Are you a professional landlord?
Is it possible to be a professional landlord with just one or two properties or does your letting business need to be your main income to be considered to be a professional?
On the face of it this it may seem like a matter of semantics but in many ways it goes to the heart of the problems that successive legislators have had in dealing with buy-to-let and the private rental sector generally.
Professional landlords research
In a recent survey involving 2,517 private landlords in 2016 carried out by the Council of Mortgage Lenders a profile of UK private landlords revealed that professional landlords were in the minority with over 60% of landlords in the survey only owning a single rented property. The same research on buy-to-let landlords revealed that only 7% of landlords owned 5 or more rental properties, but these larger landlords accounted for nearly 40% of the rented dwellings.
Are you a professional landlord?
There are many small landlords that would consider themselves even with just the one buy-to-let as ‘professional’ in that they operate a slick and well run operation. They may only have one property but boy are they organised. I can imagine our own Property Sparrow operates a ‘pretty tight ship’. So is it right to exclude small time landlords from the realms of professionalism just on the basis of scale?
Property portfolio – Size matters!
In the world of bureaucracies and the legislators – size matters. There has always been a general underlying assumption amongst regulators that the larger landlords who derive the majority of their earned income from letting out property fall into the realms of operating a letting business. The assumption is that they have the scale and through this the capacity to operate a more professional service. On this basis they may have some claim to be engaging in a profession and therefore could be awarded the accolade of professional landlord. Do we have any clue on what scale a landlord needs to be?
Buy-to-let mortgage regulation
On the matter of whether landlords should be considered a business; the FSA recently looked at how much protection that landlords required when buying buy-to-let mortgages. This debate came about as many inexperienced property investors were drawn into the sector through glossy and unscrupulous sales techniques that then saddled them with unsustainable debts. In the light of this many people have been calling for regulation of buy-to-let mortgages to give landlords the same protection afforded to private buyers seeking finance.
In light of the changes in landlord tax limiting the degree that landlords can off set their loan costs professional landlords are increasingly looking at the merits of landlords incorperating their rental business to save landlord tax.
A new government and a new approach has resulted in the regulation of buy-to-let mortgages being ‘kicked into the long grass.’ Again the issue of classification comes to the fore. Are landlords professional business people who are able to make there own business based decisions without the need for restrictive regulations. Or are they naive amateurs that require protection from predatory sharp practice that often accompanies business transactions.
Difficulty in classifying landlords
This difficulty in classifying residential landlords stems from the huge variety in ownership, motivations and method of operation across the industry. This lies at the heart of politicians and regulators difficulties in putting in meaningful processes and legislation across such a large and diverse sector.
Parliamentary Group on the Private Rental Sector (PRS)
The latest attempt of the politicians to look at the private rented sector has come about by the setting up of a cross party committee. Forty-eight Members of Parliament and Peers from across the political parties established this month a new All Party Parliamentary Group for the Private Rented Sector.
While various other attempts have been made to form such a committee, this is the first time one has actually got off the ground.
The Group aims to inform policy towards private rented housing.
Strength in diversity
Whilst some people including many members of the Labour Party see the diversity of ownership and operation as a problem. My view is that this lies at the heart of the strength of the private rented sector in the UK. If you want to rent from a small hands on landlord with their personal level of service and the assurance that you will be talking directly to the business owner you can. Equally if you prefer to rent from a large corporate that option also exists.
Let’s hope what ever the committee comes up with that there will be sufficient acknowledgement of the efforts of the little guy and the professional services that many small landlords deliver and not just a whole raft of tax breaks for the corporate sector.
Have you a view about what it takes to be a professional landlord?
I like the majority of small landlords consider myself to have a professional approach to running my business.
Admittedly I do not have a professional Landlord qualification, but neither does an MP who can be involved with running the U K’s economy one minute and the NHS the next.
A distinction should be made between a “buy to let” landlord who usually takes a long term view and a “buy to speculate” investor who has little interest in being a landlord and is mainly a get rich quick gambler. However the current property market has no attraction for these short termist’s.
The real culprits however were the mortgagee’s who lent vast sums to people whose only business plan was to ride the property inflation wave and who had virtually no equity in the properties. Despite the size of these organizations they failed to see the wisdom of only lending to landlords who had a business plan where the “market” rental less voids and expenses actually covered the mortgage payment. However this is something that a LARGE organization doesn’t want, to have their “customer facing” personnel carry out an intelligent appraisal of a loan applicants business plan and competence. LARGE organizations prefer to have tick lists completed so that they can be compared to a computer model so the market can be monitored from a remote head office and the model parameters be changed so all the business can be fine tuned with a few key strokes. Usually these changes are made by a “specialist” who is responding to statistics and has never held a customer facing job and does not understand what is needed to be a good Landlord.
The mortgage industry opinion is that the buy to let Landlord is to blame and penalise them with inflated interest rates. Strangely if larger Landlords are better that small why do many mortgage companies have limits on the number of flats or properties ? perhaps statistics aren’t all bad after all.
Like most small landlords I have maturity and the experience of employment which has had to be successful enough to accumulate the capital to buy the properties.
As most small landlords use their own capital and their livelihood, and sometimes their home, depends on the business survival they have a very strong incentive to make the business a long term success.
In fact I would say that a small Landlord is far more focused on the health of their business than a larger Landlord, if my business does not perform, I will suffer severe problems, it’s not just a case of having to get another job or getting a golden handshake and retiring.
As a small landlord usually deals directly with the tenants they will usually interview and reference the tenant and to reduce the likelihood of bad debts to themselves and to the local councils and utilities. I make my own decision on whether to accept tenants on benefits instead of the blanket ” No DSS ” policy of larger landlords.
As I deal directly with the tenants I can offer better properties at a price that the “customer” feels he is getting a good deal, which encourages them to stay longer, have pride in their home and give good notice at the end of tenancy. My shortest let is 18 months and the longest is ten years and counting.
As the tenant deals directly with the Landlord small problems are usually dealt with in a day. Another advantage is if they need a specialist, say a gas engineer, I deal with a local to whom my custom is important so they will turn out ASAP and usually fixes the problem on the spot as they recommended the boiler, fitted it, know it inside out and carry spares. Large landlords usually use large maintenance companies who will send someone who may not have seen that model of boiler before and will order spares which will turn up in a day or two when they will re-book a visit, leaving my tenant without heating and having to take another day off work.
The proposal is a typical politicians reaction to any problem, throw more legislation at it. In reality this is to the advantage of the bad landlord who will ignore it while the good landlord will get tied up in more red tape and be able to spend less time on his housing stock. Why not just go after the bad landlords for what they are doing wrong no gas cert etc?
As to a name and shame data base of Landlords why not make it a name shame or praise with the landlord having a right of reply !
As there are a lot more bad tenants than Landlords why not have a praise or shame database for tenants?
But please please do not let the government run it !! Have it set up by a private enterprise like e-bay or travel republic !! Perhaps Rightmove could run it !
Finally big is not beautiful, despite their size and expertise and being regulated up to the hilt by the care commission etc. Southern Cross collapsed causing a lot of worry to vulnerable people and financial loss to some major landlords who did not have the expertise to recognise an unsustainable business plan.
Regards David M