If you are to follow the traditional financial wisdom, planning is the route to success. Planning is what allows you to gaze into a financial crystal ball, able to ride out any problems that you may encounter with a precognizant flare. If you plan, then you’re never going to struggle again.
The problem with traditional wisdom is that it’s frequently incorrect. Planning will, to an extent, allow you to see any problems on the horizon and deal with them effectively. When you’re a landlord, that’s a vital skill. You tend to be juggling so many balls and commitments that the idea of anything being able to equip you that little bit better for the future is deeply seductive.
Then, it happens: the unexpected. There’s nothing you can do about it. Even if you “expect the unexpected”, there’s still going to be another problem just around the corner, ready to pounce and catch you when you’re least expect it.
Perhaps the worst of these types of costs are the ones that just aren’t necessary. They’re the costs that make your life more difficult, but which are entirely unavoidable – often because the circumstances that lead to them are entirely out of your control. We’re going to go into detail about these in a moment, but it’s worth remembering that planning is only going to get you so far when it comes to coping with them.
So what’s the point of discussing them? For want of a better term, it’s a reality check, a counterbalance to the expectations you may have when it comes to renting out property. So often, the advice you will see about life as a landlord is relatively benign. You would think it was so easy, it’s a marvel that it’s not something everyone is aiming to do with their life. The reality is, of course, much different – but that might not be something you’re ready for when you embark on your first tenancy.
Therefore, you might not be able to plan your way out of these situations, but you will know that they are a possibility. Forewarning is sometimes the best we can hope for. That’s not to say that being a landlord doesn’t have its perks – it undoubtedly does! But it does have its downsides and, if you’re serious about choosing property investment as part of a sound financial portfolio, you need to peek behind the curtain and know of the unwelcome costs that can could challenge you at any given time.
#1 – The Difficult Tenant
There’s no way of knowing a tenant is going to be a bad one. You can run background and credit checks, but it’s still not going to be able to give you an insight into a person and how they are going to treat your property. Every time you had over the keys to a new tenant, you’re taking a leap of faith.
There are many kinds of bad tenants; those that don’t pay their rent, those that break the rules you have about not allowing pets. However, these are the small fry – but far, the worst kind of tenants are the ones who are destructive.
If your house is your investment, then the idea of someone damaging it – perhaps even doing so willingly – should be enough to send a shiver down your spine. There’s not much you can do to prevent it either; when the contracts are signed, you relinquish some of your control. All you can do is insist on regular inspections of the property to try and catch any problems before they become too advanced.
#2 – Short-Term Tenants
If you are targeting short-term tenants as part of your investment plan, then go ahead and skip this.
If you’re aiming to have tenants that stay through many contracts – and thus ensuring your income for years to come – then temporary tenants can be a complete nightmare. There’s nothing wrong with them, per se – they’re not problematic, and they’re doubtlessly preferable to a destructive tenant. Nevertheless, they do leave you in a constant state of discomfort. You can’t truly relax if you fall into a pattern of tenants who only stay for a single contract.
As well as the financial hit that you’ll take with every short-term tenant, there’s also the time factor. Preparing your property for rent, advertising it, meeting with tenants… it all takes a huge amount of time, and it might be something that you’re doing once every six months. There’s not much you can do to mitigate the risk of this, either; you can select a property manager to handle much of the paperwork for you, but you’re still going to be facing a financial shortfall.
If nothing else, the problem of short-term tenants is one that shows you should always have a backup plan for paying the mortgage and property taxes on your investment – you can’t rely on always having a tenant in situ to do it for you.
#3 – Pet Problems
Alluded to above, the problem of tenants and their pets can be one that leaves you significantly out of pocket.
To begin with, it’s purely a matter of paperwork. Some insurance policies will not allow pets, nor will they cover you for any damage that’s done by pets. While it’s understandable that people become attached to their animals, it can be a huge problem for you if they don’t inform you they own them. There are plenty of tricks that tenants can use to hide pets from their landlord, so don’t think the occasional inspection is going to allow you to spot this problem as it unfolds.
In the unlikely event you don’t notice there’s an animal in the house where there should only be people, you can be landed in hot water. If their pet decides to scratch up the floor or do substantial damage to the garden, you’re going to have to put your hand into your pocket to deal with it. It’s worth looking through your insurance with a magnifying glass to see if pets are covered; cheaper policies will probably skip this, though. That means you’re still paying more for the risk of pets, either in the cost of fixing damage or the higher insurance premium to ensure pets are covered.
It’s fair to say that neither are ideal, but there’s relatively little you can do about it.
The chances are you won’t experience any of these problems, but it’s nevertheless important that you know they might occur. Take whatever steps you can to avoid them, but otherwise, there’s not much left to do but hope. Best of luck – though hopefully, you won’t need it!