Becoming a landlord is an ideal way to earn an income, but if you don’t lay the groundwork, it can be a costly adventure.
Make sure you’re on the road to success as a landlord by following these tips.
Work out your costs before investing in property
There are several costs involved in letting properties, so it’s important you have an idea of the full picture.
As well as the cost of the property purchase, you’ll need to factor in:
- Buy-to-let mortgage rates
- Legal fees
- Landlord and buildings insurance
- Tax on rental income
- Stamp Duty for properties over £125,000
- Maintenance fees
- Letting agency fees
- Leasehold and ground rent
- Utility bills and council tax
Some of these, such as utility bills and ground rent can be paid by your tenants. This can be done either by increasing the rent or letting your tenants take responsibility for paying the bills independently. However, these costs will be your responsibility whenever the property is empty.
Check rental potential in the area
Before you buy an investment property, make sure there’s a demand for rental housing in the area. Common signifiers include a location near main transport links, high-performing schools and plenty of local amenities. University towns also offer the popular option of student lets.
You can gain a good idea of what you can rent your property for by looking at similar rental properties in the area on websites such as Zoopla and Rightmove.
Research buy-to-let mortgages
Buy-to-let mortgages are different to a mortgage on a house that’s purchased as your main home.
For example, the mortgage arrangement fee on a rental property is usually higher. Unlike homeowners, many landlords also opt for interest-only mortgages as they plan to sell the property in the future.
A repayment mortgage with capital and interest paid back in your monthly instalments means your payments will be higher, but you will own the property once the mortgage is paid off.
An interest-only mortgage has lower monthly repayments, which provides you with more disposable capital from the rental income. When you sell the property, you repay the outstanding mortgage capital with the proceeds of the sale, and may also pay Capital Gains Tax on any profit above this.
If it’s your first time getting a buy-to-let mortgage, speak to a mortgage adviser to gain a clear overview of the different options available to you before you buy a property.
Know your legal responsibilities
Landlords have a number of legal responsibilities they must adhere to, or else face hefty fines.
You are obliged to ensure your property:
- Has an annual gas safety check
- Includes mains-connected fire alarms
- Is safe on all electric circuits and provided equipment
- Follows fire regulations
- Has working heating, running water, and sanitation facilities
You must also sign up to a Tenant Deposit Scheme to hold your tenants’ deposits separately from your own financial accounts.
Since April 2018, landlords must also make sure their property has an Energy Rating Certificate with a minimum ‘E’ rating. If your property falls below this, you must take steps to improve your property’s energy rating.
Have your paperwork in order
Get your tenancy paperwork checked by a letting agent or a solicitor before signing anything with your tenants. Even standard contracts used by agencies may have clauses you wish to change, so it’s important to read the small print.
You’ll have happy tenants if you provide useful information for them, too. Write down the phone numbers of an approved handyman, gas engineer, and electrician. If they are responsible for bills, make sure they know the supplier and account numbers for each, so that they can easily arrange a transfer to their name.
Make your property listing pop
Find great tenants and avoid empty periods by making the most of website property listings.
Take clear photos on a sunny day to emphasise the bright areas of the property and make it feel more welcoming. Some finishing touches, such as flowers on a windowsill can help to make the property seem more attractive still.
Make sure you highlight features that are important to many tenants. For example, outside areas, allocated parking spots, proximity to local schools or transport links are all important to mention.
If you want to allow pets in your property, be sure to put this in your listing too. Many pet owners will scan past any listing that doesn’t say ‘pets considered’, on the assumption it means pets are not allowed.
Outline any costs, such as which bills are – and are not – included in the monthly rent. Being upfront about costs will help prospective tenants weigh up the affordability of the property for them.
Find out more about our Mortgage Advice service in Middlesbrough