Like in many sectors of life, not all landlords are equal. There are good landlords, and there are bad landlords. This article is a guide to becoming a landlord in Brighton, Hove, and elsewhere. A good landlord that is.
The reasons people become a landlord aren’t always straightforward. You may have always been keen on investing in property and couldn’t wait to get started. For others, a property has almost ‘fallen into their lap.’
That’s because they have inherited it from another member of the family. Sometimes people have had to become landlords because they can’t afford their mortgage anymore and have had to move in with another family member or friend and rent out their property. These people are referred to as ‘accidental landlords’.
Whatever group you fall into when it’s your first time renting a house, the role of a landlord is the same. Because of this, you will have to learn all about your landlord rights and responsibilities towards your tenants.
Then there are your tax liabilities, not to mention all the legislation you must consider. And with regards to the last point, there are an awful lot of legal ‘to-dos.’ Failure to comply with regulations can be costly and, in severe cases, land you in prison. So, it’s as well to read up on becoming a landlord from the outset. This landlord checklist for renting a house should help you do exactly that.
The last thing you want to do when letting out a property is to lose money. So, to this end, it’s essential to ensure that your rental income covers all your outgoings. You may also have to register as a landlord with your local council. They’ll probably have a house rental guide to refer to as well.
At that point, you will find out whether you can rent your property. Some local authorities won’t allow landlords with serious criminal convictions to rent out a property. Or, it could be that you are planning to rent out your house to at least three individuals who are not related and will need an HMO licence. Some local authorities won’t allow any more HMOs in particular locations.
If you are permitted to rent out your property, then because you are receiving income, it’s important to notify HMRC that you will be filling in a self-assessment form for income tax duties.
The first factor to consider if you do not already own the property is what will be the best way to purchase a rental property. You can save money by buying a house at auction, but if you do not have experience in house auctions, this could be more trouble than the money you save.
Consider the pros and cons before you decide to attend and bid at an auction. Two main pros are finding a bargain property and having no property chain. Buying a property is much quicker through an auction, and if you are successful with your bid, you will need to pay 10% of the sale price on the day. You should also arrange a viewing and a survey before the auction to identify any issues that could cost money to rectify.
It is also worth considering that auctions can be very competitive, and you may end up over-bidding. If you stick to your budget, you might find that you are arranging and paying for numerous surveys and not being successful with any bids.
Whether you rent furnished or unfurnished depends on who your ideal tenants are. If you have a three-bedroom house and are looking for a family to rent to, then probably unfurnished is best. That’s because they’ll usually have furniture which they’ve accumulated over the years. If, on the other hand, you’re looking to rent to young professionals, then that particular market will often expect furnished accommodation.
For landlords looking to rent to students, inexpensive furnishings and fittings are the answer. That’s because you may have to maintain and repair items regularly.
Before you decide to buy a property, you should do all the financial calculations to ensure your property investment venture will generate the profits you want. Understanding how to calculate rental yields is not as simple as many new landlords expect. There are two ways of calculating rental yields – gross and net.
The gross rental yield is the annual rental income divided by the purchase price multiplied by 100.
For example, for a property purchased at £150,000 with £700 monthly rent paid:
£700 (monthly rent) x 12 = £8,400 annual rental income
£8,400/£150,000 x 100 = 5.6%
The net rental yield is calculated by subtracting the costs associated with owning the property (maintenance etc.) from the annual rental income, then dividing this figure by the purchase price or market value, multiplying by 100.
For example, for a property purchased at £150,000 with £700 monthly rent paid:
£8,400 – £2,300 = £6,100
£6,100/£150,000 x 100 = 4.07%
The ideal rental yield will depend on the location and property type but generally, a gross rental yield of 5% or 6% would be considered good, and anything higher will be very good.
If you are planning on buying a property to rent out and require a mortgage for it, you will need to apply for a buy-to-let mortgage rather than a standard one. Interest rates are usually higher for buy-to-let mortgages and tend to be interest-only.
Lenders will usually have stricter lending criteria for buy-to-let property mortgages. They will require a higher deposit amount compared to residential mortgages, which can mean it is more difficult to get a buy-to-let mortgage approved.
How much you can borrow on buy-to-let mortgages will depend on various factors, including your deposit, your income (including rental income), credit history and personal assets. Buy-to-let mortgages are considered a higher risk to lenders, so the buy-to-let mortgage rates will usually be higher, and there are not as many deals on the market.
Before deciding whether a buy-to-let property investment is suitable for you, use a buy-to-let mortgage calculator to help you estimate how much you will likely be able to borrow for your rental property.
As a landlord, your most important responsibility is to keep your tenants safe. There are many different regulations that landlords in England and Wales must comply with, including gas safety checks on gas appliances by a Gas Safe engineer and having a valid gas safety certificate.
Landlords are also responsible for fitting carbon monoxide alarms in properties with solid fuel heating appliances. Carbon monoxide alarms should be installed in any room with a fixed combustion appliance, other than a gas cooker.
The pandemic saw a considerable rise in dog ownership – around 3.2 million UK homes got a pet during the first year of lockdown, say the Pet Food Manufacturers’ Association. It shouldn’t be surprising to find Rightmove announcing demand for pet-friendly homes has increased 120 per cent since the summer of 2020. Properties for rent that aren’t pet friendly are certainly cutting themselves off from a huge potential market these days.
If you aren’t keen on renting out your house to a tenant with pets, you must object in writing within 28 days of being asked. The reason has to be a good one, says the government. That could, for instance, be that the management company looking after the flat forbids pets. A previous bad experience with a tenant and pet isn’t considered an acceptable reason.
When becoming a landlord, it’s natural not to want tenants to smoke in their rented property. It’s a significant fire hazard for a start. It also stains fabrics and wallpaper and leaves a lingering smell. But there are still many people who do smoke, meaning it widens your market of potential tenants. Increasing the rent or the deposit could help pay towards redecorating at the end of the tenancy.
As well as having your mortgage repayments to contend with, other costs of becoming a landlord include repairs, landlord insurance and letting agent fees (if you don’t want to manage the property yourself).
Then there is furniture to buy, getting the property up to fire safety standards, having annual gas safety checks, and getting an Energy Performance Certificate (EPC). You may also want to become a member of a Landlord Association, which will result in an annual fee.
You also need to consider that the property may not have tenants in it at all times, which means you will be responsible for paying the council tax and bills when it is vacant.
One of the significant costs as a landlord will be your landlord insurance, which can vary significantly in price. As a landlord, protecting your property with building insurance is very important; mortgage companies will require you to have building insurance for the property.
If you are furnishing the property, you will also probably want to have contents insurance cover for the items you own. Different landlord insurance policies offer different levels of cover, so you should check whether contents insurance is included.
Some landlord insurance policies also cover rent arrears if your tenant fails to pay their rent, so it is essential to compare the different types of landlord insurance to ensure you set up the best one for your needs.
Some letting agents will guarantee you receive your rental income in full monthly. In Brighton and Hove, The Property Shop Brighton is one of the only letting agents offering this service – click here to learn more.
Becoming an HMO (House in Multiple Occupation) landlord is more complicated than buying a property you rent out to a single tenant. For example, you may need to apply for an HMO licence, depending on the number of tenants and the requirements of your local authority. 5 tenants or more living in your property is classed as a large HMO, which will require a licence.
The first step in obtaining an HMO licence is to contact your local authority to see the licence requirements. The local council may visit the property to assess its suitability for multiple occupations, i.e., that it has adequate amenities such as toilets and kitchen facilities.
You are responsible for ensuring your property is safe and secure for your tenant to live in. The Homes (Fitness for Human Habitation) Act means tenants can take you to court if it is not. This means repairing the boiler if it breaks down, replacing broken windows, fixing a door lock etc. You need to stay on top of many different responsibilities as a landlord, both for short-term and long-term tenancies.
You’ll also want to check that everything is in working order so no one gets hurt. That means getting appliances PAT tested and fixing loose tiles and flimsy floorboards.
Another important aspect to note when renting out a property for the first time is that you have a legal obligation to put your tenant’s deposit into an accredited tenancy deposit scheme. You must inform them which deposit protection scheme their money is in.
You can end a tenancy, but it has to be done through the proper channels. Currently, you can serve a Section 21 Notice or a Sectipon 8 notice if you want to evict your tenants. But this is changing, so it’s worth keeping up to date with news in the sector (and where that landlord association membership can come in very handy).
You’ll need to get together an EPC, tenancy agreement, inventory and gas certificate before your tenant puts their foot across the threshold of your property. A Legionella test certificate is also a good idea when renting your house or apartment.
As you can see from the above, becoming a landlord involves a lot of management and legislation to plough through. But with our help at The Property Shop, we’re sure you’ll manage it. Call the team here anytime for advice on letting out your property and becoming a landlord.
Do you have any questions about the topic above? Our team of experts is here to help in answering any query you may have.
Fueled by his desire to be the best, most reputable estate and lettings agent in town, Steve has spent his career cultivating The Property Shop. Steve prides himself on his authenticity, honesty, and knowledge-base which is emulated by The Property Shop and his team.
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