Have you calculated the cost of your tenant changeovers?
If you’re a property investor, and own rental properties in England or Wales, you’ll be familiar with the Assured Shorthold Tenancy contract. If you’re a budding investor, you’ll need to know this! Typically, a fixed term contract is for 6 or 12 months, with the option to continue on a rolling month by month basis at the end of that fixed term. A good reference point is the
National Residential Landlords Association (NRLA).
That’s great, but many tenants want, and need, a little more stability in their life. Not knowing whether you’ll be required to relocate at two months’ notice, or whether your landlord will renew the contract for another 12 months – that’s a rather stressful situation. Even more so for those who need accessible accommodation, which is currently much harder to find.
Part of my role as a property portfolio manager, is to monitor costs and cashflow for investors. Recently, I’ve been looking at the real costs of a tenancy change for landlords. The impact of the Tenant Fees Act 2019, for tenancies in England - see
UK Govt – adds further to the landlord’s costs. Let’s look at this in more detail.
Costs a landlord might incur.
> At the end of a fixed term or periodic tenancy contract:
- Repairs, maintenance and refurbishment – items not considered fair wear and tear and, as such, not covered by the tenancy deposit.
- Time and effort to liaise with the letting agent on repairs and maintenance.
> During the void period (between the outgoing and incoming tenants):
- Zero rental income until a new tenancy starts – average is 3 weeks but can take much longer - see the Statista figures.
- Council tax liability.
- Utilities – usage and standing orders.
- Time and effort to liaise with the council, the utility companies and the letting agent on all of these issues.
- Mortgage repayments - which still need to be covered.
> When a new tenant is found:
- Tenant-find fee to the letting agent – either a fixed fee or a percentage of the rental income.
- Additional items of furniture or equipment, as requested by the new tenant.
On a property with a monthly rent of £1,000, the tenant changeover (with a one month void period) could easily cost you circa £2,000-£3,000. I should also mention the time and effort needed to deal with the utility providers and local council for the void period bills – this requires a lot of patience.
Therefore, if a property is re-let every 12 months, that’s a huge cost for the landlord. It makes financial sense to minimise the void periods and the number of tenant changeovers, by opting for longer term tenancy contracts. More stability for the tenant and a better yield for the landlord. That’s a real win-win!
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