A hassled landlord’s low income or a hands-off passive high income?

A hassled landlord’s low income or a hands-off passive high income?

 

Which would you choose?

There is a widely held belief that being a landlord is a great way to enjoy a passive income stream. Once you’ve paid out a chunk of capital to fund part or all of a property purchase, you can just simply sit back and watch the money roll in.

Unless you’re a property tycoon with a string of properties under your belt and a team of people to do the dirty work for you, the reality is rather different. Being a landlord can be a right royal pain in the behind. Not to mention a constant drain on your pocket, and a trial for your frayed nerves. Here’s what novice landlords can expect:

Hassled land lord


The phone calls

Every time you see your tenant’s name flash up on your mobile, your stomach is likely to sink. Ninety-nine-point-nine percent of the time when your tenant calls you, there’s a problem. Unless they’re a personal friend, it’s highly unlikely to be a social call!

The number of times your mobile rings will generally depend on two things:

  1. How many problems your property has
  2. How “needy” your tenant is

Needy tenants can call you about door handles becoming loose, kitchen cupboard doors sticking, who they should use to clean the windows, and scores of other petty things that they could have sorted out for themselves.

Except they don’t – they simply call you!

There are exceptions though. They probably won’t call you when they want to hang a gallery of framed photos as a new feature in the lounge, or when they bang thirty or more nails into your previously smooth and unblemished plaster, now adorned with pictures of their new baby.

Doubtless, you’ll be filling these holes in and repainting the wall at the end of their tenancy.

Problems with tenants


They don't own it, and they know it!

As much as you might get a happy tenant who loves your property and cares for it as though it were their own, there is a high chance that they aren’t going to treat your property with the care you’d like.

Tenants are not always going to take their shoes off when they enter the house, come rain or shine. They might like frying everything they eat so you can expect a nice oily glaze to the kitchen ceiling and your nice new kitchen wall cupboards, even with a top-of-the-range extractor fan. They'll leave your property smelling like a fish and chip shop.

If you've furnished the property, expect that during your inspection visits that the large ink-stain on the sofa will be hidden by a scatter cushion, and the large red wine spill over the cloth-covered dining chair to be concealed by a cardigan. Tenants play the 'surface cleaning game' when you glance round things look ok. When you take possession, the truth will come out!  

There’s nothing worse than going into your rental property and realising how much work needs to be done at the end of a tenancy. Because rental time equals wear and tear. And all too often, this is not ‘natural’ wear and tear.

When you get a tenant that really doesn’t give a damn about your property, you could see your house trashed and suffer the financial consequences of the three ‘R’s. And speaking from bitter experience I’m not talking about the three ‘R’s you learnt in school:

  • Repairs
  • Recarpeting
  • Redecoration

While you may be quite house proud, not everyone will have the same standards of cleanliness as you do. As a landlord, you’ll learn the hard way that there’s a good reason for the large number of cleaning companies who specialise in ‘deep-cleaning’ in Yellow Pages and the Friday-ad!

Naturally, you’ll need deep pockets to pay for the deep-clean!

Land lord expenses


Regular expenses

Even if you don’t have a mortgage on your rental property, there are regular costs to take into account during the year that will eat heavily into your profit.

You’ll need to pay for landlord insurance to protect yourself in case your property is ruined through fire, water or vandalism.

If you’re renting out a property through an agent, there will be management fees to pay which could easily take 10% to 15% off your monthly rental income.

There are annual gas and electrical inspections to pay for. If you do have a mortgage on the rental property, then you may also have to pay an annual fee just for the unbridled pleasure of renting it out!

Then there’s also the dreaded tax bill to consider. Depending on your earnings, you may have to pay tax on your profits, less any expenses.


Unexpected expenses

As well as general maintenance costs and regular expenses, there will be times when something awful happens. Tales of the unexpected include the boiler breaking down, a burst water pipe in the loft and the washing machine seizing-up.

These unexpected events nearly always call for hefty bills to be paid!


UK law sides with the tenant, even bad ones!

Here in the UK, the landlord doesn’t really have many rights when it comes to evicting bad tenants. Naturally, there is due court process to be followed which can often take up to two months, and, of course, it will cost you money!

For example, if your tenant doesn’t pay rent, they are in breach of contract, but won’t leave. As the landlord, you can apply for a possession order and then for bailiffs to remove them from your property.

All this takes time, and if no rent is being paid during the period along with court fees on top, this situation could turn into a financial disaster for a landlord, particularly in you’re paying a mortgage on your property.

Land lord expenses


How low can a hassled Landlord’s income be?

Much, if not all, of the above could be forgiven, if the return on your worn and torn - often war-torn property was somewhere comfortably in the double-digit percentage figures annually.

Sadly, the reality reported by property portal Zoopla tells a different story. Zoopla extracted more than one million rental prices to produce a view of average gross rental income in 2015. Here’s what they reveal:

Type of property Net yield - flat Net yield - house
1 bed 3.53% 4.13%
2 bed 3.18% 3.71%
3 bed 2.82% 3.29%
4 bed 2.40% 2.80%
Source Zoopla: Averages across the whole of the UK

And these net rental figures are before any further deductions for mortgage payments, which in many cases will result in the loss of most, maybe all of your net income from rent!

So, in answer to the question, ‘how low can a hassled Landlord’s income be?’, it can be low as zero…nada…nothing…and even sod-all!

alternative to land lord

What alternative is there to a ‘hassled’ landlord’s low income?

You might be a would-be landlord with savings of between thirty to fifty thousand pounds or more, or a ‘hassled’ landlord who has reached the end of your tether when it comes to all things tenant related, and in spite of your tenant’s best efforts, your small portfolio has built up some capital, enough for you to seriously think about exiting the buy-to-let market!

In both cases, you’re attracted to property as an investment and want a simple, passive income stream. So, if becoming or remaining a landlord isn’t the answer, what on earth is?


Alternative property-backed investments

Over the last four to five years, there has been a growth in an area of the property market often labelled ‘alternative investments’. These investments, if carefully chosen, can provide you with a very healthy passive income stream.

And it’s within this niche that Avantis Wealth was formed to help the beleaguered buy-to-let landlords and save would-be landlords from the hassle of a low income. All the investments we offer give our clients predictable hands-off passive income.

We use our unique F.R.E.S.H. Investment tool to choose the best of the best property-backed investments, that typically offer fixed rates of return between 7% to 15% p.a. Unique to Avantis Wealth, F.R.E.S.H. simply stands for:

F - Fixed income - a fixed income you can rely on

R - Rewarding returns - typically 7%- 15% annually, sometimes more

E - Exit strategy defined - knowing when the investment matures with confidence you can exit

S - Security in place - to protect your capital in the unlikely event of a problem

H - Hands-off - more time to get on with your life because you won’t need to get involved!


We favour these types of investments because they are often structured with a high level of security being secured against land and or property. Typically, by way of a first legal charge over the underlying asset.

We believe this structure mitigates much of the investment risk, since in the event that the worst should happen, there is an asset, namely the property and or land where the investors collectively have a first legal charge to be disposed of so that investors get their money back.

Let’s take a look at an example of a F.R.E.S.H. Investment:

Established German property developer


As our most requested investment, now with a history going back more than seven years and a track record of making all interest and capital payments on time, this German property developer bears close examination. The company focuses on the listed building sector in Germany, and offer investors a unique opportunity to play a part in restoring historic buildings in some of Germany’s oldest cities and offering these distinctive buildings a new life.

Following exceptional due diligence, the company develops high-end apartments within historic buildings which are then sold to high net worth German citizens. These citizens can take advantage of a unique tax break. The company has been consistently rated as one of the top German companies in terms of creditworthiness.

There are two options available:

Capital Growth Option - Investors opting for the 2 or 5-year term option may choose the Capital Growth Option. The Capital Growth Option automatically sees the Investors interest and capital rolled into new German Listed Building Projects for the duration of their chosen term – thus accessing the benefits of compound interest. There is a bonus of 2% (2-year option) or 10% (5-year option) for clients choosing capital growth.

Income Option - The Invest for Income option permits the Investor to choose either the 2 or the 5-year term. The Investors Capital is committed for the full term but interest payments are made to the Investor on a six-monthly basis

This investment, while popular for direct cash investment, is by far and away our best-seller for pension investment. The minimum investment is £10,000, making it very accessible in comparison to purchasing a buy-to-let, particularly if you're looking for property in London and the South East. Investment summary:

GERMAN LISTED BUILDINGS

  • £10,000 minimum investment
  • 10% per annum
  • 2 and 5-year options available
  • Bonus 2% on 2-year, 10% on 5-year deferred income
  • 5-year deferred income offers 60% return!

 

Next steps

This is just one example of how potential investors who like property as an asset class, but want to be fully hands-off can achieve double-digit returns, that would be the envy of the many millions of hassled landlords.

So, whether you are looking to make your first property-backed alternative investment, or simply moving out of traditional buy-to-lets contact us. Find out how we can deliver consistent predictable returns across a range of high performing opportunities for cash, pension and ISA investment.

Call our friendly investment broker team on +44 (0)1273 447299, email invest@avantiswealth.com or complete the form here.

Gavin O'Brien, Marketing Director 

As always this article is not to be deemed as advice. It is the writer’s personal opinions. No decisions should be made based on the contents of this article but further professional advice should be sought from a regulated financial advisor.

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