Are you considering buying to let? With a practical approach and careful planning, being a landlord can be both a good source of regular income and a long-term investment for the future.
However, there are plenty of pitfalls to watch out for, and the market is tougher than it used to be.
Here’s an overview of the main challenges you’ll face being a landlord, and how to tackle them.
How do I find tenants?
If you don’t want the hassle of sourcing tenants yourself, you can engage a letting agent. An agent will both source suitable tenants (based on your preferences) and also run the legal and credit checks for you.
Alternatively, you may decide you want to be more closely involved – this can save money, though it will consume more of your time. There are numerous ways to advertise properties both online and offline (local papers and notice boards remain popular), and you may feel this gives you more control. But never cut corners – always run those checks, and make sure everything is set out in a formal legal contract.
As a landlord you must also run Right to Rent checks. These check that all tenants over 18 are legally allowed to rent your property. You’ll need to see the original documents that prove they’re allowed to live in the UK, and be sure to make copies. The government website has a checking system that you can follow. If in doubt, get legal advice to make sure you comply with these regulations.
Family, students or professionals?
Most properties lend themselves naturally to a certain type of tenant, but it’s ultimately up to you who you choose. If letting to students, consider things like location and transport to their classes – most students won’t have cars yet. You may also want to make the fixtures and fittings cheap, functional and resilient, as even the best student tenants are not famously house-proud.
If you’d prefer young professionals, remember that adults treasure their space – don’t expect them to slum it in tiny rooms and share a cramped kitchen. They’ll expect higher standards, but consequently you can charge more in rent than you would for students.
With a family property, things like gardens, storage space and off-street parking become priorities, as does being in the catchment areas of good schools. Some families move into rented property purely to secure a school place, so be alert to this opportunity.
If letting to a group of people who are not a family, your property will be classed as a House of Multiple Occupancy (HMO). The tenants in an HMO will be on either a joint contract (or joint tenancy agreement) where they are all liable for the rent, or individual agreements where they just pay for themselves. Conversely, the contract may be a lot simpler if you let to a family or to one individual.
Should I furnish the property?
If letting out an HMO, you should generally furnish it. Families, on the other hand, will generally have their own furniture already. It is however a good idea to install white goods (fridge-freezer, washing machine, cooker, dishwasher if applicable) as these are more hassle to move in and out. A well fitted-out property can generally command higher rent, too.
How should I collect the rent?
If you’re using a letting agent, they will collect the rent on your behalf and pass it on to you, minus their fee. If you’re dealing with your tenants directly, the most popular solutions these days are direct debits and online transfers.
What happens if my tenants don’t pay their rent?
The first step is simply to give them a quick reminder by phone or email. Usually, they’ve just forgotten and will quickly send it over. If you get into a position where you believe a tenant is deliberately withholding rent or is otherwise unable to pay, you should contact a solicitor. Your solicitor will start the formal process of chasing up the rent, beginning with letters to the tenant(s) and then to the guarantors. Protracted battles over rent are very rare, but they do occur – which is why it’s so important to choose your tenants carefully and have proper contracts in place.
What taxes do I pay?
Income from rent must be declared and will be taxed. Also be aware of stamp duty – it’s now an extra three per cent on top for second homes, and when you come to sell you will have to pay capital gains tax if the property has increased in value. These are just a few things to weigh up when you decide which property to get and how much rent to charge. A financial adviser can help you decide if it’s worth the investment.
Where can I get contracts from?
Your contract, or tenancy agreement, will help make sure that both you and your tenants are happy with the arrangement. It’s best to get a solicitor to draw this up for you, to make sure nothing important is missing and to ensure you are fully covered in the case of any potential disputes.
What are my responsibilities?
Ultimately, landlords need to make sure their properties are safe and comfortable to live in.
You’re responsible for getting any damage repaired quickly, even if it’s caused by the tenants. This includes furniture and white goods if you provide them as part of the rental. Just make sure you give them reasonable notice before you or any repair companies visit the property.
You also must ensure any appliances or furniture you provide meet safety standards. You can enlist the help of a letting agent to take care of maintenance issues, but this is usually the more expensive option.
Unless you’re a live-in landlord with a lodger, you need to put the deposit you take into the Deposit Protection Scheme, or DPS for short. DPS will hold the deposits for you as protection for both you and your tenants.
There are also a number of documents you legally need to give your tenants, including:
- EPC certificate (Energy Performance Certificate) – you should have this from when you bought the property. If it’s up-to-date, you can simply give a copy to your tenants, or, to be on the safe side, get a new EPC rating completed.
- How to rent guide – you can download and print this guide from the government’s website.
- Gas Safety certificate – all properties to let that have gas appliances need to be safety checked once a year by a Gas Safe registered engineer. If the appliances pass, you’ll get a certificate to copy and pass on to your tenants.