How to become a landlord
Private renting in the UK is more popular than ever, with the Office for National Statistics reporting: “The number of households in the private rented sector in the UK increased from 2.8 million in 2007, to 4.5 million in 2017, an increase of 1.7 million (63%) households.” You can see the full report here.
But what does it take to become a landlord? What rules and regulations should you be following? And how much might it cost to get started? Read our guide to the things you should consider before taking on the commitment.
Why should I become a landlord?
Despite it being a commitment, being a landlord is something you can easily manage in your spare time, and it can be lucrative. If you can maintain a steady flow of tenants, you will have regular revenue coming in. Plus, demand for private rental properties is high, as more and more people choose to rent long-term rather than save for a deposit.
What are the benefits of being a landlord?
As we mentioned above, there are a few key benefits to becoming a landlord, including:
Provided your tenants pay on time, you'll get rent money paid each week or month (depending on the agreement). This should be enough to cover any mortgage outstanding on the property. Over time, the property will hopefully increase in value, so if you do decide to sell, it will be financially beneficial.
If you already own the property outright, with no mortgage to pay, this is even more of a benefit as you simply receive a regular income in rent.
All rental income a landlord receives is taxable and buy-to-let mortgages tend to have higher rates than others. However, there are some tax deductions available. These include expenses for:
- General maintenance and repair costs
- Water rates, council tax and gas and electricity bills, if paid by you as the landlord
- Landlord insurance policies (buildings, contents, etc.)
- Cost of services, e.g. cleaners, gardeners, ground rent
- Agency and property management fees
The income you make from renting a property can be put aside or saved for a pension plan, giving you more financial freedom. There’s also security in the property itself – as in If your financial or living situation changes and you need the property, it is yours to use for yourself.
Flexibility and reward
You are your own boss as a landlord. The property is like a small business, one that you maintain and manage your own way to make the most you can. This can feel very rewarding and allows you complete control. It’s a flexible asset that you can decide to sell at any point.
Questions to ask yourself before becoming a landlord
Becoming a landlord requires some planning. As well as the legal obligations and paperwork for getting the mortgage in order for renting the property out, there are some other basic questions to ask yourself?
- Will I rent out a furnished or unfurnished property?
- What’s the average price of rent nearby? (This will help you set your own rate)
- Do I need to get the property repaired or altered before it’s rented?
- Will I allow tenants to smoke in the property?
- Will I allow any pets?
- Will I self-manage or use a management company?
When it comes to managing the property, there are numerous advantages to a Property Management Service. haart can help, call us today to discuss your needs.
What are the costs of becoming a landlord?
Rent will obviously be a regular source of income, however there are some costs to consider as a landlord. Set out a budget to work out if it will be affordable and lucrative for you.
Repairs and maintenance
As a landlord, you are responsible for repairs and maintenance to the property. Be sure to set aside money for this. This includes appliances you supply the property with, gas safety checks and some general wear and tear that might occur overtime (new carpets for example). Get quotes from local companies and note them down in your budget.
Energy Performance Certificate (EPC)
Your property must also meet Minimum Energy Efficiency Standards. To get a certificate for this, you must find an accredited person to undertake the certificate on your property. You can do that here through the Ministry of Housing, Communities & Local Government. If you already have the certificate, but cannot find it, you can also use the website to retrieve it. It costs around £40 - £60 to obtain the certificate and it must be renewed every 10 years.
Gas Safety Certificate
A landlord gas safety check is a legal requirement and must be done annually. All gas appliances and fittings within the property must be checked by a Gas Safe registered engineer. At the end of the check, if everything is safe and in working order, you will receive a certificate.
You must make sure that after rent and expenses, you have enough to cover the mortgage. It goes without saying that you should seek out the best deal on your mortgage possible.
It is important to note that landlord insurance is not compulsory. But it will cover you for things like tenants not paying rent, or damage to the property. Standard buildings and contents insurance usually won’t cover you if you have tenants in your property, so it makes sense to look into a specialist policy. You can add cover for things like:
- Public liability – if a tenant or visitor to the property gets hurt and claims against you
- Loss of rent – if your tenants don’t pay or there is damage to the property, and you have to move tenants out
- Legal expenses – for tenant disputes or legal action you take to recover money for damage
Be aware when applying for landlord insurance that the type of tenant you rent to could affect your policy. Students or unemployed tenants will have different risks attached to them than retired or self-employed tenants, for example.
Factor in any legal fees for things like writing a tenancy agreement,
When you rent out property that you own, the first £1,000 of your income from rent is tax free. It is called your ‘property allowance’. If its between £1,000 and £2,500 per year, you have to contact HMRC.
There are different rules and legislation for landlords that run a rental property business, are renting out more than one property or earning more than £5965 per year: Get more information on income tax.
Under the Data Protection Act “individuals and organisations that process personal information” must register with the Information Commissioner’s Office (ICO). In simple terms, your tenant’s data must be protected. You will certainly have their contact details saved on either a computer or mobile phone, so should be registered with the ICO, which costs £40 per year.
How do I become a landlord?
Here’s all the paperwork you need to get in order to become a landlord:
This is the most important document of all, the contract between you and your tenant. This sets out the legal terms and conditions that you expect your tenant to follow. Use an online template or see your solicitor for advice on how to set this document out.
Houses in multiple occupation (HMO) licence
If you're renting to three or more unrelated people, you'll need to apply for an HMO licence. In England, Wales, and Scotland it's the responsibility of your local council but you can check on GOV.UK to see if you can apply online using the postcode of the property you wish to rent out. HMO licences last for five years in England.
Energy performance certificate (EPC)
From April 2018, you legally can’t rent out properties with a rating lower than E, the fine for doing so is up to £4,000. Landlords must provide tenants with a copy of the EPC to give them an idea of how expensive the property will be to maintain. If you don't provide an EPC you could be fined up to £200.
This is especially important if the property is furnished. Provide a list of every item and take photos of its condition for your reference.
As explained above, if the property has any gas appliances, you'll need to arrange an annual visit from a Gas Safe Engineer. This certificate should be provided to your tenants at the start of their tenancy and after each inspection.
Written permission from your mortgage lender
You'll need to send your mortgage lender a 'consent to rent' application. Most mortgage lenders give you the loan on the basis that you'll be living in the property, not renting it out. Your mortgage provider may increase your mortgage repayments or charge you an admin fee, but in most cases your mortgage terms will stay the same.
Buy-to-let mortgages specifically for landlords are available. If you plan to rent the property long term you may need to consider moving to one of these mortgages, as your consent to rent may only be valid for a few years at a time.
Check your tenants have the right to rent
What legal cover and insurance do I need as a landlord?
A complex aspect of becoming a landlord is complying with the legislation around Licensing. We have a handy guide that breaks down the key facts around the two types of license requirements for landlords. Read it here.
The Tenant Fees Act dictates what fees you can and cannot charge your tenants.
You’ll need to protect your tenant’s deposit too.
What support is out there for landlords?
At haart, we can help you to find the right tenant for your property. Whether you are considering renting to students, require a professional couple, or have a property capable of housing multiple tenants, we can help.
At haart, we can help landlords with every aspect of renting, from finding you the right type of tenant for your property to helping you manage multiple properties in your portfolio.
Get in touch today to find out how we can help you.