Private rented housing: a landlord’s view

By - Friday 14th November, 2014

Robert Ward uses a hypothetical property in Addiscombe to demonstrate the life of a private landlord in Croydon

Photo author’s own.

Private rented housing is increasingly important to Croydon. In 2011, more than one-in-five Croydon households were privately rented, compared to only one-in-ten twenty years earlier. In some wards, such as Fairfield, it is one-in-three.

Yet the sector is poorly understood and plagued by cliché. Landlords are perceived to get rich with little effort, apart from occasionally casting their tenants onto the street in a scene from a Dickensian novel. Rents are ‘rip-off’, or at best not ‘affordable’ to ‘struggling’ tenants ‘forced’ to live in homes that are not ‘decent’.

As a private landlord, it can feel like you have stumbled into a parallel universe when you compare this perception with your reality. A typical landlord makes little money, most rental agreements are ended by the tenant, and landlord/tenant relationships are mostly amicable and judged successful by both parties.

Let’s set the scene by following a typical landlord, who, like 90% of private landlords, owns just one property

Of course there are problems. The twelve months of an Assured Shorthold Tenancy is an issue for the increasing number of families with children living in private rented accommodation. There is also some evidence of a small number of stubbornly sub-standard dwellings. Some landlords are well-meaning but lack the necessary skills, and last but not least, there are the criminal landlords who cut costs and cram in as many unfortunates as they can – the so-called beds in sheds.

Discussing solutions is for another article – look out for it soon – but let’s set the scene by following a typical landlord, who, like 90% of private landlords, owns just one property. This is likely to be older than average, probably built before 1919, and more likely to be a flat, likely a conversion.

Some landlords do enter the sector as the result of a decision that is purely business. Yet many become landlords in a less deliberate way, such as marriage where a couple each owning a home opt to live in one and let the other. Our fascination with property is also a factor, encouraged by endless property shows which often end with ‘we’ll just rent it out’, as if that were a trivial decision.

A quarter of small landlords operate at break even or make a loss

As a business it is not very profitable. By way of example, let’s picture a typical flat in Addiscombe. Ignoring buying costs and assuming a large chunk of capital is invested in it, our imagined flat – perhaps on Bingham Road – will bring in maybe £850 a month. A buy-to-let mortgage of, say, £120,000 costs around £500 a month. Service charges take perhaps £100 a month, there are agents’ costs of £100 a month, and perhaps £100 a month for maintenance. This is without accounting for ‘dead’ periods between tenancies, tenants who fail to pay, or the many other expenses that pop up unexpectedly. A quarter of small landlords operate at break even or make a loss. It’s puzzling, perhaps, that anyone would wish to get in to this apparently awful business.

The obvious icing on this meagre cake is the potential for capital growth. For this to work, one needs to have bought at the right point in the market, and be prepared to hold the property for quite some time to recover both buying costs and the often significant costs of the initial refurbishment.

So, with our hypothetical Addiscombe property, how do we find tenants? Letting agents are the most common route. They are expensive, so let’s choose to use the internet.

More than half the potential tenants fail to show up

Initial responses are from letting agents, claiming to have legions of eager tenants. Next are the potential tenants, all of whom claim to be reliable, and for whom this is exactly the property they are looking for. Appointments to view stack up and our optimistic landlord waits at the property for the clients to arrive.

Sadly, optimism is short lived. More than half the potential tenants fail to show up. One or two may phone a few minutes prior to let you know (little consolation if you have just driven half an hour to get there) but most just don’t show up. This is one of the reasons why many landlords use agents.

Having found a suitable tenant, who has passed reference and credit checks, particularly the latter as some people seem to ‘forget’ about their CCJs, there is the rental agreement, inventory check, deposit (which needs to be in an approved scheme), and safety certifications. All are extra costs which someone has to pay. Letting agents tend to see these as business opportunities.

Heaving a sigh of relief, our landlord can now relax for a few months. Apart, perhaps, from the occasional anxious drive past to check nothing too terrible has happened.

Robert Ward

Robert Ward

Engineer and project manager specialised in helping businesses make better strategic decisions and improve safety, quality and effectiveness. Conservative Party Councillor representing Selsdon and Addington Village on Croydon Council. He tweets as @moguloilman.

More Posts