover such damages, and landlords must consider taking out specialist landlord insurance. This type of insurance covers property damage, loss of rental income, and legal expenses.
It's also worth noting that landlord insurance differs from standard home insurance as it provides additional coverage for specific risks landlords face, such as accidental damage caused by tenants, liability claims, and theft by tenants or guests. It's not mandatory but highly recommended as it offers comprehensive protection against unforeseen circumstances.
#2 - Non-payment of Rent
Another significant risk that landlords face is the non-payment of rent. This can happen for various reasons, such as tenants losing their jobs, financial difficulties, or simply refusing to pay. In such cases, landlords may find it challenging to recover the rent owed, leading to financial losses.
To mitigate this risk, landlords can take several steps, such as conducting thorough tenant screening, setting up a clear rent payment system, and including a clause in the lease agreement about late rent payments. Additionally, landlords can consider taking out rent guarantee insurance, which provides coverage for lost rental income due to non-payment of rent.
#3 - Maintenance and Cleaning
Landlords are also responsible for ensuring their properties are well-maintained and regularly cleaned. Failure to do so can lead to tenant dissatisfaction, potential health hazards, and even legal issues. Maintenance and cleaning can also be costly, and landlords must be prepared to cover these expenses.
To minimise maintenance and cleaning risks, landlords can schedule regular inspections of their property, address any issues promptly, and ensure tenants know their responsibilities for maintaining the property. Landlords can also consider hiring a property management company to handle maintenance and cleaning tasks. While the upfront cost will be high, this ensures the property is well-maintained, and any issues are addressed promptly, minimising the risk of potential legal issues.
#4 - Safety and Security Checks
Landlords are responsible to their tenants to provide a safe and secure living environment. This includes installing smoke detectors, carbon monoxide detectors, and ensuring that all locks on doors and windows function properly. Landlords should also provide adequate lighting in common areas and ensure that stairways and walkways are free of any hazards.
The best way to ensure safety and security is to schedule regular safety inspections, install security cameras, and provide emergency contact information to tenants. Landlords can also consider hiring a security company to patrol the property, especially in high-crime areas.
#5 - Extended Vacancy Periods
When a tenant moves out, it can take time for a landlord to find a new tenant to fill the vacancy. Extended vacancy periods can be costly for landlords as they still have to cover mortgage payments, property taxes, and other expenses while the property is vacant. While landlords can take steps to attract and retain tenants, there are times when they may have no choice because the tenant/s have already made up their minds.
This is why landlords must have a contingency plan to minimise the impact of extended vacancy periods. This can include setting aside funds for unexpected vacancies, marketing the property aggressively to attract new tenants, and offering incentives such as reduced rent or a free month's rent.
Conclusion
Being a landlord is highly lucrative, but it also comes with its own set of challenges. Even the most prepared landlords are bound to run into unexpected situations, so contingency plans are crucial. These plans may vary, but they ensure landlords will have long-term success in their rental property investments.
If you’re looking for property rentals in London, Such Properties can help you! We provide services to landlords and tenants alike to ensure both parties get the most out of their transactions, whether through letting services, property management, and valuations. Call us today and allow us to help you!