Five things you might not know about becoming a landlord
Many people end up renting out property “by accident”. They are ordinary folk with ordinary jobs, and have become landlords because circumstances have made it possible - or even necessary. For instance, they may have needed to relocate but been unable to sell their property, so chose to rent it out instead. They may have a property with negative equity, so postpone selling until prices have recovered.
Whatever their reasons, it does mean that tenants could be renting from well-meaning but inexperienced landlords who are unaware of the ever-changing rules and regulations.
But it’s vital for landlords to keep up with the legals and the easiest way to do this is to rent out your property through a respected letting agent, which is a member of a regulatory body such as the Association of Residential Letting Agents (ARLA), The National Approved Letting Scheme (NALS) or Royal Institution of Chartered Surveyors (RICS). If you prefer to go it alone, joining the Residential Landlords Association (RLA) or National Landlords Association (NLA) will help you keep on top of your legal obligations, which is an absolute must if you don’t want to be fined for breaches or end up in jail!
To give you some idea of the things you need to consider before letting a property, here are five key mistakes made by newbie landlords:
- Failing to set an objective before investing. Are you looking for long-term capital growth or do you want a regular income from the rent? Be aware that the latter is becoming more difficult to achieve due to the loss of the 10% wear and tear allowance, which was ended in April, and the upcoming loss of mortgage interest relief which starts in April 2017 and finishes 2020.
- Not checking the tax implications of earning rental income. For example, if you already earn more than £50,000 you could end up losing your child benefit, if you receive it.
- Not buying the property in the correct way. If you are purchasing a property with somebody else, you can buy as Tenants in Common or Joint Tenants. The latter means if one of you dies, the property will usually pass to the other, which isn’t always appropriate when investing in property. Instead, it is often worth investing as Tenants in Common, then make sure that HM Revenue & Customs know how ownership of the property is split, for tax purposes, using HMRC form 17. It’s important to let your mortgage provider know that you intend to let the property, too.
- Not calculating the cost of void periods. These are the periods when the property isn’t let, so you have to pay any mortgage costs and bills yourself, rather than using the rental income. Expect to experience void periods of between two and four weeks per year and ensure you can cover the expense.
- Failing to take out appropriate insurance. Check that the policy covers the property being empty (most won’t cover more than 30 days), malicious and accidental damage by tenants or visitors, public liability insurance, loss of rent if the tenant leaves without paying, the cost of evicting a tenant who breaks the rules – and even cannabis factories! Don’t opt for the cheapest insurance or you could end up paying dearly.
And these are just five things you might not be aware of. There are over 145 legals to know and abide by when renting a property to tenants – do you know them all? How are you keeping up to date with any changes? Who looks after things if you are sick, head off on holiday or just get distracted with a heavy workload?
Buying to let and renting property isn’t something you can do now from your ‘armchair’ and it’s essential you get the best support which means help from those who keep up to date with the legals.
If you are nervous as a landlord or whether buy-to-let is right for you, contact www.propertychecklists.co.uk