As all landlords will know, tenants do not stay in buy-to-let properties for ever. After a period of time most tenants will begin to consider upsizing, downsizing, buying their own property or moving for work. It is part of the natural life cycle of being a tenant or a landlord. When tenants do vacate a property, this often causes void periods – the period of time between the old tenant moving out and the new tenant moving in.
Void periods are without doubt one of the key factors effecting the profitability of a buy-to-let property. During a void period, properties produce no income whilst still being liable for mortgages, maintenance, insurance and other related taxes and charges. As such, extended void periods can have significant negative impacts on both the monthly cashflow and end of year profitability of buy-to-let properties.
Professional landlords and investors will seek to manage void periods as a tool to increase profitability. Decisions to effect and manage void periods can be taken before one even purchases a property.
What are Typical Void Periods?
All by-to-let properties will experience void periods at one time or another. Depending on the tenant and the property, void periods could be an annual occurrence or a once in a decade event. What is definite is that they do occur. The question that landlords must ask is, what is a reasonable or average void period?
A survey of 200 UK based landlords from 2013 until 2019 by Statista suggests that a typical property will experience an average void period of around 3 weeks per year. Whilst this has varied historically and has been as low as 2.4 weeks, it would make sense to use 3 weeks as a good rule of thumb. Though, this will vary by region, with London and city centre locations typically having lower void periods.
The Financial Implications of Void Periods
Void periods combine an unpleasant mix of increased costs and lack of income. Professional landlords will want to work-out the potential costs of void periods so that they can plan and invest accordingly. Consider the example below of a one-month void period:
In this example, a small two-bed terrace within a Class-B council tax band might rack up £361.00 in costs during a one-month void period. When you consider the opportunity cost of lost income, this becomes even more stark as the property would be expected to generate a profit of £295.00 during the period (not accounting for maintenance). When the lost income and total costs are combined, the financial difference between a one-month void and the property being tenanted during the period comes close to £650.00. That is equivalent to 18% of the property’s net annual yield.
It is important for landlords to calculate and understand these figures for their properties. Firstly, understanding these figures can contribute towards working out how much cash needs to be kept in the bank as a safety net. Secondly, it supports informed decision making. In the above example, if a tenant offered to let the property for £450.00 per month – £50.00 less than the listed price – the reduced profitability is still less than a one-month void period.
Buying Properties Which Mitigate Void Periods
One of the most important decisions a landlord can make to manage void periods is actually made when they initially choose a property to buy and let out. Geography and property type can influence average void periods. As such, investors and landlords should consider a property’s ‘let-ability’. That is, its attractiveness to tenants and the type of tenants it attracts. Choosing a property with high let-ability will help to mitigate void periods in the future and enhance returns.
Common sense dictates that student-lets are most attractive when they are near universities and student areas. Professional lets are best suited to city-centre or commuter locations, whilst families will want to live in suburban environments near schools and amenities. Determining the type of tenant you wish to attract can help to refine the best areas to purchase a property and the most important features influencing its let-ability.
Once a tenant type and area have been determined, the next step is identifying the key features that the relevant tenant type values in a property. Features which might make a property attractive to families might include reasonably sized but manageable gardens, sufficient internal communal spaces, available parking, and friendly neighbourhoods. Comparatively, a young professional in a city centre location might place more value on modern interiors, concierge or parcel service and sufficient sound insulation. If you choose a property which meets the needs of your target tenant, it will let out far more readily and reduce void periods.
Finally, there are additional considerations to take into account when choosing the type of property. Most flats will have ground rent and service charges. These charges must be paid whether the property is tenanted or not. Consequently, the average monthly cost of flats can be greater than those of an equivalently priced house. This can contribute to a greater negative effect on monthly cashflow for void periods.
Letting a Property is Like Selling A Product
Whilst the first step towards managing void periods is choosing the right property, there are a number of other tips and tricks of the trade which can help to minimise such periods. One of the most important of these is to realise that letting a property is like selling a product. The setting and experience of viewing a property can influence prospective tenants more than you would imagine. As such, landlords might wish to consider the following:
A Clean Canvas
Much like the smell of a new car, there is just something appealing about the smell of fresh paint. View void periods as the opportunity to spruce up a property prior to the next tenancy. A smart decision is to use universal colour schemes across all of your properties. This will save time and money whilst also providing a ready supply of spare paint for touch ups.
Often there is no need to entirely repaint a property. Simply going through and touching up high traffic areas which have been scuffed or marked can make a world of difference. This can especially be the case with skirting boards and door frames.
The Curb Appeal
Some believe that it only takes 30 seconds for someone to form a first impression. With this in mind, taking the time to consider the way in which your property is first viewed can make a difference to its let-ability and help to reduce void periods. Professional landlords might want to consider:
- Pressure washing the entrance path to clean up its appearance.
- Tidying the front garden by painting fences, mowing lawns and pruning bushes.
- Replacing the front windows to enhance appeal (coloured frames, leaded windows).
- Adding a modern exterior light near the entrance.
- Updating the front door if the current one is dated.
The Viewing Experience
Viewing a property should be looked at as an experience. Not everyone has the ability to see potential. As such, not every tenant will see the appeal that you see in a property. However, you can take steps to improve a prospective tenant’s opinion of a property when viewing.
Firstly, unoccupied properties can smell. Anyone coming home from a long holiday will be familiar with the experience of opening the front door and being greeted with an unfamiliar smell. Prior to viewings, landlords can open doors and windows to recycle any stale air. Those landlords using letting agents or without the time to do this may want to consider strategically placing automatic air fresheners in hidden locations.
The second step is to ensure that properties are viewed in the best light possible. Try to arrange viewings through the day when there is sufficient sunlight. When doing so, ensure that all of the blinds/curtains are open and the lights are switched on. Bright rooms appear larger than dark ones.
Finally, create a sense of scarcity. When conducting a viewing, landlords must naturally become salespeople. Good salespeople use techniques to influence the way in which prospective customers view a product. Referring to other viewings and interested parties can suggest that the property is desirable and scarce. Pointing out attractive features can help to reinforce their attraction in the minds of prospective tenants.
Do A Deal
Being willing to offer creative deals and options for prospective tenants can sometimes make the marginal difference between an offer being made or not. You would be surprised quite what deals can be made. Landlords might want to consider offering slightly reduced rent in exchange for a longer fixed term period on the contract. If a particular area or room is of concern, consider offering to add new fixtures or fittings and splitting the cost.
No matter how attractive a property might be, it still needs to be marketed properly. A property which is effectively marketed will hopefully reach the optimum number of prospective tenants and be vacant for less time than one which is not. As such, it is worth considering the different options and considerations available to landlords.
Let Only Agents
The first consideration for landlords should be whether or not they will be finding tenants themselves or relying on the services of a letting agent. Many landlords will choose to engage letting agents on a let-only agreement. In this situation, the letting agent is responsible for sourcing tenants and drawing up the initial contractual paperwork. Once sourced and complete, the management of tenants and properties is handed back over to the landlord.
Whilst let-only agreements come at a cost, good letting agents have access to a network of prospective tenants. What is more, they have the experience and market knowledge to be able to effectively market and display a property. This can help to reduce void times and save landlords time and money.
Current tenants are required to provide notice to landlords before moving out. This is often either one or two months depending on the contract. This period can be invaluable to landlords as an opportunity to advertise the property and arrange viewings before the current tenant vacates.
For some landlords, letting to friends and family is something to be avoided. However, friends and family can also prove to be a valuable source of tenants, either directly or indirectly through their own networks.
If letting a property without a letting agent, consider using social media sites such as Facebook. Facebook has a number of local groups and pages where landlords and tenants can advertise properties for free. This can sometimes be an interesting tool for driving up the number of viewings and prospective tenants. However, be aware that such groups can often be aimed towards specific types of tenants. Advertising on pages which focus on DSS or Student tenants may not be the most productive use of your time if your property is aimed towards young professionals.
The Right Photos
Prospective tenants will filter through hundreds of listings. The right photos can help to make your property stand out. If you are using a letting agent, ensure that they send an appropriately trained photographer to the property and do not be afraid to question the quality of the pictures taken if they are not up to standard.
When letting as a landlord, it can sometimes be a good decision to employ a professional to take photos of your property. They will have the appropriate equipment and will know how to use lighting and angles to take the most favourable photos possible.
Managing Tenants to Reduce Voids
Managing your tenants is one of the best ways of managing void periods. Effective processes and knowledge can put landlords in the best possible position to reduce void periods on a property.
Inspections can be a useful tool for landlords to better understand their tenants and their properties. Regular inspections help to build a rapport and understanding with the tenant. Such interaction can allow for more natural communication and can allow landlords to comprehend their tenant’s future plans. Additionally, such inspections allow landlords to determine the state of the property and what work may need to be done should it come back onto the market.
Regular communication with tenants and a good understanding of the financial implications of void periods can help to refine negotiations. Should a tenant complain about the condition of a certain room or feature of the property, it is important to assess the cost of resolving this against the cost of a void period should the tenant move out.
It is not uncommon to link work, such as a room being re-carpeted, with a tenant signing a prolonged contract and extending their term. Carpeting a room can often cost a few hundred pounds, which will likely come in less than the cost of a three-week void period.
Planning Void Periods
The property market is cyclical. Typically, the best time to let properties is in spring and early summer, whilst the quietest time is October till December. With this in mind, it can make sense to encourage tenants to sign contracts which end during or just before the busier times of the year. This can help to plan void periods and prevent properties from coming to market just before Christmas, when there are fewer prospective tenants.
Landlords with multiple properties will also want to consider the timing of void periods from a portfolio perspective. Whilst it is always recommended that landlords keep a sufficient cash buffer in case of void periods, it can still prove to be a very challenging time should all the properties in a portfolio become empty at the same time. Especially if an unforeseen maintenance cost arises.
Disclaimer: This ‘Landlord Vision’ blog post is produced for general guidance only, and professional advice should be sought before any decision is made. Nothing in this post should be construed as the giving of advice. Individual circumstances can vary and therefore no responsibility can be accepted by the contributors or the publisher, Landlord Vision Ltd, for any action taken, or any decision made to refrain from action, by any readers of this post. All rights reserved. No part of this post may be reproduced or transmitted in any form or by any means. To the fullest extent permitted by law, the contributors and Landlord Vision do not accept liability for any direct, indirect, special, consequential or other losses or damages of whatsoever kind arising from using this post.
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