Becoming a landlord can be a consistent source of income, although there is far more to consider than simply handing over the keys to your new tenants.
Whether you have decided to go the buy-to-let route or have become an ‘accidental landlord’, it is important to understand your responsibilities and the procedures that need to be put in place before welcoming your first tenants. Strict rules apply to landlords, but as long as you factor in the risks and meet your legal obligations, it could be a financially beneficial and rewarding venture.
There are many positive reasons to invest in property and become a landlord. For starters, as the number of potential renters in the UK increases, it can be a great passive income stream and a positive long-term investment strategy. There are two ways you can become a landlord – by renting out an existing property or by purchasing a buy-to-let property for the sole purpose of renting it to tenants. Regardless of what route you choose, your first step would be to speak to a specialist and decide what options are best for you and your circumstances.
As a landlord, you can potentially earn a profit in two ways:
- Rental yield, which is what your tenant pays in rent, minus running costs like maintenance, repairs and agent’s fees,
- or Capital growth, which is the profit you earn if you sell your property for more than you initially paid for it.
The location of your property is also important, as it is easier to run and manage a property if you live or work nearby. Many different factors can impact your earning potential, but a good place to start is by looking at the average cost of rent in your area. The London Rents Map shows average monthly private sector rents for different types of homes across London.
Here’s what you need to know about becoming a landlord for the first time.
Are you allowed to rent out your property?
It is important to check that you are legally allowed to rent out your property. If you are not the legal owner, you will need the owner’s permission to sublet. If you are the owner of the property, you must make sure renting your property is compatible with your mortgage and landlord insurance, especially if you have not initially purchased the property as a buy-to-let option. In this case, the lender will decide whether they will permit this.
Does your property meet all the legal requirements?
Prospective landlords need to prove that their properties are safe for tenants to live in. While it is always a good idea to keep your property well-maintained to get the best possible rental sum, there are certain standards that must be met from a purely legal perspective.
- Energy Performance Certification (EPC) – This certification highlights the property’s energy use and costs. An accredited assessor will need to inspect the property before it goes on the market.
- Gas Safety Certificate (CP12) – A registered Gas Safe engineer must also perform an annual safety check to certify that all gas equipment is safely installed and maintained. Tenants should be given a copy of this certificate before they move in.
- Electrical, Health and Safety – A property is required to pass several electrical, health and safety checks to ensure it is in a good and safe condition.
What are a landlord’s responsibilities, and what are the risks?
Passing all of your assessments puts you on the right track to becoming a landlord, but it is important to understand some of the risks and responsibilities involved.
- Fees and hidden costs – In addition to the upfront fees required for certificates, there are some other potential costs that landlords should be aware of. Changes to landlord tax in the UK are being phased in over the next few years and will heavily impact the amount of tax relief landlords can You are also responsible for property maintenance and repair costs.
- Problem tenants, or no tenants at all – Problem tenants can be the bane of a landlord’s existence. According to statistics, there are over 100 000 evictions every year in the UK, although there are rules put in place to prevent landlords from simply evicting tenants. There is also a risk that tenants may skip payments or damage or mistreat your property. That said, having no tenants means that you risk financial loss while your property remains unoccupied.
- Landlord insurance – It is wise to take out landlord insurance, although if you have a mortgage, it will be a requirement. There are different levels of landlord insurance, and the costs for insurance will vary depending on your property type, where the property is located and how comprehensive your cover is.
- A tenant’s deposit – It is a landlord’s responsibility to follow all the procedures regarding the tenant’s deposit. Landlords have to protect the deposit and failure to do this could result in fines or even legal action.
How to get tenants interested in your property?
A professional property management company like Douglas and Gordon can save you time and provide peace of mind by assisting with services like deposit and rent collection, day-to-day management and maintenance of your property, legal advice and more. Douglas and Gordon is one of the most experienced property management companies in the United Kingdom, so speak to us today.