The Business of Buy-To-Let – Asset Management

The Business of Buy-To-Let – Asset Management

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All businesses have assets. Asset management is generally defined as the process of making the best use of these assets to maximise value and provide the best possible returns. In a buy-to-let property investment business, the primary assets are the physical properties, and these properties must be managed and maintained on an ongoing basis.

Consequences of neglect
Financial constraints certainly curtail the ability to tend to the seemingly never-ending requirements to patch, paint, repair and replace fixtures and fittings, and to deal with mould, pests and normal wear and tear.

However, the long-term consequences of neglecting regular maintenance are far more costly. Experts estimate that the cost of delayed maintenance can be as much as 15 times more than the cost of the required ongoing maintenance, as small repairs and routine maintenance turn into major problems. Furthermore, poor maintenance will dampen growth in the value of the property and make it increasingly difficult to find quality tenants and collect market-related rentals.

Professional approach
There are numerous simple strategies buy-to-let business owners can implement to ensure regular maintenance on their properties, and to harness the full benefits of such regular maintenance. A professional approach to maintenance commences even before the property is acquired and continues for as long as the property is held.

Thorough inspections  
Acquiring a quality property off-plan, provided that the developer is registered with the NHBRC (National Home Builders’ Registration Council), should delay significant maintenance costs for two or three years. Nevertheless, the buy-to-let business owner should thoroughly inspect the property before making an offer.
Acquiring an older property exposes the buy-to-let business to increased maintenance risk. To manage this risk, a NACHI (National Association of Certified Home Inspectors) registered property inspector should be appointed to inspect the property thoroughly and provide a report detailing defects, repairs and maintenance issues, as well as the cost of attending to these, to inform the buying decision.

Cash flow considerations
The cost of regular, ongoing maintenance should be factored into the property cash flow projections when considering a property, using custom-designed software such as the P3 Property Wealth Manager. This ensures informed decisions are made about the return on investment of the property under consideration, given the maintenance requirements and the expected ongoing costs thereof.

Building up a reserve fund
As a property ages, the maintenance and repair requirements increase. Recognising this risk, buy-to-let business owners build up a reserve fund for unexpected repairs or major maintenance beyond the regular, ongoing maintenance budgeted for in their cash flow projections.

Professional asset management in a buy-to-let business will not only manage the cost of regular, ongoing maintenance and reduce the risk of unexpected and significant maintenance and repair costs, but will also ensure that the property asset appreciates in value over time.

Disciplined maintenance schedules
Asset management should incorporate maintenance schedules, including regular inspections and maintaining good relations with tenants, to ensure buy-to-let business owners are always informed of maintenance and repair requirements or potential problems. These can be attended to swiftly, as both ongoing, regular maintenance, as well as unexpected repairs, are budgeted for. This ensures minimal disruption to the tenants and prevents delays which could escalate the costs involved.

Quality contractors
Buy-to-let business owners should appoint only reputable, reliable contractors who will attend to the maintenance and repairs professionally, swiftly and cost-effectively and will provide the necessary guarantees and warranties.

Accurate record-keeping
Keep accurate records of all maintenance and repair issues, and file quotes, invoices, guarantees and warranties in an easily accessible manner. This not only prevents disputes with tenants, but also ensures that the costs are factored into tax calculations.
Professional asset management in a buy-to-let business will not only manage the cost of regular, ongoing maintenance and reduce the risk of unexpected and significant maintenance and repair costs, but will also ensure that the property asset appreciates in value over time.

By Gert van Staden

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