For generation rent, and the growing rental market in general, it can be easy to view landlords in terms of ‘us and them’. After all, if you can afford to buy a property just to let it to somebody else then you must have it made, right?
Landlords hardly have a licence to print money. Most own one or two rental properties rather than a huge portfolio, and many only managed to afford them via buy-to-let mortgages, the repayments for which will eat up a decent chunk of their profits.
Successful landlords also have to stay constantly on top of new property laws and legislation in order to avoid potential fines. Without solid organisation and planning, there are plenty of factors which could cause a landlord to wind up in court. Worse yet, when landlords are investigated over potential issues, they are usually required to prove that they acted appropriately, rather than being given a chance to start doing so.
As a first time landlord, it is important to know exactly what you are in for. Don’t leave anything to chance or assume that you can simply learn as you go. The more prep work you do now, the less you will have to worry about down the line! Before you even start looking for tenants, your property should be completely ship shape with everything necessary already in place.
Here are the things that first time landlords need to cover before they start letting!
It is a landlord’s job to ensure that their properties are completely safe to live in. You cannot put a tenant in danger and expect them to just grin and bear it. These days, with camera phones being so widely available it is easier than ever for tenants to document evidence and hold landlords accountable.
Let’s start with the most important factors: gas, electricals and fire safety. A landlord is required to make sure that any gas and electrical utilities and appliances are safe and fit to use. This means no leaky flues or exposed wiring!
Gas safety is very tightly regulated. Landlords are required to book a gas safety check annually (a certificate for which should be given to tenants when they move in). Additionally, any gas repair, maintenance or installation work can only legally be performed by a Pro listed on the Gas Safe Register.
Electrical safety is less tightly controlled, at least for non-HMOs. However, it is still recommended that landlords book an electrical safety check at least once every five years.
With fire safety, there is no room for error. Landlords must provide smoke alarms on every floor, carbon monoxide detectors in any rooms with solid fuel burning appliances and clear escape routes for emergencies.
However, it doesn’t stop there. According to the Housing Health and Safety Rating System (HHSRS), there are actually 29 property ‘hazards’ which can put tenants in immediate danger. If a council performs an HHSRS assessment and finds tenants are in immediate danger, they can restrict the use of the property and force the landlord to make repairs.
You can find more about which safety regulations are relevant to you by checking your local council’s website. Remember, rules can vary between locales, so be sure to check!
Every landlord should know that a property requires a valid Energy Performance Certificate (EPC) before it can be put on the market. However, as of April 2018 new legislation has come into place, the ‘Minimum Energy Efficiency Standards (MEES)’. This requires that properties have a minimum rating of ‘E’ before they can be put on the market. In other words, if your property is not sufficiently efficient, you cannot start looking for renters or sign any new tenancy agreements.
There are a few exemptions for this rule, such as listed buildings where improvement work would ruin their historic character. However, considering that EPCs only cost £60 to £120 and last ten years, struggling to get out of buying one by searching for exemptions which don’t apply will be far more hassle than it is worth.
If you need to bring a property’s energy efficiency up, it will be a good idea to contact your energy provider, as well as your local council. They should each have schemes in place to take some of the financial burden off making the improvements. Even better, your EPC will provide a handy list of the most applicable improvements for your property.
You might have the safest property in the country, but it won’t make you any money without tenants to live in it!
Marketing a property is often as much of an art as a science. There are dozens of elements which go into it, including:
You can certainly do all of this yourself. There are plenty of websites which allow landlords to find tenants without an estate agents, and indeed most estate agents will have a presence on these websites themselves.
So, why do landlords still hire estate agents to do it for them?
The first reason is time. Again, most landlords do not make all of their money through property lets. Most have day jobs or other commitments, so they may not have enough hours in the day to prepare properties, find websites to advertise them and conduct viewings with potential tenants. An estate agent, however, can give a property all the time and attention it needs.
The second reason is experience. Estate agents will not only know the best ways to find tenants, they will also know exactly what type of tenants are around locally. This can help them advise you on how to boost the appeal of your property.
The third reason is a mixture of the two: tenant screening. Once you find an interested tenant it is important to try and gauge what kind of tenant they are. Will they clean? Will they pay rent on time? Can they be trusted not to damage your belongings?
If you just take on the first tenant you find, you could end up facing serious difficulties down the line. Estate agents will also have processes in place for mandatory tenant checks, such as assessing their ‘right to rent’.
Whether or not you need an estate agent boils down to how much time you have to dedicate to marketing your property or finding tenants. Since you are just starting out, it may be a good idea to use one at first, at least until you have your own system in place.
We touched on this in the previous section, but it is definitely worth going into more detail about screening potential tenants. One thing to keep in mind is that illegally evicting a tenant is a criminal offence, while legally evicting a tenant can cost around £2,000!
In short, it’s better to take your time and ensure that you have a top tenant, rather than taking a chance in order to start letting quickly.
When you have a potential tenant or group, be sure to ask:
You may also want to perform a credit check, though you will need the candidate’s permission to do so.
An important thing to remember is that you must always check every potential tenant’s ‘right to rent’. This essentially means that they can legally rent property in the UK. Remember, this is a question for everyone; you cannot discriminate or avoid asking the question just because you suspect that a candidate is a UK citizen.
To check this, simply ask your candidate to provide a valid form of ID, such as a UK passport, a permanent residence card or home office immigration status document.
This is not a needless hassle: if you fail to perform this particular check, you could face an unlimited fine or even prison.
When organising a new tenancy, there are a few pieces of documentation which you cannot afford to ignore. Becoming a landlord is a formal affair - if you try to do anything casually, chances are that it will come back to bite you later on.
The most important documents are:
Speaking of deposit deductions, there is one thing that you will need to get through your head right now: a tenant’s deposit is not a landlord’s money. You cannot spend any of it, even if you intend to give back every penny later on.
Upon receiving a deposit, a landlord must place it in a government approved scheme within 30 days. During that time they must also inform tenants of which scheme was used.
The applicable schemes are:
It is important that you do not try to take a chance with this. You could be asked for proof of which scheme you used at any point during or after a tenancy. If you cannot provide it, your tenants could claim as much as three times the deposit amount from you in compensation.
There are also benefits for using one of these schemes. For one, in the event of a dispute over deductions, the scheme can act as an adjudicator.
As lucrative an asset as a property may be, it can also be highly vulnerable. So many things can go wrong in a rental property that going without landlord insurance is a huge risk - certainly not one worth taking just to save a few quid!
If you are a landlord with a buy-to-let mortgage, it is worth examining your policy. Most lenders will require that insurance be taken out on such a property. After all, it’s their investment too!
Landlord insurance is similar to standard home and contents insurance. However, it has a number of clauses which are specific to landlords. These include:
(As always, be sure to check exactly what a policy covers before signing your name!)
To choose the best insurance, it is usually best to speak to an independent broker. If they are not tied down to a specific lender, they will give you a far more unbiased view of the marketplace.
If you want to attract top notch tenants, it is important to show your property off at its best. Dirty homes tend to put tenants off, and more wily renters may even use the mess as an excuse to negotiate the rent. Worse yet, particularly bad messes will undoubtedly attract pests.
Make sure to have the property thoroughly cleaned before creating an inventory report. Your tenants will then be expected to leave it at this level when the tenancy ends (failing to clean is not considered ‘wear and tear’, which means that you can make deductions to a deposit in order to hire a cleaner if necessary).
Again, it is important to have your property look its best if you want to attract the best tenants.
A ‘furnished’ rental property should provide all of the furniture a tenant needs, without them having to spend their own money on anything essential like beds or appliances. However, you needn’t shell out for brand new full priced furniture. You could save money by buying second hand, freecycling or waiting for one of the big sales. Just remember that everything must be in working order and completely fire safe.
At the same time, a property with clearly ageing or substandard decor will almost certainly put potential tenants off. Peeling wallpaper, cracked paint or permanently stained flooring will simply make your property look terrible. This does not mean redecorating every room - just the ones which are clearly in need!
Finally, if you have any of your own furniture or decorative elements at the property, it will be a good idea for you to remove them. You cannot guarantee that your tenants will take as good care of it as you would!
As you can imagine, when taking on a new business venture it is vital that you know exactly what is expected of you in terms of paying tax. Bad tenants can be scary, but the Inland Revenue is downright terrifying!
Once you know what it is, you will need to declare your rental income to the Inland Revenue. However, this is not the same as the rent you collect. Instead, it is what you have left after taking into account overheads like insurance, repair costs and maintenance fees. It will also take into account any money paid by tenants in exchange for services provided by the landlord, such as utility bills, fees for cleaning communal areas, non-refundable deposits and money kept from standard deposits.
If you, your partner or your business already owns a property and you are buying another, you will also need to take additional Stamp Duty into account. The exact amount will depend on the value of the property, so be sure to check!
Most of the time, paying Stamp Duty would be handled by a conveyancer. A property manager or letting agent can also handle your taxes if they collect rent on your behalf.
Remember, taxes are not something you want to take chances on!