The good news if you are thinking of renting out your home instead of selling, or dipping a toe into the buy-to-let market, is that there’s plenty of advice available to the newbie.
The bad news is that there are plenty of pitfalls to trap the unwary private landlord, including tenants who won’t pay their rent or deliberately cause damage to the property or the fixtures and fittings.
Here are my top tips for avoiding trouble and links to some essential information.
Check renting is worth the investment in time and money
As a landlord you are running a service business, so you need to know there’ll be a return on your investment in time and the property, be it a house or flat. Profit can come from rental income and capital growth through increases in property value – always assuming residential prices do rise.
But there are costs to be included in your budget calculation. Buy to let mortgages are advanced at higher interest rates than loans for your main residence and lenders will ask for a bigger deposit, say of 20%.
Then there are insurance premiums, replacement of fixtures and fittings as wear and tear takes its toll, repairs and maintenance to maintain the property’s value, any ground rent or leasehold service charges, void periods between tenants, and any lettings agency fees or marketing costs.
Deduct these costs from the rent to arrive at your net annual expected income. Divide the latter figure by the value of the property to reach the net rental yield in percentage terms. There’s more useful advice on yield, and an example of the maths, at the property website rightmove.co.uk.
Tell your lender and the tax inspector
Some mortgage lenders allow you to rent out your home but many do not. Don’t break the conditions of your loan. Talk to a broker for advice on buy-to-let mortgages.
The tax inspector will need you to fill in a tax return for the business you’ve started. HM Revenue & Customs can chase up unpaid tax for years, even after you have closed the business and sold the property.
Know your responsibilities
Letting property brings with it a host of responsibilities including the legal requirement to protect tenants’ deposits using one of the government-authorised schemes. After taking a deposit, landlords have 14 days to inform tenants how it is protected.
This protection was introduced in April 2007. But landlords should be aware that if the terms of a letting made before that date are altered, the appeal court in the recent Superstrike ruling (named after one of the parties) said it should be treated as a new tenancy and the deposit must be protected.
Then there is the gas safety certificate, which can be issued only after an annual inspection of all pipe work, flues and appliances by a Gas Safe Registered engineer. There’s more on this at the British Gas site.
The Department for Communities and Local Government, which deals with legislation concerning assured shorthold tenancies, says private landlords should also consider having electrical installations and equipment checked. ‘There is no legal requirement to have an electrical safety certificate but you do have a duty to keep electrical installations in proper working order and to ensure that any electrical equipment supplied with the property is safe,’ it says in an advice leaflet.
The Electrical Safety Council recommends that a check of the electrical installation in rented properties is carried out every five years, and that interim checks are carried out on an annual basis.
It is also necessary to provide an Energy Performance Certificate (EPC) whenever the property is let to a new tenant.
It makes sense to keep the property in good repair to make an eventual profit on the sale, but also because local authorities can take action against you if the property contains serious health and safety hazards. There is health and safety guidance for landlords at the department’s website.
Landlords need specialist insurance cover when renting out property to tenants, and should also be sure building and contents cover is in place. It is possible to insure against unpaid rent. Again, speak to a broker or ask SJ Collections for more information.
In the next part of this article we’ll consider the rights of landlords when a tenancy goes wrong, with more top tips on how to avoid the property rental pitfalls.