The Unpalatable Truth of BTL

I popped round to see one of my tenants the other day . I was struck by the fact that my once lovely apartment had deteriorated to the point that although not quite a squat looked decidedly dingy. A few years back I had refurbished it with my bare hands and presented at a show home standard. However, it now looked in essence just like the rental apartments that I used to stay in.

A landlords ideals

In my younger days as a landlord; the thing that fired me up was a desire to be a new type of landlord. One that cared about the design of a property and rented out places that I could be proud of. I could never understand landlords that took no pride in the state of their rental property. That was never going to be me!

Slum landlords

No responsible landlord would fail to be shocked by the Jon Snow Dispatches program about the state of some slum property in the UK.

Like most journalism; the story did it’s best to search out the extreme to find the shocking and in that respect; it ultimately said little about the state of buy-to-let in the UK. It’s a bit like searching for a corrupt policeman, a greedy banker, an incompetent teacher. Look hard enough and shock horror you’ll find one. The scandal in many ways is despite the mechanisms in place is the failure of the institutions such as local authorities to act and protect vulnerable tenants.

These images and isolated stories often deflect from a more informed debate about the future of the private rented sector.

The real unpalatable truth about buy-to-let

I go back to how I started off being a landlord. My mission was to re-invent the sector.

In the 90s we saw how a property boom made many landlords including myself rich over night. As a property investor and surveyor it was also apparent that in the boom years property in poor condition sold as well and for not much less than well presented property. The reality for most property investors is that they make money when they sell their investment for a capital profit. It’s also true that unless your property is a high end property in a desirable area that the value for your 2 bed terrace will be practically the same whether you have spent 20 grand on it or just kept it in a shabby but rentable condition.

If I spent £20k on doing up some of my properties to take them to tip top condition. This capital outlay would probably equal between 25-33% of the current market value. Following refurbishment I could probably increase the rent by 10% perhaps. This would equate to less than a grand a year extra. By the time you take into account the void, the hassle, the fact I would have to evict reliable settled tenants. Why would I do it?

Improving conditions in buy-to-let.

The last government’s big idea for improving the state of the private rental sector was licensing. Their solution to every situation was the tick box or badge. "They’ve got the badge so it must be OK."

Well we can all see how successful that was in regulating the banks!!!! What we need is a way of encouraging landlords to invest in their property. The assumption by all governments is that they will not give tax relief on capital improvement works because landlords get the benefit from the work when they sell. This may be true, but how does it help the tenants during their time of occupation if the time the property is done up is after they have been evicted and just before the landlord sells?

Tax system ill designed

The essence of the current tax system for residential property is to treat renting out residential property as an investment. In other words; as a passive activity and not a traditional business. What is needed is a taxation system that encourages landlords to actively manage and invest in their property just as the system of capital allowances encourages manufacturers to invest in plant and machinery. Now I’m no tax expert; but an idea that springs immediately to mind would be allowing landlords to off set improvement costs against rental income or even their personal income from other sources.

Landlords now provide accommodation for an increasing proportion of the countries population at little or no cost to the taxpayer. Unless we get sufficient tax breaks to improve our property; many of us will lack the financial incentives to improve and upgrade our properties. To me this is the unpalatable truth of buy-to-let and not the odd slum property.

Have a view?

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I quite agree with your comments. My husband and I redecorate and present our properties immaculately after each tenancy which costs us a lot of money.

We spend hundreds of pounds on paint, materials and regularly new curtains, lights etc. We make far less profit than the landlord who doesn’t do any work between lets.

However, we do achieve the highest rents in our town and, even more important, we attract more mature tenants (usually higher earners too) looking for somewhere really nice to live! They then look after our property very well and tend to stay for many years.

Best of all we have never had a tenant who didn’t pay their rent on time even when they lost their job!!

What price peace of mind? Love your articles! Keep up the good work. Cheryl

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Hi there, first of all thank you for a wonderful site where such and other articles are available and I thank you for your efforts in this regard.

I think that the first paragraph basically sums it all up. In South Africa repairs and maintenance are deductable from rental income so this gives some relief. However as a pensioner on a lower tax rate this does not amount to much by way of encouragement and then to see the fruits (or rotten fruits) of your efforts. So one tends to find that the property is generally spruced up a little when tenants leave to have the place presentable for new tenants. I am always amazed at how spick and span tenants expect the place to be when they move in and the way they leave the place when they move out with attempting to put as much as they can down to “fair wear and tear”.
The tendency of some folk here is to buy a moderate property, rent it out and then rent and live in a much nicer property due to the lower rentals versus bond costs.
I also have a philosophy that tenants are tenants because of the way they conduct their lives and financial affairs and Landlords are landlords for the same reason. With the credit squeeze these tenants will in all likelihood for the next foreseeable future continue to remain tenants.

Fortunately we have a tenant credit bureau here called TPN(Tenant profile Network – now TPN Credit bureau) which allows one to place a history of the behaviour of tenant’s payment and other info which I find very useful in keeping tenants somewhat in check. Being a credit bureau now allows payment defaults to be passed on to some of the other credit bureaus where negative information seriously jeopardises the ability to obtain other credit facilities and a warning to other landlords. The costs of membership is realistic and regular workshops are held with about 200 rental agents present where very interesting discussions ensue to the benefit of all present and we have the benefit of our local attorney present at most workshops to guide us in the right direction. (Our attorney is an ethical eviction specialist and therefore derives some of his income when needed by the members.) Membership of TPN is open to landlords as well as rental agents. However the CPA (Consumer Protection act) has now come along in April 11 which has thrown a spanner in the works being badly written and with conflicts to the Housing rental act. So the battle continues. Regards Graham

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Very true. We also prefer to be on the better side of the lettings fence with well maintained, safe and clean properties but tenants never keep the standard that you would yourself and 5 years down the line you are back to square 1, putting £5K of your own money in to replace kitchens, carpets, redecorate etc. So basically a year’s rent down the drain.

With the latest government crack down on rent rises, housing benefit being cut and generally the private landlord being expected to be a piggy bank for those tenants who are struggling with debt/low wages, some assistance from the Government is going to be necessary if they are not to be left with a BIG problem of families with no homes on their hands as more and more can’t meet the rent and are evicted by their private landlords.

A tax incentive specifically for good upkeep/improvements along with housing benefit assistance for those who really need it is the only way to keep this area from going downhill. – J

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Only to true. The difference being that I did my properties up to a standard that I would have expected to live in. All my properties were bought from private sellers and were not ex rental. All were in excellent condition.
The law however works against landlords. Take a tenant who slowly wrecks a property (or quickly) and then does a runner.
Not only is the clean property wrecked but you get massive costs and loss of income in the process.
The attitude of DHSS is that the housing benefit belongs to the tenant so a tenant who does a runner can still get the benefit on another property
and often the current landlord is left with a property technically under tenancy agreement with the long winded process of recovery.
On top of this there are risks to an unoccupied property which appears abandoned and all a landlord can do is secure it until the court process has finished.
Then there is the condition, piles of rubbish etc. left behind. In the last year I have had 2 long term tenants…one of 13 years and one of 10 years do runners. What landlord would expect long term tenants to do runners?? .Thats the current economic pressures today.
I admit that I made good money but once the abandoned furniture, hidden defects covered up by household items etc are found together with ”alterations’
done by tenants are discovered often weeks after the tenant scarpers (due to the DHSS not making payment which of course is in arrears) then often total refurbishment is in order. So now I keep refurbishment to an absolute minimum. Clean and presentable but certainly not as good as I would wish to live in.
I am a responsible landlord belonging to 2 associations but unfortunately despite attempting to provide good properties the social attitudes of many tenants leaves a lot to be desired. The DHSS provides the money and the landlord is making a fortune seems to be the attitude. Courts tend to fall on the side of the ‘poor deprived tenant’ making things worse. I now rarely rent unless there is a guarantor in place who picks up the tab at the end of the day.
Yes I did start letting nice properties but have resigned myself to factoring in repair bills for playing about with boilers until they are wrecked, covering up their defects with pictures and carpets etc. Most tenants will not pick up a screwdriver to put back a kitchen cupboard door they have pulled off.
Yes I am regulated by the authorities and my association inspects. But who inspects the tenants.? Despite every known check possible I am still left with bills with little chance of recovery.

Funniest story ? Tenant who after inspection rushed to build an aviary. Half the living room and into the garden so that parrots could fly in and out through the patio doors. Converted the under stairs cupboard to house greyhounds . The dogs had eaten the stair rails and carpets were wrecked.
He scarpered before the next inspection. At the subsequent court case he offered to pay back £15 a month for the substantial bill.
Fortunately the judge saw straight though him and told him to get his fat lazy wife out to work and awarded £125 a month. I got every penny ! – Nigel

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I hear you, and work in television and sensationalism is the journalists bread and butter, true this has uncovered some shocking news, perhaps next they’ll do one on the mass theft LHA paying tenants commit. I have recently had a tenant leave a mess costing thousands to bring it back to being rentable and the level of tenants leaving without paying owed rent among LHA clients simply makes me worry about the human race. Who in their right mind in government thought paying directly to unemployed would be empowering for the individual obviously knows little about the harsh realities landlords, who play by the book and provide quality housing, face.

People are taking LHA and not paying it to the Landlord and there seems to be little we can do about it. I have an instance of someone who went into hospital, despite having a carer, owing £8k, they have a guarantor in the armed Forces who now I unfortnately have to pursue. However even if a tenant falls behind on rent, how can an unemployed person even try to address the balance. I had a solid single parent tenant for a reasonable tenancy and even reduced the rent as she went in and out of employment. Even she legged it owing more than a months rent. Even when I was young and struggling I never missed one months rent. Now this to me continues to be shocking, since becoming a landlrd I am exposed to almost constant theft, if I went out and stole someones car I’m sure the police would be all me, and we know banks are not forgiving on not paying my mortgages.

The government is keen to offload its housing problems to the private landlord, but really no-one is on our side and we constantly fight with hands tied. I’m afraid that simply through experience my ideal also of being a landlord who can co-operate with his tenants to mutual benefit has slowly been eaten away. kind regards Jonny

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Hi,I had come to a similar view.

I think a more focussed approach, more aligned with current goverment targets, may have a better chance of being accepted.

ie any capital investment which improves a property (either owned or rented) towards a government approved key performance indicator (KPI) should be allowable against personal income and/or landlord income.

Egs:
KPI increased energy efficiency for all homes within the UK

Capital Investment Tax Reliefs for
insulation
solar panels
ground/air source heat pump
draught exclusion
heat recovery ventilation system

The above improvements will:-
increase the energy efficiency of a large portion of the lowest energy efficient homes, the largest improvements can be obtained at the worst end of the spectrum at lowest cost
allow tenants to reduce their ongoing energy costs – increasing their disposable income – increased economic activity
improve the valuation of the property – possibly also allowing release of equity to allow further improvements – increased economic activity
improve the health of tenants (improved comfort as heating can be afforded, improved air quality) – improving effectiveness of NHS funding
reduce carbon emmissions – reducing risk of EU fines
increase the uptake of green initiatives thus lowering unit costs overall with consequential snowball effect with lower customer costs – increased economic activity
reduce the import of natural resources used to generate national grid power – Phil

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When I set out as a landlord in 1991. Wet behind the ears, all willing and chomping at the bit. Getting as much information as possible was my first job.
We bought next door to us, a 8 bed bedsit, (still fashionable then). I was introduced to a landlord who owned half of our town.

You have 1 decision to make, Do your properties up to 2 standards. TOP END all singing bathrooms and kitchens right location and top spec, or BOTTOM END, bare basics cheap fittings, guaranteed payments i.e.council tenants.If you try half way house you will make no money!

Over the years and now not so wet behind the ears I often think of his comments. Still to this day and trends long moved from bedsits, walking into 1 of my properties trashed and costing me £1000’s in time, lost rent whilst fitting a new kitchen, carpets, doors with holes in. Super glue in the locks, non payment of rent, Police involvement. Is it really so far away from his first comments. Ok this didn’t happen in just 1 property.But as you say, its not landlords like us who try to make a difference that are at fault, but trailer trash tenants who make us question our ethics to provide a tenant with lovingly presented accommodation.

The trend has moved somewhat and I now put the letting of our properties in the hands of our local letting agents, who are made up of real landlords in thier own right. This free’s my time up immensely and because there checks are exhaustive its keeps the more salubrious characters away, all documented buy them, I provide the inventory which they integrate and execute when they check the tenant in. Don’t forget real people don’t trust landlords either, I have found the real tenants want to go through a letting agent. Stay away from the big boys who just want to let your property and get their money, find a local one who gets to know you. Have I found the answer? regards Paul

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Some of you guys are way off topic. The unpalatable truth of the title is that we are penalised for making repairs.

I have tenants on benefit and was being paid through Fenland Council. I decided to re-fit the bathroom and kitchen and do a complete paint job. The council docked £150 a month off the rent payable because of the mess. I shant be upgrading any of my properties any time soon. john clare

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I totally agree with these comments. I have just spent the past 3 months slowly clearing, cleaning and refurbishing the mess and damage caused by my last tenants. Having to adhere to the law, which offers amazing protection to the tenant and non to the landlord, it has taken me nearly 4 months from non payment of rent, to get them out of my property. They broke numerous terms of their lease, including keeping dogs, which they never cleared up after, who chewed carpets, walls, stairs and doors. Evidently my excellent, comprehensive lease terms seem to mean nothing. These people would not answer the door or reply to any form of contact. I am a private landlord who has a mortgage on this property. I have also been unemployed for the past year and a half, yet I am still expected to meet my mortgage payments and I’m not even allowed a ‘payment holiday’ to ease the burden during this period. The damage these people caused me has ran into thousands. I have had to use my last drop of income from this rental to keep up the mortgage repayments and make the property habitable again for re-renting. My husband is having to provide me with money each month to live on. This tenant is still in employment and running up debts left right and centre with various utilities and loan companies. I could pursue them for the money ‘they have stolen’ from me as I have tracked them down, but to what end ?. After the utility companies and everyone else have taken their share, what likelihood is there of me getting any of my money back…None!! and it will only cost me more money to pursue this!!. There urgently needs to be a change in the law. Any genuine landlord agrees that tenants should be protected from unscrupulous landlords, but as in many situations, the law has now swung too far in one direction and Landlords also need the protection of the Law !! Yes, the private landlord is now a major assistance to the government with it’s housing problems, especially for young couples and single people. Government take note!!!!

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I agree with your well written and well made points in the comments by landlords who have had their fingers burnt. I have two rental properties and have had mixed luck with both.
The problem, as highlighted by the other comments on here, is that far too much emphasis is on the rights of the tenant and not the landlord. As stated, the government should be helping to encourage more growth in this area( due to lack of housing) not forcing landlords to give up because of tenants playing the system to get evicted so as to claim local authority housing rights. I also think that people just have little or no respect for other people’s property these days. Like so many, I always redecorate and clean between tenants and have been appalled at the state my flats have been left in but the tenant would have walked into an immaculate property. A reflection of our times I’m afraid…..look after number one and don’t give a damn about others!

Sadly I lost my husband and so I am going to hang on to just one of my properties(tenant is sick and I would not move him out in the circumstances) but I want to sell the other as soon as the housing market picks up enough in the area concerned. I think the government’s attitude to private landlords and the lack of help available when they renege on their signed agreements, leaves me no choice but to get out. – Maggie

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