With the number of landlords in the UK rising to 2.5 million, this lucrative career path and investment option is still proving a popular choice for many. This number could be considered surprising - what with the heavy tax increases and mortgage rules recently introduced to deter buy-to-let landlords from buying up property.
However, there is still plenty of money to be made managing a property and opening it up to tenants. Here, we’ve taken a look into how to become a landlord, what you need to consider and know to make a real success of it.
Why should you consider becoming a landlord?
There are a huge range of benefits that come with being a
landlord. Turning this into your full time job means being your own boss, as
well as being an excellent investment opportunity too.
Savings rates have dropped significantly in 2018, with many
savings accounts failing to pay above the base rate - the lowest level since January 2013. This means investment in other areas could
prove more lucrative than even an ISA or a high interest savings account.
Housing has always been a worthwhile investment and as a landlord your tenants
effectively pay the mortgage, before you enjoy the full rental costs as an
If you work with a letting agent, you’ll pay a fee for them to handle requests from your tenants. This means more time to focus on other investments and business opportunities, while you continue to make money from your rental property.
The basics of becoming a landlord
Essentially, to become a landlord you must:
- Have a property to rent in a good state - your property must be safe, in good order decoratively and the structure sound. This should include ensuring the electrics and fire safety precautions are up to scratch, as well as general painting and decorating. You will be expected to supply both fire and carbon monoxide alarms too.
- Register as a business owner - this is an essential step that can’t be avoided, as anything you make from renting will be taxable. Start by registering for a self-assessment with HMRC and speak to your local government to see what their regulations are.
- Consider how many unrelated occupants it will hold - there are more regulations to consider if the household consists of three or more unrelated individuals living under the same roof as it is classed as a House in Multiple Occupation (HMO). Make sure you double check this when the
tenants apply to let.
- An energy performance certificate - the cost of one of these starts from around £45, but larger properties or houses in cities could cost more. It is a legal requirement to have one; you could be charged £200 if you don’t arrange for an assessor to visit and put together an energy performance certificate.
the right location - where you set up as a landlord makes a huge difference to how well you do. Look around at the typical rental yields for cities close to you - you don’t need to necessarily live in the location your rental properties are in. Manchester currently offers the best rental yield (6.73%) while the historic city of Cambridge offers a very low yield of 2.73%.
- You’ll still have to pay the mortgage and insurance - tenants typically take on monthly bills such as electricity, but don’t expect them to start paying the mortgage and insurance. Always speak to your current insurance provider before renting out your property, as it may be invalid. In that case, you should speak to them about landlord insurance in order to protect your property. Don’t worry about contents insurance though, as this should be covered by the tenant.
- You’ll have to come up with a tenancy agreement and inventory - see the ‘jargon to understand’ section for more information on this.
- Talk to your mortgage lender - if you’re still paying off your mortgage, it’s important you let your lender know of your plans using a consent to rent application.
- Provide a 'How to rent' guide - t
his guide outlines your tenants’ rights and responsibilities. Make sure you send an email copy as well as/rather than a physical copy, so you have a record of it. You won’t be able to serve a Section 21 eviction notice at the end of the notice if you didn’t send your tenant a guide at the start, so beware.
Jargon to understand
Rental yield: An
important figure in renting, as it is the return you can expect to receive on
your property. It is often used by landlords to monitor the value of the
property bought with the intention of renting it out to another person. You
can get mortgages from the bank created specifically for this type of purchase.
Assured shorthold tenancy: This is the most common type of tenancy agreement, it is when the
tenant has a set period of time in which their stay in the property is secure.
This typically lasts for six months to a year but can be extended when
Tenancy deposit protection (TPD): A scheme that protects the deposit given by the tenant. It also offers you protection as it safeguards the money and ensures that the strict rules regarding it have been stuck to. You can end up with a large fine if you don’t put the deposit into a TDP scheme within 30 days. You must return the deposit to the tenant within ten days of agreeing the amount they’ll get back once the tenancy is over.
Stamp Duty: A payment someone must make to the government when buying a house. It is an upfront cost and you can calculate it using the Government’s online Stamp Duty calculator.
Capital Gains Tax On Property: The type of tax that has to be paid on the profit you’ve made from an asset, which is the property you’ve bought as a landlord in this case. You can read more about it here.
Subletting: This is when your tenant begins renting out a part of your property to another person. While this isn’t illegal, the tenant should ask their landlord for permission in advance. However, they could face eviction if they rent out the entire house as they lose their tenant status.
Tenancy agreement: The contract between you and the tenant. This is used to set out
the legal terms and conditions of the property, including when rent should be
paid, when the tenancy will end as well as the general rules you should like
the tenant to follow.
Inventory: A detailed list of everything included in the property as well as the condition of it. This will help you know how much of the tenant’s deposit you should keep back for repairs when they move out.
What else is there to consider?
Consider what rules you want to put into place before the property
hits the rental market or someone might take advantage of loopholes in the
or unfurnished? A furnished property may up the rental value and appeal to those looking to move out for the first time. However, it’s important to remember that furniture may fall under your remit to repair or replace if it breaks. Furniture must be up to a good standard, both safety and quality wise.
or no pets? This is a very important thing to discuss with a tenant before they move in. Pets can cause damage to the property, but allowing them might make the property more appealing to those looking to rent long term. Many landlords ask for a larger deposit if their tenants want a pet to cover any potential damage. If you’re strictly against pets, make sure the potential tenants are aware of the repercussions should they get one without permission.
- Smoking or no smoking? Smoking indoors is a
fire hazard and can cause odours to linger. Discuss the rules around smoking
with the tenants before they move in, letting them know where on the property
is safe to smoke. This could include the front porch or garden.
- How hands on do you want to be? Being an approachable figure may appeal to some
tenants, but you have to consider how much commitment you can give them. A
letting agent can handle mundane day-to-day tasks as well as advertising your
much access will you have to the property? Regardless of if you own the property or pay a mortgage, you can’t walk into the property without giving the tenant at least 24 hours notice beforehand. Think about how many inspections you want to do a year and make sure to give them as much notice as possible.
Although they aren’t always strictly required, here are some additional things to consider:
- Membership of a Landlord Association. - you have to meet their professional standards and pay a fee in order to join, but it helps build your reputation and offers advice from professionals amongst other benefits.
- Solicitors - you’ll want to get rid of any loopholes and ensure the tenancy agreement is reasonable on both sides. Paying out for a professional will give you peace of mind while keeping it fair for you and the tenants. You can pay for this separately, but the landlord association membership fee includes access to solicitor-approved documents.
- Receipts - it’ll be up to you to fix or upgrade parts of the property, so keep all the receipts for everything you have paid out for as it they might be tax deductible.
Finding tenants as a landlord
Now you have the legal side sorted, it’s time to find the perfect tenant. Here are a few tips to do so.
- A picture perfect property - declutter every room and keep it as neutral as possible, take all photos during the day time as the natural light keeps the room looking bright and airy. Tenants will judge your property first and foremost on the photos, so ensure they aren’t bad quality. Take the snaps from the corner of the room to get in as much as possible.
- Where to advertise - some popular housing websites such as Rightmove and Zoopla won’t work with private landlords as a way of avoiding the bad side of the Property Misdescriptions Act 1991. They often leave these sites for online letting agents such as ourselves. You can try smaller housing sites or use other methods such as message boards or social media to search for local community groups to advertise on.
- So you’ve passed the first round of getting the photos right, but what now? - tenants will want to have a look around, so make sure the property is looking its best before booking an appointment with them. Show them all the important features, especially if you’ve included extras that other properties may not have, such as a dishwasher. Let them ask questions and go for a wander around the property on their own. Make sure you ask them some questions about themselves so you can figure out if they’re suitable tenants or not - a viewing is as much about their suitability as tenants as it is about the property.
- Background checks are important - you have to trust your tenant to pay their rent and keep the property looking good, so do a background check before you agree to anything. These checks can be done through The National Landlords Association and include credit history, current debts,
criminal records as well as public records.
There’s a lot to do when it comes to finding a tenant, so why not let us do some of it for you? From advertising the property and creating a tenancy agreement to arranging the viewings, we can find the perfect tenant for your property. Find out more about what we offer here.