The Secret Landlord Why it’s now time to sell up

Tenants can barely pay their energy bills, so I’m worried they soon won’t pay me their rent

Having been a landlord for two decades, you develop a sixth sense for when things are about to go south. When Russia invaded Ukraine and Martin Lewis started issuing warnings of future energy price hikes, I took heed.

Energy efficiency has long been a buzzword in my business, and with planned changes on the horizon, any half-awake property investor knows it is all about getting as close to the C grade as possible for energy certification. Of course, with ageing housing stock and Victorian terraces being the staple of many landlords’ portfolios, it’s not going to be an easy task.

The Government may want to cut emissions and hope we all have heat pumps installed and insulation coming out of our nostrils. But wanting, and actually making things happen, are two very different things.

I have tried to do my bit over the years. Every attic has thick loft insulation, and when renovating, I have insulated all the walls internally. All windows are double glazed and gas boilers have been upgraded to the latest model ( before the Government makes them extinct).

The problem is: despite the money I have spent, I am still only scraping a grade D. How I can get to the hallowed C remains to be seen, as without pulling apart the property and insulating every floor and every wall from the outside, it’s just not achievable. It is also not economically viable.

That is why earlier this year, with my mind on upcoming changes to the rules around energy performance certificates and the looming energy bills crisis, I had a rethink.

Instead of looking at the rental yields and rubbing my hands in glee, I asked myself, “Who can afford to heat this home?” While the rental market may be going insane and prices are hitting alltime highs, this is not sustainable.

People only have a limited amount of money and when it comes to choosing if they would rather pay the utility bills to have heat and light, they may well choose that over paying me.

Of course, in the end, the sad truth is, not paying the rent will result in tenants losing the properties they were seeking to heat, but what I was looking to avoid was the interim period – the bit where a tenant doesn’t pay me, but I still have to pay the mortgage and the repair bills. It was this line of thinking that pushed me into selling multiple properties.

Landlord friends of mine were surprised given the high yields on offer, but it’s only a decent return if someone is actually paying the rent. What’s more, the ever-spiralling costs of labour and materials mean maintenance, which has always been a big chunk of my costs, has increased to ridiculous levels.

Couple that with the delays in the court system, and any arrears – even if caught early – could grow to unsustainable proportions.

Thorough tenant referencing, guarantors and rental protection insurance will continue to grow in importance. But, more than ever, the most important thing will be having the right property to begin with.

In a day and age where for some tenants their utility bills will be higher than their rents, the equation needs rethinking. Any property owned now will need to have more money invested into it over the next few years to make it compatible with the new utility-drivenrental-market economy.

Energy Performance Certificates will be studied meticulously by future tenants wanting to know precisely what the running costs are. Those which don’t make the grade will likely fall in price and see reduced tenant demand. That’s no bad thing. But it does mean that landlords need to be prepared to invest in their properties. Without that investment, you will not be successful.