How much in rental income do your buy to let properties yield? Like many landlords, you are probably enjoying the current surge in demand for buy to let properties and an increase in rental income as a result, but just how much are rents likely to rise over the next few years?

According to the experts, rental income for buy to let properties is expected to rise by more than 20% over the next five years, which represents a pretty decent return for your investment. The current figures for rental income earned by UK landlords is £48 million per year, but this is expected to rise to about £70 million per year in five years time. The same study has also forecast a considerable shortage in the number of available rental properties, which is rather worrying given the current demand for buy to let homes across large swathes of the population.

Why is there a shortage of rental properties in the UK?

In many countries, institutional investment in the buy to let market is common practice and property developers often build for investors rather than individual buyers. Unfortunately, in the UK this type of investment is seen as unattractive because property prices are high and better returns are available elsewhere, but in order for the buy to let market to thrive, more investment is needed. Mortgage companies are also hindering the growth of the buy to let market: by demanding higher deposits from would-be landlords, fewer people are able to raise the funds necessary for investing in buy to let properties.

Unless you are a total technophobe, you cannot fail to be aware of the plethora of social networking sites out there. From Facebook to LinkedIn, in all probability you are a member of at least one of the most popular sites. But although checking your Facebook and chasing new contacts on LinkedIn can sometimes be useful for your property investment business, there is now a social networking site specifically aimed at helping landlords exchange useful information about tenants they have had contact with.

LandlordReferencing.co.uk has been set up by landlords for landlords and could turn out to be a very useful resource if you have access to a computer. The premise behind the site is very simple. It is designed to be a “community”, in much the same way as any other social networking site, but instead of exchanging banalities, if you are unlucky enough to be stuck with the tenant from hell, you can upload information about that person and let other landlords know before they end up handing over a tenancy agreement to the same individual—you also have an opportunity to check up on a potential tenant to ensure they are reliable and not about to make your life miserable.

The website is keen to point out that no privacy laws are being violated—if a landlord goes looking for information about an individual and there is a match with data held on the system, the website puts the two landlords in touch with one another.

It looks like being a win-win situation for landlords everywhere!

Most of the financial stories this week have centred on the Chancellor’s annual Budget. Before the budget, journalists speculated on what tax increases we could look forward to, but in the aftermath, the discussion is mostly about how Joe Average will be affected by the Chancellor’s decisions in the coming year.

How will the 2012 Budget affect buy to let landlords?

Well, unless you are operating your multi million pound property portfolio as a business and evading the taxman by stashing your gains in a cosy bank account in the Cayman Islands, you don’t have to worry about the changes to the Stamp Duty legislation. However, you should probably be concerned about your future tax bill.

I read a story in the Telegraph this morning about tax liabilities and how it is likely to affect the average buy to let landlord. With interest rates on mortgages low and demand for rental properties at an all-time high, many of us have been enjoying healthy profits from our property portfolio. But, as always, the taxman is waiting for his share, and for many landlords the tax bill for the 2010/2011 tax year will be correspondingly high. There will also be advanced payments to make for the coming tax year, based on liability from the previous year, so if you had a profitable year last year you can expect your tax instalment payment in July to be correspondingly high.

The combination of tax bill for 2010/2011 and advanced payments for 2011/2012 in January 12 and July 12 could prove catastrophic for the cash flow of many landlords, especially if their mortgages are now reverting back to standard variable rates from a discounted rate. So if you haven’t already done so, make sure you have money set aside to pay the HMRC!

Are any of your buy to let properties in a flood risk area? If they are, you may find you are soon stuck with properties that are uninsurable and therefore virtually impossible to sell as an agreement made between the government and the insurance companies twelve years ago is about to come to an end (June 2013).

This agreement forced insurance companies to provide cover for properties on flood plains, so even those with properties in high-risk areas susceptible to regular flooding were able to enjoy the protection of insurance against flood damage. But now that this agreement is coming to an end, all bets are off and the insurance companies are no longer obliged to provide cover.

As a result, industry experts predict that more than 200,000 property owners will be left without the protection of flood damage insurance, and if this applies to you, it means your tenants will not be able to secure contents insurance and you won’t be protected by buildings insurance. And if the worst does happen and the nearby river bursts its banks in heavy rain, your property could become uninhabitable for months, or worse still, so badly damaged that repairs are unaffordable.

Of course if you are looking to add to your portfolio, you can check whether a property is located in a high-risk flood area via maps on the Environment Agency website—areas of particular interest are Yorkshire, Nottinghamshire, Kent, Devon and Worcestershire. After all, there is little point in investing in a new buy to let property if you subsequently discover you can’t insure it!

Banks and financial institutions already have access to a wide range of financial information to help them decide whom to offer credit to, but by the end of this year, rent payments will be added to the list and if a tenant fails to pay their rent on time, it could affect his or her credit rating.

The largest credit reference agency in the UK, Experian, is currently in talks with some of the bigger landlords and letting agencies in a bid to persuade them to include a clause in future tenancy agreements that allows them to hand over information on a tenant’s payment history. Once the data starts rolling in, it will soon appear on credit files, although many smaller amateur landlords may choose not to sign up the scheme and it will therefore not cover everyone.

How will this move affect landlords?

Sharing financial data on a much wider scale will offer landlords a number of advantages. Landlords will be able to pay a fee to search a potential tenant’s credit file in order to check their rent payment history. By doing so, you will be able to see if a tenant has a history of being late with their rent payments, or has ever failed to make payment.

Are there any disadvantages to the sharing of rent payment information?

Tenants who sign up for joint tenancy agreements could find their credit rating shot to pieces through no fault of their own. For example, if one flatmate misses a rent payment, it will count against ALL tenants living in the same property.

There have been lots of stories of late about rogue landlords—they are the type that let out properties in a poor condition or try to cram as many tenants as possible into a sub-standard property. But rogue letting agents are also becoming an increasing problem for the buy to let industry and according to the ombudsman, complaints against letting agents rose by 26% in 2011.

The job of a letting agent is to act as a liaison between the landlord and tenant if the landlord is unable or unwilling to manage their properties directly. A good letting agent provides a valuable service, albeit for a fee, but a bad letting agent will cost you money, either through their incompetence, or because they attempt to deliberately defraud you.

Unfortunately, when things go wrong, a landlord’s only avenue of redress is to start legal action, which is inevitably a costly and time consuming process. So in an attempt to improve on this woeful state of affairs (in the absence of government regulation), the ombudsman is calling for reputable letting agents and industry bodies to self-regulate their own industry. This will hopefully force letting agents to join approved schemes that oblige them to follow specific codes of conduct.

As things currently stand, anyone and their dog can operate as a lettings agent since no formal qualifications or licenses are required. But by introducing self-regulation into the arena, the ombudsman hopes that disreputable letting agents will eventually become outlawed and consumers will learn how to spot the rogues before they have the opportunity to take your money and run.

I read with interest this morning about how a lucrative housing scam cost some landlords in the South East as much as £86k each in damages and loss of rental income. Thankfully the person responsible has been now bought to justice and will serve four years in prison before being deported back to her native Zimbabwe.

What happened?

Rose Chimuka rented a number of large family homes across the South London area. She approached landlords using fake ID and pretended to be a wife and mother with a respectable well-paid husband. None of the landlords suspected a thing and once the lease had been signed and the keys to the property handed over, Chimuka proceeded to change the locks and convert each room in the property into a bedsit in order to generate as much rental income as possible.

Once the locks had been changed, landlords who became suspicious and turned up to inspect their houses were unable to gain access—in one instance Chimuka even had the audacity to call the police when a landlord tried to enter his own property!

Apparently Chimuka made around £100,000 from her housing scam, but like all good things, her money making scheme came to an abrupt end when she was arrested on eleven counts of fraud.

How can you prevent this from happening to you?

1. Be as thorough as you can when checking a tenant’s references—never take any potential tenant at face value, as things are not always what they seem.

2. Take out a good landlords’ insurance policy to protect you from potential property damage and loss of rental income.

Mortgage rates have been at an all-time historic low for a long time now, which has been great for everyone, landlords included, but there are now ominous rumbles on the horizon pointing towards an increase in interest rates from all of the main high street lenders, despite the fact the Bank of England continues to maintain its base rate at 0.5%.

If the thought of expanding your property portfolio is tempting at the moment, which is likely given the recent boom in the buy to let market, and you are still thinking about applying for a buy to let mortgage, you should consider biting the bullet sooner rather than later. The word on the high street is that the Halifax is planning on raising its standard variable rate on May 1st. Once this happens, the other big lenders will undoubtedly follow suit shortly afterwards, so if you leave it for another few months, you may find that your repayments increase by a fairly hefty amount, which is never good news.

However, despite the impending rise in mortgage interest rates, the property market is still in the doldrums and property is becoming increasingly affordable. This is obviously helpful for first time buyers as they have been priced out of the market in recent years, but it is also good news for landlords as it means cheap property is more widely available in many areas of the country.

But before you apply for a new buy to let mortgage, do your math—if mortgage rates DO rise as predicted, do not want to take the risk of ending up in mortgage arrears should you be left with no tenants for any length of time.

The vast majority of tenants you can expect to meet during the course of your business dealings as a landlord are likely to be polite and happy to pay their rent on time, but for an increasing number of landlords, fraudulent tenancy applications are being made by habitual bad tenants and are becoming a real problem.

As a landlord, you are probably going to meet a bad tenant at some point. They are the ones who move in and within a short time default on their rent payments. But although some tenants DO find themselves in financial difficulties, sometimes through no fault of their own, there are an increasing number of “bad” tenants who made a career out of moving from property to property, having had no intention of paying the rent when they signed the tenancy agreement.

Such tenants often appear to be honest and reputable citizens, but they give you false information when they fill out the forms, usually to throw credit reference companies off their trail, and once they take possession of a property, you will have a fight on your hands trying to evict them.

How can I prevent this from happening to me?

I have said this before but it still bears repeating: always, ALWAYS run thorough identity checks and credit checks on a prospective tenant, and check out references from their current landlord as soon as possible. Just because they look respectable, it does not mean they ARE respectable! Trust your instincts and if you find any irregularities, consider refusing their tenancy application—it is better to be safe than sorry!

Given the amount of publicity recently about local authority crackdowns on the activities of rogue landlords, you might be forgiven for thinking that any landlord with half a brain would make a point of adhering to legislation and treating their tenants fairly. But apparently this is still not the case and in a news report I read the other day, another landlord has been forced to pay the price for not playing by the rules.

The landlord in question rented out a property in Reading to multiple tenants, only he never managed to find the time to carry out essential repairs and make the place liveable. The property was described as “rundown” by council officers and despite numerous requests for information, the landlord failed to reply. Tenants were forced to put up with damaged electrical sockets and smoke alarms, a faulty gas supply to the property that left them with without hot water, heating or cooking facilities, plus sections of plasterboard were missing from the ceilings.

Following a lengthy investigation, the landlord was found guilty on twenty charges related to his property and fined £665. Because he subsequently claimed that he was unable to pay, the court imposed a day’s stint in prison, to run concurrently with a separate sentence dealt out for drugs related offences.

Personally I think that sentencing the landlord to a grand total of one day inside is fairly pointless, but I suppose it is better than nothing and at least it sends out the message that local authorities will not stand by while rogue landlords abuse their tenants.