Private Landlords Don’t Sell Their Time for Money but Must Beware of Other Risks in Letting to Achieve Success
At the end of a recent speaking engagement to a group of building society buy to let lending staff in the North of England, none of whom were landlords; I asked them, “So, do you think you might be interested in becoming landlords then.”
I was a bit surprised when all said, “No”
That got me thinking. Recently a peer reviewer said something in a similar vein. Commenting on my book, “Successful Property Letting” he said that it was so honest, it could actually make someone think twice about becoming a private landlord.
Of course, to many landlords, I hope that is the attraction of my work: I do tell it like it is and I don’t pretend that being a private landlord is a walk in the park. Being a landlord can be hard work, even for those who use a letting agent (who must still check that the agent is doing a good job for them, especially in relation to the selection of good tenants.)
Digression – Secret Landlords
It’s worth saying that the building society’s staff may have been “secret landlords” and they did not want to admit their landlord-moonlighting activities in front of their bosses. If so, they would have good reason for keeping quiet. When I worked as a full time employee for a bank, for a straight glorious period of 5 years I was making a lot more money via capital growth and rental income from my properties than the bank was paying me as a salary.
I decided to keep the extent of my moonlighting hidden from my bosses, who would no doubt have figured that if I was doing so well at property, perhaps I did not need a pay rise. And after all, my bosses wanted me committed to the company, not to myself.
Setting the Record Straight
So, I feel I need to set the record straight a bit and say that whilst being a private landlord can certainly be hard work, especially when you are going through the process of letting any property to new tenants; it is still a very good business to be in. And it is one in which you will undoubtedly make a good return over time providing you do the job right and you don’t take silly risks.
And as I said in my book, it’s a business where you are in control, not your boss.
John Corey, writing in “Property Investor News” recently, hit a similar spot too. He made the point that when you are a private landlord, like any business owner, you are no longer “selling your time for money.”
Indeed, for those borrowing money to help finance property purchases, they are going a step further because not only are they no longer selling time for money, they are able to offset the interest cost (and loan fees) on mortgage loans used to buy a let property against the rental income they receive. This is of course one of the big attractions of buy to let.
Now it must be said that this ability to offset interest is a contentious one for many on the left who see it as giving landlords an unfair advantage over first time buyers. For Marx and Engels landlords were simply evil “rentiers” living off the hard work of their tenants. In other words, landlords live off the rents of their tenants who do toil away selling their own time for money. (Cynics would point out that Engels with his Manchester factory was no doubt more than happy to offset interest costs against revenues in his business; that is when he wasn’t whinging about the laziness of his employees – something that he did rather a lot of, apparently.)
This ability to “gear up” and borrow money to buy investment property and then offset the interest on the loans against rental income received when calculating taxable income is something that the “Get Rich Quick in Property” folk are very keen to highlight.
But there are dangers. Borrow too much to buy the wrong kind of overvalued property in the wrong location that won’t let out is not a very smart thing to do. Indeed, it’s the route to bankruptcy. And there is always the danger that rising interest costs cannot be passed on as a higher rental income.
It’s these dangers that cannot be denied and the foolhardy continue to fall into the same old traps.
Doing It Right
But if landlords understand their business, learn what their legal responsibilities are as landlords and buy the right kind of property, all the while keeping borrowing levels reasonable, the risks are actually pretty minimal.
And once you have a successful property letting business with a good level of income and happy tenants, you can leave those who only sell their time for money to whinge and discuss Engels’s theories until the revolution comes.
Being a landlord can be great fun, but for me personally, it can get boring sometimes, which is why I enjoy the intellectual challenge of helping a range of clients such as banks, insurers and local authorities to sell to the private rented sector.
The point is, when one becomes a successful landlord, being at the beck and call of the same old boss can be a thing that you can leave in the past.
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