It’s a great way to make a living, providing people with a place to live and making a nice profit while you’re at it. Are you considering letting a property, and if so do you know everything you need to know about how to become a landlord? Read on to find out the ins and outs of why it’s a good decision in the first place, preparing to become a landlord, the costs, your responsibilities, the paperwork and more. By the end of this article you’ll be confident in making the right decision around becoming a landlord.
Why Become a Landlord?
It isn’t unusual. People often consider letting their properties rather than selling them, avoiding the expense and hassle of selling when there’s no pressing need to sell. Others buy specifically to let.
Becoming a landlord can deliver a handy income stream while you still own the place, making the most of what is an enviable asset and a positive long term investment. It’s no surprise there’s been such a dramatic hike in property rents over the past ten years, making this kind of opportunity a very good bet compared to the low bank interest rates we’re still seeing. In a world where rental properties are a great investment, here’s how to grab some of the benefits for yourself.
Preparing to Become a Landlord
Like all important projects, this one deserves very careful planning. Plan first, avoid problems later. So what are your main preparatory considerations? First think about the property itself, the size, location and condition. How desirable is it for working families, singles, couples, people on benefits or whoever else is in your main target rental market? Then examine the rental market in your area and the demand for your kind of property.
Once you know people are going to want to rent a place like yours, and they’re doing so locally, there’s more to decide. Will you offer it furnished, unfurnished, or somewhere in between? Will you let your tenants smoke? Do you want to let to students or avoid them? How about people with small children or pets? If pets are OK, are there any pets you’d want to ban – snakes and reptiles, maybe?
How about yourself, your own involvement? Will you use a letting agent or DIY? If you want to use an agent, find out what it’ll cost you for the different types of letting management services.
Plan your best and worst-case scenario, as you would when planning for business. Can you survive if the worst thing happens – maybe a sharp rise in your own mortgage interest rate, or a dramatic fall in demand for rentals like yours? Do the sums so you’re prepared for whatever happens.
Costs of Being a Landlord
Again like all good businesses, you’ll need to assess and forecast all the various costs involved in property rental. This will drive how much you need to put aside as a contingency fund, for unforeseen emergencies as well as predictable costs.
Bear in mind you’ll need to talk to your existing mortgage lender, since many won’t allow you to let your place on a standard mortgage. You’ll need written consent. They might be able to transfer you over directly to the right sort of commercial mortgage deal, or you might have to re-arrange your finances with them or a different lender.
Be prepared for the costs of repairs, and formally set down the things your tenants are responsible for, for example light bulbs. Check with your insurer, since you probably won’t be insured under your regular home insurance policy. You’ll need commercial property cover for the buildings, and cover for the contents if you’re providing it furnished or part-furnished. And make sure you have a current Energy Performance Certificate or EPC, costing anything from £50 to £100 and a legal requirement for landlords. .
If you’ll be using a letting agent, know your agency fees and take them into account. And don’t forget the solicitors fees involved in checking and confirming the tenancy agreement.
Property landlords have some serious responsibilities. These are the main ones. For a start, as we mentioned, you’ll be responsible for the property building insurance and potentially any contents you provide to the tenant as part of the agreement. Appliances and furniture maintenance are important when you let the property with appliances and furniture – you’re responsible for their maintenance and they must meet government standards.
You have safety responsibilities, ensuring the place doesn’t present any hazards. That means gas safety, electrical safety, fire safety, and providing suitable smoke alarms and carbon-monoxide alarms. You’re tasked with looking after the tenant’s deposit securely, so you can pay it back when they leave, and you need to inform your tenants of exactly when and how you’ll collect the rent.
It’s your job to make sure the property is fit for human habitation, another legal requirement. It involves making sure the place hasn’t been neglected, isn’t in bad condition or unstable, damp or laid out unsafely. There must be enough natural light and enough ventilation, and problem-free supplies of hot and cold water. The drainage and lavatories must be in good condition and it has to be easy to prepare and cook food, and wash up. In total there are 29 hazards set out in the Housing Health and Safety (England) Regulations 2005, so it makes sense to find a copy and make sure you’ve dealt with them all.
Essential Paperwork for Landlords
Letting involves paying close attention to the paperwork, and there’s quite a lot of it.
- Written permission from the mortgage lender
- A Property Energy Performance Certificate – since 2018 landlords can’t legally let properties with EPC assessments lower than ‘E’
- Tenancy agreement – ideally vetted by a solicitor, this is the contract between you and your tenant
- A detailed Inventory – For furnished or part-furnished lets, list and describe the condition of the appliances and furniture. Photos and video can be helpful
- Gas certificate – If the property has any gas you’ll need to arrange for a yearly assessment and certificate
- HMO Licence – If you’ve let to several tenants not from the same family, it’s a ‘House in Multiple Occupation’ – and you’ll need a licence if it’s 3 or more. There are different rules in Scotland and Northern Ireland.
- Information for tenants varies in England, Scotland, Wales and Northern Ireland. In England landlords have to provide tenants with a copy of the government’s ‘How to Rent’ guide.
Determining Rents and Deposits
So how do you, as a prospective landlord, assess and calculate your property rental price and deposit? The Tenant Fees Act, which came into effect in 2019, says the deposit is dictated by the amount paid annually in rent, and it’s enshrined in law. As long as your annual rental is less than £50,000 you can ask for a maximum of five weeks rent for a deposit. If you get more than fifty thousand a year in rent you can ask for six weeks rent as a security deposit. The amount you charge is based on your costs as the landlord, and the local rental market value.
Simply jot down all the annual property costs you’ll face then divide the total by 12 to get the amount you can charge per month, checking to see if similar properties in the same area and condition are being let for.
Find the Right Tenants
Now you’ve prepared everything and know exactly where you stand financially, it’s time to find some great tenants. How do you do that? It’s easy when using a letting agency. Let them know the kind of people you want as tenants , the kind of people the place is most likely to suit. Is it young families, couples with pets, groups of individuals, students, or a single person?
If you’re doing it yourself, can you get a word of mouth recommendation from friends, family or colleagues? If not, advertise. Bear in mind you need to say the right things to attract the people you want – it’s a marketing job. You’ll need to create an accurate, representative property description for the place, with all the details a tenant might need, as well as great images and ideally video.
Be prepared to show people around and answer questions. Know you must always comply with the Equality Act 2010, which forbids unlawful discrimination. And be prepared to do background checks, either yourself or via an expert. You’ll need to take up people’s references from previous landlords before you say yes. It will probably help to jot down a collection of essential basics to ask people, which’ll help you make the best decision.
So how do you feel about becoming a landlord, now you know what’s involved? Are you inspired? Do the costs stack up against the potential profits, and can you build up a margin against disasters? If so, and you’re not going to let your own home out, you might want to buy-to-let. We can help you find the perfect property via our property search system.