One of the main things you need to budget and plan for is what will happen if there’s suddenly no rent coming in. That might be because:
- A tenant has stopped paying
- You’ve got a void period between tenancies
- The property has been damaged and is currently uninhabitable while repairs are carried out
Properties require ongoing maintenance to stay legally compliant and mortgage payments still have to be made, so you need a back-up plan for how those things will be funded if the rental income stream dries up. If you don’t have money set aside or some kind of insurance cover, you might have to subsidise your investment from your personal savings. Worse, if you don’t have the resources yourself to cover the costs of keeping the property going, you may be forced to sell.
To make sure that doesn’t happen, here are four things you can and should do to protect yourself:
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Put money aside each month for maintenance
According to Checkatrade, you should budget around 1% of a property’s value for maintenance costs, So, if your rental is worth £235,000, you should be setting aside around £195 a month (£2,350 a year) towards maintaining the property. Of course, there’s likely to be some maintenance expenditure each month, but put whatever proportion of that £195 hasn’t been spent into a ‘slush fund’ that will build up over time.
We’d suggest that when you first start a tenancy, it’s a good idea to set aside much more for the first few months, in order to ‘kick start’ your fund. The cost of individual works can vary hugely – e.g., while fixing a tap might only be £50-100, a boiler breakdown could cost several hundred pounds – and if you haven’t had time to build up a decent maintenance pot, a big job could catch you out.
It’s up to you how much extra you save, but make sure it’s enough to let you sleep at night without worrying about being able to keep your property up to the minimum legal standards.
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Take out rent protection insurance
If your tenant defaults on their rent, this will guarantee you continue to receive the full amount each month for a period of time, until you regain possession.
The Rent Protection and Legal Expenses Insurance product we offer covers you for up to 15 months of the contract (to a maximum of £50,000) and includes up to £50,000 of legal expenses for regaining possession of your property. For more information and to make an enquiry, just visit our website.
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Take insurance cover for loss of rent if the property is uninhabitable
If your property is damaged so badly that your tenants have to move into alternative accommodation, you won’t be getting any rental income. Some landlord insurance policies cover loss of rent following an insured event as standard, while other providers offer it as an add-on. So, check your policy and make sure you’re properly protected.
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Give yourself an ‘equity cushion’ so you can remortgage if necessary
If you’re without rental income for an extended period, things might start getting tight financially. In that case, it’s good to know there’s enough equity in the property that you can remortgage and release some capital to cover ongoing costs. So, if possible, aim to buy with borrowing of no more than 65% LTV. If you would like a mortgage review or its time to remortgage, our partner Embrace Financial Services have access to many buy-to-let mortgages from multiple lenders.
If you’d like any advice about maximising your rental income, just contact your local Your Move branch, and to find out more about protecting yourself and your property with insurance, you can make an enquiry via our website.
The Your Move Content Marketing Team
