How to protect buy-to-let against profit-crushing void periods

Build a strategy to retain tenants and avoid loss-making void periods

One of the major reasons you need a reserve fund for rental properties is to cover the bills when you have a void period. When your investment property is empty, you’ll still have to pay the utility bills. The local authority won’t reduce its council tax demands. You’ll have marketing and advertising costs to pay as you strive to find a new tenant.

Every day of a void period is another day without rental income. They should come with a wealth warning. Here, you’ll learn how void periods could impact you financially and we’ll share our top five tips to help you avoid them – and protect yourself against them when they do happen.

How damaging is a void period?

Just how damaging a void period can be to your wealth depends on several factors. Most important of these are:

  • How long the void period is
  • How much your mortgage costs
  • How much your other costs are

For example, let’s say you’ve invested in a buy-to-let property with the benefit of a mortgage that costs £650 per month. Electricity, gas and water standing charges total £60 per month. Council tax costs another £120 per month. Every month your buy-to-let investment stands empty, you’ve got to find £830. And this is before you add in the costs of marketing your property, and ongoing maintenance needs, cleaning and gardening to keep it rentable.

What is a void period likely to cost?

In 2016, insurer Direct Line for Business announced the results of research into tenancies and void periods. This research gives some idea of how many void periods are likely to cost you as a buy-to-let investor. It found that tenants stay in a property for an average of 18 months. However, this depends on where you have invested. For example:

  • Tenants in Birmingham are likely to stay in a property for 26 months
  • In London, this falls to 21 months
  • Liverpool, Sheffield and Edinburgh tenants remain put for an average of 19 months
  • In Leeds, tenants stay an average of 12 months
  • Cardiff landlords suffer the lowest average tenancies at 11 months

Between one tenant moving out and the next moving in, the average void period is 22 days.

Buy-to-let investors in Birmingham benefit from the shortest average void period as well as the longest average tenancy. At 11 days, the void period in England’s Second City is a third the length of the average void period of 33 days in Aberdeen and Liverpool.

What does all this mean for you as the buy-to-let landlord? With average monthly rent in the UK of £895 in February 2017 and an average 22 days of void period, the loss of rent will cost you around £650. And you can budget for this loss of rent every 18 months.

How to minimise void periods

The chances of eliminating void periods completely are extremely slim.

While some of our buy-to-let landlord clients have had the same tenant for eight or ten years, the likelihood is that even the best tenant will want to move at some time. Couples have children and need more space. Breadwinners get new jobs in different locations. These things are out of your control. However, there are plenty of things that you can control. Each of the following tips will help you build a strategy to minimise void periods:

1.     Get great tenants and keep them

As property investment managers, we put a lot of resource into tracking down top-class tenants for consistent rental income. Rigorous background checks and credit checks are part of our tenant vetting process.

Immediately after a tenant starts renting your property, they have access to some of the most advanced online reporting applications on the market. It means we can prioritise maintenance calls, and respond accordingly. We keep in touch with the tenant on your behalf and conduct regular inspections – another opportunity to ensure that your tenant feels looked after.

2.     Keep on top of maintenance

One of the major reasons for tenants moving on is a lack of maintenance. Our advice is to make sure that your buy-to-let property is rentable at all times. Ensure that the kitchen and bathroom are well-cared for and that the property is maintained to a high standard.

3.     Be realistic about rent

While you want to maximise your rental income, the best way to do so is to not simply push rent up until the tenant snaps. Make sure you know how much similar properties rent for in the area and keep your rent in line. Even if you have to accept a slightly lower rent, avoiding a void period will pay dividends.

You may squeeze another £50 per month from a tenant, but doing so might lead to a void period that costs £650 in lost rent. To get that back, you’d need to rent the property out for 13 months at the higher rental price.

When we review rents, we research the local area and make a recommendation about realistic increases that won’t scare the tenant into looking elsewhere.

4.     Build a reserve fund

Divert at least some of your excess rent each month into a property reserve fund. This fund shouldn’t be just to cover void periods, but will also make sure you have the money available to pay for unexpected maintenance and repairs, service charges if applicable, and so on. See our article “5 facts you need to know about a reserve fund for rental properties” for more information.

5.     Get insured

Landlord insurance won’t cover all void periods, but it can include clauses that protect you against a tenant that doesn’t pay their rent. It can also cover a void period if you’ve been forced to evict a tenant.

Void periods are inevitable, I’m afraid. But with the right strategy, you can minimise the damage they cause. Contact Ezytrac today on+44  1522  503  717, and discover how proper investment property management will help you protect your buy-to-let against profit-crunching void periods.

Cheers,

Robert Smith

By |2017-03-24T15:45:44+00:00March 16th, 2017|Landlord lessons, Property Management, Void Periods|0 Comments

About the Author:

Rob started working at Ezytrac in 2015 as a maintenance coordinator. From there he progressed to become Maintenance Team Leader. He loves working in this fast-paced industry and the challenges that come on a regular basis. When Rob is not at work, he enjoys writing (currently trying to write a sitcom) and going on small city breaks which usually means drinking in the sun! Rob is lucky enough to be on the property ladder so he gets involved in a lot of DIY. He's mastered the art of furniture assembly so if you ever need help, give me a shout!