Important information for first time landlords
Entering the lettings market is not an endeavour that should be rushed into blindly. Whether you intentionally choose to invest in a buy to let property, or the role of landlord is foisted upon you as the result of owning or inheriting a second property you feel compelled to let rather than sell, the outcome promises to be disastrous if you fail to familiarise yourself beforehand with the legalities, practicalities and responsibilities of let property ownership.
You cannot assume that just because you have a property to offer, tenants will come flooding in. You need to consider the factors that will affect the property’s rental potential, for instance if the property is not located in an area that is desirable to tenants or if it is unsuitably large or small for your target tenant group, you will find it difficult to make your investment thrive. Thus, if you have chosen to invest in the lettings market, do your research before buying a property so you can determine the optimum location and property type to buy, based on your tenant target group. If you already own the property, also do your research before resolving to let it, so you can determine if letting is a viable option.
Seek the advice of letting agents, since they are likely to have a better familiarity than you of the local letting market and can help you determine a property’s rental valuation. However, make sure any letting agent you consult is a member of an established organisation such as the Association of Residential Lettings Agents, and if you decide to retain the services of an agent to manage the property for you, first compare the fees and services offered before you pick an agent.
As a first time landlord, you will need to learn and comply with all the laws that govern the private letting sector. With over fifty Acts of Parliament and an even greater number of regulations, you cannot afford to be ignorant of the legalities expected of you including, but certainly not limited to, the rules governing Houses in Multiple Occupation, safety regulations and tenant deposit schemes.
Houses in Multiple Occupation – The legislation relating to HMOs is thorough and ever changing, and in order to be compliant you must familiarise yourself with and stay on top of the rules that define what constitutes an HMO and when registration, licensing or planning permission must be obtained in order to operate an HMO.
Safety Regulations – Landlords are legally responsible for the gas, fire and electricity safety of the properties they let, and failure to comply with the regulations can result in a fine or imprisonment, not to mention a destroyed property, so make sure you know what your responsibilities are in this regard. For instance, a CORGI certified technician must conduct a gas safety check every year, furnishings you provide within the property must comply with fire safety regulations and smoke detectors must be installed on every floor of Houses in Multiple Occupation and properties built after 1992.
Tenant Deposit Scheme – Gone are the days when landlords could do whatever they wanted with a tenant’s deposit. Rather, landlords must now pay the deposit into a government-authorised insurance or custodial scheme, and within two weeks give their tenants the details of the scheme into which the deposit was placed.
First time landlords must also learn and comply with the requirements expected of them by their mortgage lender, insurance company and the taxman.
Mortgages – If you are purchasing a property with the sole intent of letting it, you must obtain a buy-to-let mortgage. Obviously, before you commit to the purchase you should calculate all the costs involved, including the deposit amount you will be expected to pay and the percentages charged in fees. If you already own a mortgaged property that you plan to turn into a rental, you must first obtain written consent from the mortgage lender allowing you to let the property, otherwise you will be in breach of the mortgage’s conditions. If you own a leasehold property, you must obtain the written consent of the freeholder allowing you to turn your property into a let.
Insurance – An important point new landlords must be aware of is that standard household insurance is not sufficient coverage for a let property. You must inform the insurance company that you require landlords property insurance. It is up to you to determine the level of coverage that best meets your needs and budget, but it is crucial that you not leave yourself and your property inadequately protected. Let property insurance options for you to consider include landlords building and landlords contents insurance, liability insurance, legal expenses coverage and rent guarantee.
Tax Obligations – Landlords are required to complete a self-assessment tax return declaring their rental income. If you are new to the role of landlord, talk to a financial expert to learn how to go about doing this and to find out what expenses you are allowed to claim back.
As for finding, signing and keeping tenants, this has to be done with care. Your goal, if you want your investment to be a success, is to fill your property with responsible tenants and to retain them, and to avoid long void periods when your property sits empty generating no rental income.
Finding Tenants – Know in advance your target tenant group, and do not waste time and money advertising your property in places that are not going to be seen by your target group. For your property to be attractive to potential tenants, it needs to be well maintained and decorated, and furnished appropriately. Experts advise using neutral colours for the interior paint job, carpets, tiles and curtains, and to avoid unnecessary personal touches such as hanging up paintings. For maximum appeal, you should include important appliances, certainly a stove and fridge/freezer at the very minimum, but avoid over furnishing the property unless your target tenant group calls for a fully furnished property. Student tenants, for instance, tend to prefer fully furnished properties, since they usually have little furniture of their own, but many tenant groups such as young professionals, prefer to furnish their domicile with their own belongings.
Contents Insurance – Bear in mind that even if you offer a limitedly furnished property, it is worthwhile considering landlords contents insurance as part of your policy, particularly if you obtain it so that it includes liability coverage in case your tenants or their guests injure themselves on your property and claim negligence on your part.
Signing Tenants – Before finalising the lease paperwork, it is imperative that you run a complete background and credit check on the potential tenants, and obtain personal and professional references from them. Do not sign tenants without checking them first, and do not sign tenants without using a formal and legitimately drafted lease agreement. The lease agreement is necessary to protect you as a landlord and to set forth the obligations expected of your tenants, and should also include a complete inventory that details the condition of the property and the contents within.
Keeping Tenants – If you have responsible tenants, you will want to keep them as long as possible, so treat them well and avoid any behaviour that could be construed as harassment. When your tenants contact you about a problem, respond immediately, rather than risk earning their disfavour by ignoring them. If you treat your tenants with respect and make an effort at keeping the property maintained, they are more likely to return the favour by treating you and your property with respect, and they are more likely to want to remain as your tenants.
The setting of and receipt of rent is an extremely important issue with landlords, so manage the issue wisely. To avoid deterring potential tenants, use caution against setting the rent amount unrealistically high, and to avoid hurting your bottom line, do not include utilities in the price of rent. With rising energy costs a factor, it is better for you if your tenants take care of their own bills.
Rent Guarantee – Have a plan in mind as to what course of action you will follow if you are unfortunate enough to experience tenants who go into rent arrears. Pro-active measures you can take, in addition to running credit checks, include asking your tenants to designate a guarantor, usually a parent or a homeowner they know, who is willing to assume financial responsibility if the tenant falls behind on rent, and to take out rent guarantee insurance.
As a first time landlord, you may find yourself expending a lot of time and energy in managing your let property while you learn the ropes. To help yourself in this regards, seek advice when you have questions or are unclear on an issue, and retain assistance when needed. Join a professional landlords association, sign up to landlord forums online and keep a list of service people handy in case you need to call on an electrician, plumber or other specialised tradesperson for inspections and emergency or general repairs.
Ladaniel McNaughton is a professional landlord and home improvement expert who has written prolifically on the subjects. His musing can be seen at Landlords Insurance, and rent guarantee insurance
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