For buy-to-let landlords, void periods – those gaps in between tenancies where you receive no rental income from your property – can be both inevitable, and a recurring problem. Research by Direct Line last year revealed that the average loss to a landlord due to void time is just under £550 every 18 months. Over the lifetime of a property, that can really add up.
Direct Line’s figure was based on an average void period of 22 days between a tenancy period ending, and getting a new tenant into the property. If you are unfortunate enough to have bought property in an area with volatile rental demand, the financial impact could be even worse – especially as your property-related expenditure over that period, such as mortgage and insurance payments, must still be paid regardless of whether the property is tenanted or not.
Minimising void time
Most property investors accept void periods as an unfortunate but unavoidable reality of letting to private tenants, and it’s often a good idea when working out the financials to figure in a void period of at least one full month in each year when there will be no rental income. Having said that, there are a number of things that landlords can do to minimise the impact of void time – and that starts before you even buy the property and begin letting it out.
Do your own research in the area that you’re considering buying, taking into account both rental demand and the wider property market. Always remember that you want to consider past trends, not just a snapshot of current market performance. Some areas display consistently strong rental demand, but in other regions demand can be more volatile or cyclical. Also consider whether there are any local factors that might affect rental demand in the future, for example plans to build affordable housing (or local authority/housing association properties) nearby.
The rental market can be competitive, so ensure your property is decorated, furnished and outfitted to the best possible effect within your planned budget. Look carefully at rent levels in your area and take these into account when working out how much to charge in rent; as an investor you want to maximise your income, but renters can be highly price-sensitive, and pitching your price just 5% too high could have a direct impact on your void time.
Get good tenants and do your best to keep them. Vet any prospective tenant thoroughly (or ensure that your letting agent does) and on top of this, build a profile of your ideal tenant and advertise appropriately to attract the right type. Once you have a tenant in the property, be the best landlord you can; good tenants deserve to be treated well. Retain tenants by respecting their rights and ensuring any complaints or requests for repairs are dealt with promptly.
If an existing tenant does decide to move on, then in most cases you will have at least one month’s notice. Make good use of that time, and ensure that either you or your letting agents are pulling out all the stops to advertise to prospective new tenants. If there is going to be a void period before the property is let again, you should also consider taking the opportunity to redecorate or refurbish as necessary to ensure the property is as attractive as possible to new prospects.
If you expect your property to be without a tenant in the short to medium term, Airbnb could potentially provide a way to maintain an income stream during the void period. Founded in San Francisco in 2008, Airbnb is an online marketplace that connects hosts looking to let out a room – or an entire property – with guests who need somewhere to stay, typically on a short-term basis. Stays can range from overnight to longer-term accommodation. In Greater London, the maximum stay is 90 days, unless you have appropriate planning permission from the local authority.
Homeowners across the UK are taking advantage of the “gig economy” nature of Airbnb to supplement household incomes. The number of guests using the service in the UK has shot up 80% over the past year, with around 64,000 room and property listings in London alone. Airbnb collects and processes guests’ payments through a secure online system, deducting a 3% service fee.
If you own the property outright, then the main constraint that may apply to letting it out via Airbnb is in the case of local planning rules restricting the usage of properties; if in doubt, check with the local authority whether any such restrictions exist. If you don’t own the property outright but have a buy-to-let mortgage secured on it, the situation becomes a little more complex. Airbnb is a fairly new innovation in the UK property market, and lenders vary in their approach.
Some lenders allow Airbnb-type lettings provided you request their consent in advance, while others, such as Nationwide, explicitly don’t allow this type of letting on their buy-to-let mortgages. Some other lenders have more specific rules which effectively prevent letting all or part of the property on a short-term basis; for example, RBS buy-to-let mortgages stipulate that tenancy periods must be for a minimum of six months, while many other lenders require that all lets be covered by a standard tenancy agreement.
If you are in any doubt whatsoever about whether such short-term letting is permitted by your mortgage conditions, get in touch with your buy-to-let lender. If you don’t, you could be in breach of the mortgage terms and, in theory, the lender could request immediate repayment of the loan.
Other factors to take into account
You won’t be able to vet short-term Airbnb guests in the same way that you would a longer-term tenant, but you can view the user’s profile on the Airbnb platform and ultimately have the freedom to approve or decline any guest who wants to stay at your property. You can also limit the reservations you accept to only guests who have been approved by Airbnb’s “Verified ID” procedure.
You can set your own price, but remember that you may have to factor in costs – such as utility bills, council tax, and phone or broadband services – that would usually be paid by the tenant under a normal tenancy agreement. You also have to provide Airbnb guests with basic amenities such as bedding, soap and toilet paper.
In terms of protecting your property and any furnishings it contains, you should check with your buildings, contents or landlord insurance provider whether the policy will continue to provide protection in the case of a short-term let with no tenancy agreement in place. In any case, Airbnb provides its users with a Host Guarantee which – with certain limits and exclusions – covers property damage up to the value of £600,000.
Airbnb also automatically provides Host Protection Insurance, which gives more specific cover up to the value of $1,000,000 in the event of third party claims of bodily injury or property damage from a guest. Between the Host Guarantee and Host Protection Insurance, property owners can have a degree of peace of mind even if the worst should happen. As a final level of protection, when listing a property on the Airbnb platform it’s possible to make reservations subject to a refundable security deposit, which can help cover minor breakages or damage.
Don’t discount the gig economy
When it comes to void periods in your rental properties, prevention is definitely better than cure. Offering clean, well-maintained accommodation at a competitive rent level – and treating good tenants well – can help minimise void time, if not completely eliminate it. If and when a tenant does choose to leave, push your marketing efforts into overdrive to get a new tenant in there as quickly as possible.
However, if a void period is unavoidable, don’t discount taking advantage of the gig economy and using Airbnb – or similar schemes such as HomeAway or OneFineStay – to maintain an income stream while you try to attract a new long-term tenant. It can take a bit of work and background research – including checking things out with your local authority, lender and insurance provider – but done right it can help fill what could otherwise be a period of financial loss on your property investment.