10 Top Tips For New Landlords
There are 2,266,770 landlords in England and around 4.85 million homes are let as buy to lets or shared houses. That’s a lot.
There is no doubt that becoming a landlord is increasingly popular, but if it’s something that you are considering you may not know where to start. Don’t panic – we’re here to help.
1. Choosing a buy-to-let property
As with all things in life, especially major purchases, research is key and the number one place to start. Before even getting up from your sofa or desk, assess where is best for you to invest and what type of tenant you want to attract.
Properties near a university are likely to be better for student tenants; whereas a property in a slightly more rural or village location near a good school would be better suited to families.
If you’re considering renting a property to professional sharers as opposed to families, this is a good way to generate more return on your investment, however , you will need to contact your local council to check if you need to register for multi-occupancy to be in line with HMO (house of multiple occupancy) regulations. This often incurs work to adapt the property to meet certain regulations and often the council will refuse permission in certain areas. Therefore, authorisation and advice is key before considering this option.
2. Look in to Buy-to-let Mortgages
If you will be purchasing your buy-to-let via a mortgage, this step is just as important as the first, if not more so. A good mortgage advisor will be able to talk you through everything you need to know about getting a buy-to-let mortgage; from deposits, affordability and fees, to how it may affect your current mortgage and the return on your investment.
If you are buying your property using a mortgage, your monthly repayments are likely to be your biggest regular outgoing. The larger the deposit you have, the better the rates you’ll be able to get. Be sure to speak to a whole-of-market mortgage advisor so that you can explore all of your options without any limitations.
Within your monthly repayments you should also consider maintenance costs of the property you’re purchasing. There’s no exact science to working out maintenance costs but, experienced landlords recommend a ‘little and often’ approach to maintenance, as it will often keep costs down over the long term. As a minimum, budget for costs of about £250 a year.
3. Tax as a resident landlord or non-resident landlord (overseas)
You may need to pay income tax on profit you earn from letting out your property. Your profit is what you have left from your rental income after deducting ‘allowable expenses’.
Allowable expenses include:
- Letting agent fees
- Landlord insurance
- Maintenance and repair costs
- Legal fees
- Gas & electrical certificates
If you live abroad for 6 months or more per year, you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC) – even if you’re a UK resident for tax purposes. You can get your rent either:
• in full and pay tax through Self-Assessment – if HMRC allows you to do this
• with tax already deducted by your letting agent
You will also need to consider the 3% stamp duty surcharge for buy-to-let investors. Before investing, it would be beneficial to discuss stamp duty and Mortgage Interest Tax Relief with your tax advisor.
Wear and Tear Allowance has also been introduced for those letting out furnished properties.
4. Get Insured
It’s not always common knowledge among would-be landlords that specialist landlord insurance is needed to cover rented properties. General home buildings and contents insurance is not usually adequate to cover third party risks.
Having specialist landlord insurance ensures that you limit your exposure to risk, and therefore protects your financial wellbeing as well as your investment.
You can also take out insurances that will cover you if your tenant should fail to pay their rent. If you will be relying on the rental payments to pay the mortgage every month, you can consider this insurance mortgage payment protection. In addition to the rent guarantee cover you can also obtain Rent & Legal protection, meaning the policy will also cover your legal expenses in the event of you needing to take the tenants to court for any reason.
Your lettings manager and/or mortgage and protection advisor will be able to discuss your insurance options with you.
5. Consider periods without income
It’s possible that there may be periods in between tenancies that there is no rental income, known as ‘Void Periods’. There are of course ways that you can avoid this, however you do need to consider how you would cover any monthly outgoings on your investment should the property be vacant for any period of time.
With an Assured Shorthold Tenancy Agreement, void periods should be covered as you will have a legal document in place to cover you for the full term that the tenants occupy the property. In the case the tenants need to vacate, they can only do so at the end of the term of the contract unless you are on a rolling periodic tenancy, in which case one month’s written notice will apply to any tenants looking to vacate. This should be adequate time for your agent to find new suitable tenants, however it is always important to ensure you are covered. Certain insurances can also cover you for void periods.
6. Know the law
There are a number of rules and regulations you should know when you become a landlord. These include safety responsibilities, energy efficiency, right to rent checks and different types of licencing. Your lettings manager will talk through all of the above with you and advise you on what we, as the agent, can organise for you and what you will need to do yourself.
Documentation required under these rules and regulations include:
- Energy Performance Certificates or commonly known as an ‘EPC’. These are required to let a property within the UK and the rating has to be above an E39 to pass current regulations. If you don’t have a valid EPC in place or it doesn’t meet the criteria then you’ll need to get a new one done. Certain work may be required to bring the EPC up to regulations. The good news is they are required to be renewed every 10 years, so it’s not a regular expense.
- Gas Safety Certificates are also a legal requirement, and these are required to be renewed on a yearly basis.
- Other safety certificates required would be Electrical Safeties & Fire Safety.
We would advise you to brief yourself on The Tenant Fees Act 2019, which came in to force earlier this year and revokes landlords and agencies ability to charge tenants fees.
7. Calculate the Yield
Rental yield is one of the most important considerations for any landlord. Yield is the financial return you are able to achieve on a rental property. Not only does it help you to decide whether or not a property is a sound investment, it is also used as a factor for lenders when considering the affordability of buy-to-let mortgages.
Your mortgage advisor will be able to help you calculate the net yield (which excludes running costs and other expenses), but in the interim you can use this calculation to figure out the gross yield:
Firstly, find your annual rental income amount, then divide this by the property value. Finally, multiply the figure by 100 to get the percentage.
For example, consider if you paid £100,000 for a flat and you received £200 a week in rent. This would bring your annual rent to £10,400.
£10,400 / £100,000 = 0.104. Multiply by 100 = 10.4%
A good rental yield is around 5-6% or more. This can vary depending on the location you are looking to invest; therefore, speak with local agents who will advise you on a good yield within the area.
8. Consider the service level that’s right for you
There are 3 levels of service that we offer our landlords:
This level of service is, as the name implies, where we would simply source a suitable tenant on your behalf. We would conduct tenant referencing checks, right to rent checks and produce the tenancy agreement; but you would be responsible for arranging everything else and managing the tenancy.
The next level of service is Rent Collection, which includes everything covered under Tenant Find but we would collect your rent on a monthly basis and provide you with monthly statements, annual income and expenditure reports, rent arrears & recovery, serving all legal notices, tenant checkout service and Deposit reconciliation.
Our most comprehensive service and the level of service we would absolutely recommend to first time landlords. Within this package we cover absolutely everything for you, so whilst you will always know what is going on, you can relax in the knowledge that it’s all being dealt with by experienced professionals on your behalf.
See what our fully managed service includes here.
9. Ensure you have a detailed Inventory & Schedule of Condition report
An inventory is a document that contains a list of everything provided within the property for use by the tenant, with a description of the items, including their age and condition. The report will also include any areas of the property that have been damaged (such as cracked paint, a hole in the wall where a picture hung etc…)
This document is produced by a third-party organisation prior to the tenants moving into the property and it is are your proof of the property’s condition prior to the tenants moving in. Without a detailed report of the property’s condition and the items included in the tenancy, it can be difficult to claim from the deposit in the event of a dispute.
10. Assured Shorthold Tenancy
When you let out a property, the tenancy will now automatically be an assured shorthold tenancy (AST) under the Housing Act 1988 – unless you specifically agree another form of tenancy in writing.
In summary this means:
• You have a guaranteed right to get your property back after six months
• You can charge a market rent
• You can get your home back before six months if the tenant doesn’t pay the rent – but it must be at least eight weeks owing
If you are left with any questions after reading this article please feel free to contact our Lettings Manager or in-house mortgage team.
Sources: mydeposits.co.uk; propertywire