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25mnb's blog From the outside, being in the property market often looks like a win-win situation. Once the initial hurdle of raising the finances to buy property is overcome, many might imagine it's simply a matter of sitting back and watching the rental income roll in. Property prices seem to always be on the rise, so even if a company isn't renting, it can still make a healthy profit from selling its property on just a few months after purchase, right?

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Of course, it's never as simple as that. Property prices can go up as well as down, even in a fast-growing market. Rental income can never be relied upon, and an empty property can very quickly become a drain on a company's financial resources, rather than a source of revenue. Tenants, whether private or commercial, can sometimes be more trouble than they’re worth. The cost of their demands in material and labour alone can cancel out that month's rental profit. Then there are the ones who simply don't pay on time or who cause such serious difficulties that they have to be evicted, at yet further cost. Already the picture is nowhere near as rosy as was first imagined, without even considering tax, insurance and other running costs.

Complex issues

The above drawbacks are merely the standard headaches that any property company must expect to deal with. However, issues that are more complex can also arise. For instance, a company might purchase a property that has far more problems than were initially apparent. These might include subsidence, damp or other structural problems. Establishing who is legally responsible for these issues will cost time and money even before the expense of physically fixing them, if it does turn out that doing so is the buyer's responsibility.

Being prepared

A good property company should be prepared for such eventualities at all times. Even if a company isn't large enough to have a dedicated legal and financial department, it should ensure that it has staff with a wide knowledge of all aspects of property business that know how to handle any situation that might arise. Emergency funds should be available at all times without having to draw on rental income. There should also always be enough money to keep the company in the black and to pay staff wages if rental income ceases for up to three months.

Smaller companies

Of course, for new landlords and smaller property companies, this isn't 
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always possible. In such cases, it's best to get outside help. Accounting and book-keeping services can be taken care of by a company like Pocket Accounts, while a good insurance broker can advise on rent guarantee insurance and legal expenses cover, which can be used to provide income and cover costs during an eviction process. Getting the proper insurance is something that many smaller property companies often overlook, which can cost them plenty down the line. They also need to be aware of their current tax obligations, particularly regarding the changing rules on stamp duty.

The point to remember is that rental income can't be relied upon in order to cover running costs and emergencies. These need to be carefully budgeted for with a separate sum available to meet them, at least initially. This can then be topped up from rent and property sales, but an accurate understanding and forecast of outgoings and likely income is essential. The finances won’t just take care of themselves, and if accounting can't be handled in-house, then paying a reputable outside firm to handle it will be well worth whatever they charge. Property is an up and down business, and a steady hand is vital to keep things on an even keel.