Owning and managing property is not an undertaking for the faint-hearted – even if the returns remain highly competitive against other forms of investment. The UK is something of a haven for property management, remaining a hotbed for buy-to-let landlording despite unprecedented rises in interest rates as part of a wider cost-of-living crisis and despite many losing out by virtue of poor investment decisions.
Indeed, there’s little but one poor decision between profit and loss in UK real estate – which is what makes research the most important tool in your arsenal as a prospective real estate investor. What follows are some of the most common pitfalls in property investment and management and how best they can be avoided for the longevity and profitability of your eventual investment.
Understanding Legal Reforms in UK Real Estate
A smart place to start is with the legal responsibilities a landlord has to tenants in buildings under their ownership. The law is not settled and continues to see reform that seeks to re-empower tenants in a system that previously gave them short shrift.
A landlord unfamiliar with the potential institution of a new Renter’s Rights Bill may find their standard approaches to tenant management suddenly illegal; for instance, the Bill would abolish no-fault evictions, making it difficult for landlords to eject tenants in favour of artificially increasing rent. This example may sound stark, but it is here for a reason – if you as an investor cannot afford the investment in a property, you cannot rely on regular increases in rent to make up the shortfall.
Dispute Resolution and the Role of Legal Professionals
More generally, managing tenanted properties can become something akin to managing tenants; if you do not have the disposition for this, you can expect friction – particularly if you are eyeing a real estate deal on a property that is currently tenanted.
Common sources of disputes include eviction processes, service charge disagreements, and breaches of contract; the law is clear around these processes, but you should not attempt to navigate conflict resolution without professional legal assistance in your back pocket. Real estate lawyers are a necessary provision for the protection of your interests, even if just in an advisory capacity regarding the structure of your holdings.
Navigating Leasehold and Freehold Complexities
Many prospective property owners are keen – a good attribute, but one that plays into naivety when it comes to essential differences between types of property. One key difference is that between freehold and leasehold properties and the resulting responsibilities accordingly. Leasehold typically applies to flats and apartments, where the freehold is held in someone else’s portfolio – leaving them responsible for the management of the building as a whole in return for ground rent from each of the leaseholders.
The government has recently pushed through reforms to legislation around leaseholding, which are set to ensure more rights to leaseholders – as well as systems to mitigate exorbitant increases in service charge fees. If you have intentions of obtaining the freehold for an apartment building as part of your real estate portfolio, you again need to be sure you have the liquid capital to make legally-required investments at pre-agreed service charge rates.
