For many people, being a landlord is an attractive prospect and a solid investment for the future. But what exactly does it take to become a landlord, and how do you make it happen? It’s true that there’s a lot to think about. But fortunately, the road to property investment can be broken down into a handful of key steps. Do your due diligence at every one, and you will be well on your way to success. Here is everything you need to know about how to become a landlord.
Understand Your Responsibilities As A Landlord
As with any new venture, before you take the plunge you should always do your research. Being a landlord can be very rewarding, but is also a big responsibility. By law, there are various things you must do in order to become a landlord in the UK. Here is an overview of the main responsibilities.
Minimum Property Standards
When letting out a property, you must ensure that it is safe and free from health hazards at all times. This includes:
- Making sure that all gas and electrical equipment is properly installed and maintained
- Providing smoke alarms and carbon monoxide detectors
- Making any major repairs promptly
If your property is not up to scratch, your tenants may report it to the local council. This could result in an inspection and, in the worst case scenario, you could be prevented from renting it out until the issues are resolved.
Part of the rental process involves the payment of a security deposit by any new tenant. In the UK, you are obliged to protect the deposit by placing it into a government-approved deposit scheme. These are designed to protect your tenant’s deposit by making sure it is returned to them if they have met all the terms of the tenancy agreement, paid the rent and bills and not caused any damage.
It is your responsibility as a landlord to make sure your tenant has the right to rent property in England. You must check the rights of every single tenant, even if they are not named on the tenancy agreement. Note that it is against the law to only check the rights of renters who you don’t believe are British citizens. You are required to run checks on everyone, regardless of their nationality.
Once you have found a tenant, you are also obliged to provide them with a copy of the government-written ‘How To Rent’ checklist. This guide provides information and advice for getting problems fixed in rented accommodation and what to do if things go wrong. The checklist is available for free on the Gov website and can simply be emailed to your tenant.
As letting out a property is a source of income, you are required to declare that income and pay the subsequent taxes every year. If renting out a property falls under the government’s definition of running a business, then you will also need to pay Class 2 National Insurance.
Taxes can be confusing at the best of times, so you may want to enlist the help of an accountant to make sure everything is in order. An innocent misunderstanding could result in some harsh penalties or fines.
Find The Right Property
The property you buy can make or break your career as a landlord. It’s one thing to find a home for yourself, but when you are looking to generate rental income there are many different aspects to think about. The first step is to get familiar with the property climate in your desired area.
Take your time to research homes in the area by scouring rental listings on Rightmove and Zoopla to see what is available. Speak to local lettings agents to get a feel for the rental market and what kinds of homes are in demand. The more effort you put in at this stage, the more confident you will be in finding the right property.
Old Or New?
As well as considering the size and location of the property, you will also want to consider whether a new build or an older home is the right choice for you. There is no right or wrong answer as both types of properties come with unique benefits. While a new build will generally require lower maintenance costs but will be more up front, older homes are often in established neighbourhoods and you may be able to strike a better deal.
Your Ideal Tenants
Once you have a good idea of the kind of property you want to buy, think about the specific types of tenant who would be best suited to the home. Students, young professionals and families all have different requirements, so it’s important to think about that during the house hunting process. If you don’t, you risk buying a property that you could struggle to rent out, and each month it sits empty is a month that you lose money.
For instance, an unfurnished, 3 bedroom home may seem ideal for a young family. However, if it’s not near to the local school this could put potential renters off. Similarly, if you want to offer shared accommodation but you need to walk through one of the bedrooms to reach a bathroom, the property may not fit the bill.
If you are buying a property to let it out, you will need a different kind of mortgage than the one you have for your own home. Buy-to-let mortgages typically require a higher deposit (normally around 25%), and interest rates also tend to be higher.
Note that if you decide to rent out a property you already own and are currently living in, you will need to inform your mortgage provider of your intentions. Not telling them will infringe upon the legal terms of your initial agreement. This can have dire consequences if they find out. Not only could they demand the full mortgage amount from you, but in the event of major damage from a flood or fire your insurer could refuse to pay out.
Calculate Your Rental Income And Expenses
In order to make money as a landlord, you need to have a clear picture of how much the property and rental costs will be. As well as the obvious expenses, like the monthly mortgage repayments, you must also consider things like:
- Maintenance and repairs
- Insurance premiums
- Advertising costs
- Accountant’s fees
- Property management fees
You will also need to estimate the impact of any period where the property is empty. On the flip side, there are also many expenses you can claim against your tax bill that will help towards lowering your outgoings. These include many of the costs listed above as well as a portion of the interest on your mortgage payments.
Margins on property investment are often fairly small, so it’s important to be smart about where you spend your money. Generally speaking, you will need a 5% yield (how much profit you make in a year) to generate income. For example, let’s say you receive £15,000 a year in rent on a property worth £300,000. To find the yield, you would divide 15,000 by 300,000 (= 0.05) and multiply that by 100 to get the percentage. In this example, 0.05 x 100 = 5, leaving you with a 5% yield.
Again, this is an area where you may want help from a professional, particularly if you are just starting out. A letting agent, property manager or an accountant who specialises in property rentals will help you run the numbers and make sure you are heading for a profit. Make a mistake at this point and it could prove extremely costly in the long run.
Find A Suitable Tenant
Finding the right tenants for your property is a huge part of your success as a landlord. We’ve all heard the horror stories of people who stopped paying rent for months at a time or even trash the home. End up with a nightmare tenant and it can not only cause you great financial hardship but a lot of stress and worry.
Finding the right tenants starts at the advertising stage. Making sure that your property is being adequately advertised will give you a good pool of people to choose from. Taking the time to meet prospective tenants in person is essential. This way, you can get to know them a little better and get a well-rounded first impression.
Using a letting agent or property management can be invaluable in sourcing high-quality tenants, particularly for first-time landlords. They deal with prospective tenants day in, day out, and know the right questions to ask and exactly what to look for. A good letting agent will also be proactive in finding tenants. This helps to minimise time that your property sits empty without compromising on unsuitable residents.
The Importance Of Referencing
While there are never any guarantees, proper tenant referencing offers additional security and peace of mind. Even if you choose to find tenants yourselves, it’s well worth the extra cost to run reference checks through a third-party company.
Generally speaking, they will require references from previous landlords, proof of income and the nature of the tenant’s employment and copies of their bank statements. All of this information will help avoid any issues down the line with non-payment of rent or other disputes.
Once you’ve found good tenants for your new rental property and all the paperwork is in place, then you have officially become a landlord. Congratulations! While there is still work to be done, once you have secured a property and your first tenant, you have made an excellent start in investing for your future.
If you would like a helping hand with the running of your property, Oasis Living would be happy to help. To find out more about our property management services, please feel free to get in touch via our contact form. Not ready just yet? Follow us on social media for more landlord tips and advice.