It could be a financial drain:

• If the value doesn’t grow at least in line with inflation or actually falls, you could lose some of your capital. This is why it’s important to carry out solid research before investing to make sure you buy a property in an area that has stable historic growth and speak to the council and local property experts to find out about future plans and demand for property in the area.

• It requires ongoing capital input to keep it up to standard – do you have enough reserves to cover that? If you researched the local market before you bought the property and budgeted ahead, the rental income should be sufficient to cover the ongoing costs. However, a boiler could break at any time, the property may suffer greater wear and tear than you anticipated and there’s no guarantee that landlord insurance will always cover the full cost of any damage, so you may occasionally need to dip into your own capital reserves. Always make sure you have enough reserves to be able to upgrade both your rental and your own home when needed.

• Your tenant could fall into arrears or you may have an extended void period that means you aren’t getting any rental income. If you rely on the rent to cover property costs and take rental profits to supplement your own income, what would happen if that rental income suddenly stopped? It’s advisable to consider taking out rent guarantee insurance that will cover you if your tenant stops paying, but if the property is simply untenanted, do you have enough savings to subsidise it?

• Your tenant could steal your identity and sell the property without your knowledge. This is very rare, but it is possible for a tenant to assume your identity, fraudulently pose as you, sell your property and disappear with the proceeds. This is something that could be financially devastating for you and your family, but it can be avoided by signing up to get alerts from the Land Registry if someone tries to change the register of your property and also putting a restriction on the property’s title. Carrying out thorough referencing and credit checks before accepting the tenant should also greatly reduce the chance of a criminal moving in.

• Having a buy-to-let mortgage could cause issues with your personal finance. Although buy-to-let mortgages are mainly assessed on the basis of the property’s rental income, you need to be aware that any issues with borrowing that’s in your name could have a knock-on effect. If a lot of credit checks were done while you were trying to find a buy-to-let mortgage, or you fall behind with mortgage payments for your rental property, that could negatively impact your personal credit rating. You should always be aware of the total amount of debt you have and ensure that you’re able to keep up with repayments, knowing that lenders could (although it’s highly unlikely) ask for the debt to be repaid at any time.

• There may be economic and political changes outside your control that affect the viability of your investment. Just because an investment stacks up well today, there’s no guarantee it will continue to work for you into the future. A change in political leadership could result in a shift in legislation and taxation for landlords and, as we saw in 2023, a hike in interest rates could send mortgage costs spiralling.

As a landlord and a homeowner with mortgages on multiple properties, that could put a huge strain on your finances. So, make sure you have a decent amount of equity and a good profit margin that can absorb any sudden increase in costs, and invest in a property for which there’s always likely to be good demand so that you can sell if you need to.

It can disrupt personal and family time:

• There may be constant interruptions from a tenant reporting issues or complaining. Most tenancies do run fairly smoothly, but occasionally you might get a tenant who contacts you about every little thing, regardless of the day or time. That means you may have to answer calls from them during your working day, at the weekends, in the evenings and even when you’re on holiday – and there may be issues that need dealing with right away. If that’s not something you’re prepared to do, it’s probably best to pay a managing agent to handle things on your behalf.

• Dealing with difficult tenant situations can be stressful. As a landlord, you have a duty of care to your tenant and if they are going through a hard time – perhaps suffering a family loss, having problems at work or long-term sickness - that can impact you emotionally.

• If you need to evict your tenant, it can be time-consuming, costly and stressful. If you have to evict a tenant, the reality is that most will leave by the date on the eviction notice. However, if they choose to stay and you are forced to go through the courts to regain possession, that can take many months, during which time the tenant may not be paying rent and could be causing damage to your property – all of which can be stressful and costly.

Taking out rent guarantee insurance with legal cover should take most of the financial pressure off, and using an eviction specialist such as Landlord Action can help give you peace of mind that everything is being handled in the most professional way.

• A tenant may harass you at home. If you are letting the property personally and not through a company, your full name and address will be on the tenancy agreement. That means a tenant who feels aggrieved for any reason could come to your home in person.

You could be subject to penalties if things go wrong:

• Falling foul of the law – even unintentionally – could result in a fine of £30,000 or more. While you are unlikely to be prosecuted for a minor breach of lettings regulations, your local authority does have the power to issue a penalty fine you up to £30,000 without having to go to court. Maximum fines range from £1,000 for not carrying out a right to rent check (although this is set to increase to £10,000 in early 2024) and £5,000 for breaching the Tenancy Fees Act, right up to £30,000 for electrical safety violations.

With around 170 laws and more than 400 separate rules governing the legal letting of a property, there’s a huge amount to know and stay on top of. So the best way to protect yourself is to join an organisation such as www.nrla.org.uk or engage a professional agent that’s a member of Propertymark or RICS to let and manage the property on your behalf.

• If things go badly wrong, you could go to jail, which could be devastating financially and personally for you and your family. As above, the best way to ensure your property is always legally let and professionally managed, and your tenants’ health and safety is never put at risk, is to have a Propertymark or RICS member agent look after it for you.

Other potential issues:

• Changes sometimes happen at very short notice and you have to be prepared to act quickly. For example, during the COVID-19 pandemic, there were frequent changes to the rules around evictions and social distancing that meant landlords couldn’t necessarily gain access to their properties to carry out routine inspections and legally required checks or evict non-paying tenants. And in Scotland there have been temporary rent freezes and caps meaning many landlords’ rental profits have been badly impacted by inflation. This is why it’s important to ‘stress-test’ your rental profits so that you know your break-even point if costs increase and you can’t raise rents.

• Tenants may cause damage, which can be upsetting if the property was previously a family home and/or if you put a lot of effort into renovating it. While most tenants look after rented properties, they may not always take as much care as you would in your own home, and there’s always the chance you could get a tenant who causes wilful damage. That’s why it’s important to think about your rental property first and foremost as a financial investment and try to set aside any emotional attachment. Always take a security deposit (up to 5 weeks’ rent in England) from tenants and check if your landlord insurance policy includes cover for both damage from the elements and malicious damage.

• Passing on property can take time and be costly, and the handover to a new landlord might not be easy. If you’re planning to pass on your property investment to children or other family, it’s important to consult a property tax specialist or wealth manager and a legal inheritance expert as early as possible, to make sure everything is set up in the most appropriate way for both ownership and tax purposes. And make sure you keep excellent paperwork records and that whoever is taking on the rental knows about their legal responsibilities and management demands. The last thing you want is for something that was meant to be a benefit, to end up as a financial and emotional drain on your family!