Making the decision to become a landlord is one that requires much thought and planning due to the financial commitment and legal aspects involved. If you are considering purchasing a property to offer to the rental market, or have already purchased, this “Landlords Essentials” guide can help you to understand what you will need to do to take those all-important first steps towards becoming a landlord.
What is the First Step to Take as a Landlord?
The first step to becoming a landlord depends on whether you already own a property that you’ve decided you want to rent out or whether you need to invest in a property first.
If you are considering becoming a landlord for the first time and you already have a property to offer for rental, thought needs to be given to:
- the state of repair of the property. If the property is older, it’s possible that it will need some renovation and/or modernisation to bring it up to the necessary standard before you can offer it to the rental market. There are a fair number of tests and certifications needed before a property can be tenanted, for example an up-to-date EPC and electrical and gas appliance testing might all be required (depending on the age of the property and whether they have current ratings/certificates). If you are rather daunted with this aspect, consider utilising the services of a knowledgeable local letting agent. They can help you through all of the legislation around the condition of the property. At Belvoir we have over 170 offices UK wide, each owned and managed by local people who are completely immersed in the local market, get in touch with your nearest office to find out exactly how we can help.·
- is there demand for rental properties in the area where your property is located? it is best to check the advice of a local property expert who can give you a detailed picture of the local market to help you on your journey to becoming a landlord.
If you are currently sourcing a property to offer to the rental market, the advice above stands true as well. Researching areas that you are likely to get a good rental yield from, will help pinpoint where to purchase your investment. Yield is worked out by dividing your annual rental income by the value of the property and then multiplying it by 100, which will give you your yield percentage. Generally, anywhere between 5 – 8% is considered to be good. When pinpointing an area that you feel constitutes an ideal rental market, consideration needs to be given to how you will market and manage a property. Using a local letting agent might be the best choice, due to their local knowledge and ability to market your property, both locally and nationally.
Also thought should be given to the type of property (flats v houses) that would make the best choice to offer to the rental market in your chosen location. A little research to see if flats or 2/3 bed family homes make the best choice.
Clearly your investment choice will also be affected by your budget, it is always advisable to seek the advice of a financial expert.
So, whilst the first action you take might depend on your circumstances, we would say the first step to take as a landlord would be to secure and surround yourself with the experts you will need to help you on this new journey. Consider building relationships with a financial adviser, mortgage adviser and a local property expert to guide you through legislation and provide invaluable local market knowledge.
Are Landlords self employed for tax purposes?
One thing you will not want to fall foul of is the tax authorities and a common question is “does being a landlord count as self-employed in the UK?”. Not always is the answer and it depends on whether being a landlord is your main source of income, how many properties you have and whether you are looking at increasing your portfolio. We recommend you seek the advice of a tax professional to make sure that you fully understand the tax implications of being a landlord and to help determine if you are to be self employed. If you are classed as self-employed then you will be required to register for self-assessment with HMRC. Further information and guidance can be found here on the Government website.
What Are the Financial Costs Involved in Becoming a Landlord?
Becoming a landlord will involve financial outlay. Obviously, hopefully the rent that you receive each month will cover most of your costs but having a contingency fund is important too, to cover any shortfalls. Costs will include:
- Mortgage repayments if you do not own the property outright. Mortgage tax relief will be a consideration as a landlord – further information and guidance can be found here.
- Specialist landlord insurance for buildings and contents for any items inside that belong to you to cover the cost of rebuilding your property or replacing items inside, should the worst happen.
- Repairs to the rental property or for items inside that belong to you, for example a leaking pipe, washing machine breakdown or a faulty boiler. Keeping receipts is important as they could be tax deductible. Check with your accountant or financial adviser.
- Fees – legal fees if you are using a solicitor to draw up a rental agreement and agency fees if you aren’t going to be managing the property yourself.
- Renovations to bring your property to the required standard to offer for rental. These can include painting and decorating, electrical works, fire safety precautions etc. The cost of obtaining an EPC should be factored in here too.
- Managing any possible void periods when one tenancy ends, and a new tenant has not yet been found.
- Furnishings if offering a property as furnished. Factor in replacement of any items too due to the usual wear and tear expected during a tenancy.
- Membership of a Landlord Association, if you choose, such as National Landlords Association (NRLA) or British Landlords Association (BLA).
Is Being a Landlord Profitable?
Property rental can be a highly profitable venture, but a strategy needs to be considered first and planned correctly. A full understanding will be needed of the likely costs involved, along with the fluctuations of the property market and likely rental income. Doing your sums to see the likely monthly incomings and outgoings, speaking to local property experts, and gaining expert financial advice will all help you to plan your strategy and see if everything stacks up. Remember that the rental property could also appreciate in value which makes it a good long-term investment.
What are Some of The Decisions I Might Have to Make in Becoming a Landlord?
There are several considerations to ponder when becoming a landlord and offering your property to the rental market. These can include aspects of the tenancy agreement, such as:
- will I rent out the property as furnished or unfurnished?
- will I allow pets?
- will I let out the property myself or use a letting agency?
- will I manage my landlord responsibilities such as inspections, check ins, rent collection, repairs and maintenance work or do I want to instruct and agent to act on my behalf for some or all of these tasks?
Weighing up the pros and cons of each choice, along with the potential financial gains or losses of each aspect will help you to arrive at the right decision for you.
What Paperwork Must I Have in Place Before Offering My Property for Rental?
There are some important and essential pieces of paperwork for a landlord to have in place.
- A tenancy agreement – the contract between you and your tenant that sets out the legal terms and conditions that your tenant must follow. This will include aspects such as when rent should be paid and the tenancy end date.
- An inventory – the inventory forms a list of everything that has been provided for the tenant, along with photos of the condition of the property. This is essential to being able to show the condition of the fixtures and fittings, any furnishings, and the property in general at the start of the tenancy agreement.
- An EPC – a certificate showing how energy efficient your property is. The ratings run from A (most efficient) to G (least efficient), and your property must be at least an E rating for you to be able to offer it for rent. Landlords must provide tenants with a copy of the EPC. If you don’t provide an EPC, you could face a fine of up to £200.
- A gas certificate – If the property has any gas appliances, then they must be certified as safe by a Gas Safe Engineer. The certificate that is issued should be provided to the tenants at the start of their tenancy and after each annual inspection.
- Permission from a mortgage lender to show that a mortgage is being given on the basis that the property is a buy to let property, rather than a landlord living in the property themselves.
- Smoke and Carbon Monoxide detectors – all private sector landlords are required from 1 October 2015 to have at least one smoke alarm installed on every storey of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (e.g., a coal fire, wood burning stove). A landlord must also make sure the alarms are in working order at the start of each new tenancy.
- A deposit scheme will be required to hold the tenant’s deposit. Further information about tenancy deposit protection is available here on the Government’s website.
- Right to rent checks – we go into more detail about this in following sections.
- Rental value assessment. It is important that your property rental value is set at the right value, too high and you might struggle to secure a tenant, too low and you risk putting potential tenants off as they might presume that there is something wrong with the property.
AXA give a very useful landlord checklist for all the health and safety requirements when offering a property for rent.
How Do I Go About Finding a Tenant?
When offering a property to the rental market to secure a tenant, advertising the property will be key. Consideration needs to be given as to how to do this – will you advertise yourself or enjoy the many advantages of allowing a professional lettings agency to carry this out for you? If you advertise yourself, you could try social media sites, such as Facebook and Twitter. You could also advertise in the local newspaper or message boards. Taking good photographs will be key to drawing in potential tenants. A read of the Property Misdescriptions Act 1991 will help you ensure you do not break the law in your description of the property.
Using social media and local advertising will allow you to target likely tenants in your area but it will require that you allow time to promote your property, carry out viewings etc so consideration needs to be given to this. You will also need to find the next tenants before a tenancy ends, should the current tenants not wish to renew, to avoid having void periods or no rental income.
Using a letting agent comes with the advantage of a wide reach of prospective tenants through advertising on large property search websites, such as Rightmove and Zoopla. An experienced letting agent will have potential tenants ready and waiting to rent properties and will begin marketing your property to those in their database
What Checks Do I Need to Carry Out on My Tenant?
In England, prior to a tenancy beginning, a check that a tenant or lodger can legally rent your residential property must be carried out for all tenants aged 18 and over even if:
- they’re not named on the tenancy agreement or;
- there’s no tenancy agreement or;
- the tenancy agreement is not in writing
If you have employed the services of a letting agent, they can carry out these checks on your behalf. If you are carrying out the checks yourself, you can either check your tenant’s original documents or view your tenant’s right to rent online if they have a ‘share code’.
Due to the coronavirus (COVID-19) pandemic, some temporary changes have been made to the way that a potential tenant’s identity documents can be checked. The adjusted process includes being able to ask for documents digitally and making checks via video call. This adjusted method of checking identity documents will remain until 5th April 2022 due to the positive response received.
The Government have produced a comprehensive guide to carrying out Right to Rent checks, including advice on the adjusted method.
From this article, the key take-away essentials for anyone thinking of becoming a landlord are:
- Find and purchase a suitable property
- Ensure the property is up to the required standards and has all necessary certifications
- Register for Self-Assessment if needed
- Consider the cost and financial implications
- Make essential decisions on what will form the tenancy agreement
- Have all required paperwork in order
- Find a tenant, either yourself or with the help of a letting agent· Carry out Right to Rent checks
If you are just embarking on your journey as a landlord, we know how exciting and nerve-wracking this can be in equal measure! We would be delighted to support you every step of the way. At Belvoir, we understand that you want a level of service that is professional, knowledgeable, and tailored to suit you. We can provide advice and support to both fledgling and experienced landlords and offer properties in our portfolio that make perfect buy-to-let opportunities. Find details of your local Belvoir office here to speak to one of our friendly, knowledgeable local property agents and begin your journey today.