Becoming a landlord can be a consistent and rewarding source of income, but there is more to consider than simply handing over the keys to your new tenants. So, whether you’re an accidental landlord or thinking of pursuing a buy-to-let, understanding the responsibilities and challenges that come with the territory can set you up for success.
In the 12 months leading up to March 2022, private rental prices rose by 2.4% in the UK, giving the 2.56 million landlords in the country an opportunity to increase their income or expand their portfolios. Strict rules apply to landlords in the UK, but understanding the risks, meeting your legal obligations and keeping up to date with current trends can ensure this venture is beneficial.
Three benefits of being a landlord
- Long-term income: It can be a great passive income stream and a positive long-term investment strategy.
- Allowable expenses: Landlords can claim expenses for maintaining a property, reducing the tax bill. Costs could include – general maintenance, repairs, legal fees etc.
- Independence: As a landlord, you can build up your portfolio, work when it suits you and have complete control over your income.
How to become a landlord
There are two ways you can become a landlord:
- By renting out an existing property
- Or purchasing a buy-to-let property to rent it to tenants.
Regardless of what route you choose, your first step is to speak to a specialist and decide what options are best for you.
How to make a profit
As a landlord, you can potentially earn a profit in two ways:
- Rental yield: what your tenant pays in rent, minus running costs like maintenance, repairs, and agent’s fees.
- Capital growth: the profit you earn if you sell your property for more than you initially paid.
Choosing a location for your rental property
The location of your property is essential, 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 an excellent place to start is looking at the average cost of rent in your area or speaking to a specialist estate agent to find out more about market conditions in your chosen location.
The London Rents Map shows average monthly private sector rents for different homes across London.
First-time landlord: your questions answered
Am I allowed to rent out my property?
It’s essential 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 property owner, 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 my property meet all the legal requirements?
Prospective landlords need to prove that their properties are safe for tenants to live in. While it’s always good to keep your property well-maintained to get the best possible rental sum, certain standards must be met from a legal standpoint.
- 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 must pass several electrical, health and safety checks to ensure it is good and safe.
What are my responsibilities as a landlord?
Passing all your assessments puts you on the right track to becoming a landlord, but it is important to understand some of the risks and responsibilities.
- 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, like landlord tax, property maintenance and repair costs.
- Problem tenants, or no tenants at all - can be the bane of a landlord’s existence. There is the risk that tenants may skip payments or mistreat your property. Having no tenants means that you risk financial loss while your property remains unoccupied.
- Landlord insurance – It’s wise to take out landlord insurance; it will be a requirement if you have a mortgage. 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.
- Tenant deposits – It’s a landlord’s responsibility to follow all the procedures regarding the tenant’s deposit. Landlords must protect the deposit. 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. Speak to us today.