First-time landlords need to take advice before investing in property
Advice for Landlords
In recent years the housing market has faced turbulent times with prices falling sharply. This is in turn with many people losing their jobs and has led to homeowners being forced to try and sell their homes. With prices down and so many people in the same boat, the supply of properties has increased. With demand remaining low, less people have been able to sell. Added to this, many people took out mortgages in the boom time with 90-100% loan to value mortgages being common place. With the decline in house prices, some people are now in negative equity and have no choice but to keep their property and wait for values to improve.
The upshot of this is there are now more landlords than ever, many of them having no previous experience at managing property leading to widespread concern within the property industry. Here are ten top tips for becoming a landlord and the things you need to consider:
- Financial viability
- Insurance
- Investment requirements
- Agent or self manage?
- Tenancy agreement
- References
- Deposit
- Obligations
- Inform the mortgage company
- Tax implications
You must draw up a detailed plan of all the costs involved, not to mention the time you will have to spend managing the property if you decide to do it yourself. It’s essential you factor in contingency for maintenance and periods where the property may not be occupied. You must do this before you even make a final decision!
It’s very common that people get buildings insurance but fail to get landlord insurance. You should seriously consider getting insurance to protect you in case of any issues that may affect your tenants. Often situations can occur that are out of your control so it’s important to get covered.
You may be happy with the way your home looks but that doesn’t mean potential tenants will. If you have particular taste you may need to offer a more neutral feel to your home. Added to this you need to put money aside for ongoing maintenance. Tenants rightly demand appliances to be fixed within hours which can cost considerable money.
Employing an agent to rent and manage your property can cost anywhere between 5-15% of your rental income, however you really need to look at your local rental market and think about your own time commitments. If the rental market is strong and you have some spare time, it could well be worth marketing and managing the property yourself. Remember to compare the cost implications in your financial planning.
It’s an absolute must that you have a tenancy agreement in place and you understand all that is documented. You must protect yourself against bad tenants and there are many who will happily not pay and cause you ongoing problems. It’s not only money related issues but things such as maintaining the property and not disturbing the neighbours. You should also create an inventory listing all the contents in the property so you and the tenant can agree on the number and condition of items.
Be thorough in vetting your tenants. Make sure you get employment references as well as personal references. You can even carry out credit related searched with the permission of the tenant. It may also be worth getting a previous landlords reference. You can never be too careful!
As of April 6th 2007, landlords who let their property on an assured shorthold tenancy (AST) must protect their tenants' deposits by using a Tenancy Deposit Protection (TDP) scheme. The scheme guarantees that tenants will receive their deposits back at the end of the tenancy, if they meet the terms of the tenancy agreement and do not damage the property. You can find more detailed information on the Direct Gov website.
You must use a gas registered engineer to carry out compulsory gas checks and ensure any boiler is fully serviced (file the documentation). You should also consider getting an EPC (Energy Performance Certificate) which documents the energy efficiency rating of your property. Prices for an EPC start at around £30. Finally you must not forget to inform the Council and Utility companies that you are renting out your property. Be sure to give them the contact details of your tenants.
Mortgage companies are more receptive to people becoming landlords these days as they need to retain their customers. You can often become a landlord without your mortgage rate being affected but you must gain permission to rent your property. This is under the terms of any residential mortgage in the UK.
Finally you must self certify the income from your property, even if it makes you very little profit after you factor in all the costs. Go on the HMRC website to find out what forms you need to fill in.
Follow the tips above, do your research, speak to the bank, insurance brokers and estate agents and you will give yourself the best chance of success.
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