This guide is aimed at those who are first time landlords or considering becoming a buy to let landlord; but could also prove useful for landlords with previous experience.
Understanding the costs vs return
Income:
Buy to let investing can come from two potential income streams: from rent and from capital growth of the property value going up.
The property market has ups and downs so it is possible to lose money if property value goes down, your outgoings exceed rental yield, or if the property is vacant for a period of time. So being a landlord is a medium to long term investment risk.
Expenses
Fees associated with property purchase:
Stamp duty
Valuation
Property survey
Legal costs
Mortgage arrangement fees (If you already have a property with a standard mortgage you will need to seek your Lender’s permission to rent it out)
Income tax is payable on your rental income, minus day to day running costs. There are specific rules for overseas Landlords.
If renting your property counts as running a business then you will need to pay Class 2 National Insurance
Day to day costs
It is important to factor in the day to day running costs of a property into your calculations for rental yield.
Here is a list of some of the main costs:
Letting agent’s fees
Mortgage interest
Redecorating
Landlord's insurance
Annual safety checks (on the boiler, etc.)
Rent insurance (designed to protect you against having tenants in arrears or failing to vacate your property)**
General building maintenance
Houses in Multiple Occupation (HMO)
When a house is let to sharing occupants who are not a family unit, landlords must ensure that the property complies with rules around Houses in Multiple Occupation (HMO).
What is HMO?
A rented property is considered a House in Multiple Occupation if:
A property is occupied by five or more people, forming two or more households, who also share facilities such as the kitchen or bathroom, regardless of the number of storeys the property has.
What is a ‘household’?
A household is defined as either a single person or members of the same family who live together. A family includes people who are:
· married or living together (including same-sex couples)
· relatives or half-relatives (eg grandparents, aunts, uncles, siblings)
· step-parents and step-children
What are my responsibilities if I let a HMO?
As well as all your normal legal responsibilities you must ensure:
· smoke detectors are installed
· electrics are checked every five years
· that the property is not overcrowded (there should be a separate room for sleeping for each couple, each single person over 21, and for every two young people aged over 10 years)
· there are adequate cooking and washing facilities
· communal areas and shared facilities are clean and in good repair
What is the minimum room size for sleeping?
National minimum room sizes for sleeping will be introduced:
· Minimum 4.64 square metres – one person under 10 years
· Minimum 6.51 square metres – one person over 10 years
· Minimum 10.22 square metres – two people over 10 years
· Any room where the ceiling height is less than 1.5 metres cannot be used towards any minimum room size
You must contact your local council to determine whether you need a HMO licence before you let to tenants. If not, you could risk a fine of up to £20,000.
Decorating & furnishing your rental
Getting the décor and furnishings right may not always improve the value of your property but can help improve your chances of securing a tenant in a competitive market, and reduce the time your property is empty.
Colour Schemes
As a general rule neutral is considered the best way to go as it will appeal to more people, and will easily go with any furniture and furnishings.
When choosing paint use a satin finish so that it will be easy to clean walls in between tenancies and reduce the remedial work to get the property ready for the next tenant. Use high durability paints that contain acrylic or latex to cut down on the need for redecoration. If you need a quick turnaround between tenants use water based acrylic paint which dries quickly.
Flooring
Go for a mid tone carpet that won’t show dirt or stains. Cheap carpets may be appealing, but are less likely to last especially with regular professional cleaning. So choose the best quality flooring you can afford. Light carpets are difficult to maintain, and show dirt and stains too easily.
Carpets are generally preferred in sleeping areas, but good quality laminate or wooden floors are good for high traffic living areas.
Furnishings
Providing a furnished property can be a godsend to tenants who are on temporary working contracts and can help show off your property.
Ensure that each room has the basics covered:
Lounge – sofa and side table
Dining area/room – table and chairs
Bedroom – bed and bedside tables
If you are aiming at students you may want to invest in a desk and chair to meet their study needs.
White Goods
Supplying white goods in your rental may also be an added incentive to achieve a quick rental. The minimum would be cooker and fridge/freezer
Preparing for your tenants
Below is a checklist to use to make sure you are ready for your tenant(s).
Go through the property and ensure it is clean and presentable
If you were the prior resident arrange to have your mail redirected
Transfer utility bills into the name of the new tenant
Arrange for the council tax to be paid by the new tenant
Leave instructions for all appliances with each appliance.
Make sure all relevant equipment is labelled correctly
Copy the house keys so that each tenant has a set
Make sure you can provide your tenants with the following:
An Assured Shorthold Tenancy agreement
A Schedule 2 Ground 2 Mortgage Notice
Energy Performance Certificate
How to rent guide
Standing Order
Smoke alarm checklist
An inventory of the property
On the day your tenants move in
Take final meter readings and give them to the tenants
Conduct, agree and sign the inventory with the tenants
Demonstrate the workings of relevant equipment - alarms, locks
Explain how to use any safety equipment - extinguishers, blankets
Provide emergency contact numbers and written explanations of how to deal with an emergency in the property
Allow the tenants to ask you any questions they have
Hand over the keys
If you are letting your property through an agency then a lot of the above will be carried out by the agent. Check with the agent what they will be responsible for. This will depend on the type of agreement you have.
Legal responsibilities of landlords
Landlords are required to fulfil a number of legal responsibilities:
Meeting Safety Standards
Landlords must ensure tenants are safe as follows:
· a smoke alarm must be installed on each floor of the property.
· carbon monoxide detectors must be placed in rooms with a coal fire or wood burning stove.
· a gas safety certificate for each gas appliance must be available inside the property.
· to reduce risk of fire, all furniture must meet safety standards and display the appropriate labels.
· any electrical devices must be safe for use, and we recommend an Installation Survey or Portable Appliance Testing (PAT) so you can be sure you are compliant.
· the water supply must be working properly to protect tenants form Legionella.
A Housing, Health and Safety Rating System (HHSRS) allows local authorities to assess the condition of a property and any potential hazards. The aim is to maintain good standards in the private rented section. Your Move can help you understand how this legislation may apply to your property.
Energy Performance Certificate
As a Landlord you will need to purchase an EPC for a property before you let it. From 1st April 2018, the property must have a minimum rating of E on its EPC as it will be unlawful to rent any property which breaches this requirement with a penalty of up to £4,000.
Right to Rent
Landlords have a responsibility to restrict illegal immigrants accessing the private rented sector and so must check that a tenant is legally allowed to reside in the UK. If a landlord does rent out a property to a tenant who does not have the right to rent, the penalty is an unlimited fine and up to 5 years in prison. (There are some tenants who you don't have to check but this depends on types of accommodation).
Information for your tenant
Your tenant must be provided with the landlord’s full name and address, or details of their letting agent. Your tenant must also receive a copy of the Government’s How to Rent guide which gives practical advice about what to do before and during a let.
Protecting a tenant's deposit
Most tenancies are assured shorthold tenancies (AST) and as a landlord you must protect the tenancy deposit with a UK government-approved deposit protection scheme.
A landlord of an AST who doesn’t protect the deposit can be fined and it can make it much more difficult to end the tenancy.
Deposits must be returned in full at the end of the tenancy, unless there is a dispute about damage caused to the property or unpaid rent.
Repairs
Landlords are responsible for most repairs to the exterior or structure of a property. This means that any problems with the roof, chimneys, walls, guttering and drains are the responsibility of the landlord. These could include a cracked window, a faulty boiler, leak in the kitchen or a leaky seal in the window. Landlords are also responsible for keeping the equipment for supplying water, gas and electricity in safe working order.
When you choose Your Move’s Fully Managed package our Lettings Hub take care of all maintenance issues on your behalf.
Accessing the property
As a landlord it is inevitable that you will need to access the property from time to time to carry out repairs and inspections. However access should not cause unnecessary interference to your tenant.
Give reasonable notice and arrange a suitable time with yourself and the tenant, the notice period is usually set out in your tenancy agreement.
Letting to tenants with pets
Preparing and maintaining your rental property requires both time and financial investment and therefore its important, when considering a tenant’s request to have a pet in your property, to weigh up the positives, protection options and things to look out for, as well as doing some background work.
Shorthold or leasehold?
Before you start, check the deeds to your property. If your property ownership is on a leasehold basis, or an older freehold, there may be restrictions on accepting tenants with pets.
Positives
Demand is high
We know that property where pets are permitted is limited because of the negative press they receive. But with 44% of UK households currently owning a pet* and the private rental market increasing year on year, those landlords who buck the trend in allowing our four-legged-friends instantly increase their chances of attracting long-term, trustworthy tenants.
Rent negotiations
Tenants may be willing to pay a higher rate to secure a property that will allow pets and to cover any potential issues.
Careful clients
A tenant who is lucky enough to find a pet-friendly property is likely to be the model tenant in order to protect their future rental opportunities.
Added security
A lesser concern for the landlord than the tenant, but a concern all the same, is security. Having a dog in the property can act as a deterrent to would-be vandals or burglars.
What to watch out for
Anti-social neighbours
Dogs and cats aren’t always the most socially acceptable neighbours. As a landlord, it is important to keep on good terms with the owners of neighbouring properties, so consider them in your plans.
Ever-present risk
Unfortunately, no matter how much preparation or protection you have in place, there will always be the risk of damage, mess, lingering odours and flea infestations.
Protection
Tenancy agreement updates
If you decide that the pet-owning tenant is for you then its worth including a pet clause in your tenancy agreement along with an additional clause to ensure that any damage is paid for or fixed and that the property is left clean.
Pet policy
Setting out your expectations for a tenant with pets can help to avoid problems.
Referencing
Consider asking potential tenants for a reference from a previous landlord relating to their pet. If that isn’t possible then their vet may be able to help. If that isn’t available ask to meet the pet and/or see the owner’s records of vaccinations and flea protection.
It's your choice
Ultimately, you have to consider how risk-averse you are. If you’re happy to take your chances and benefit from a wider market, and potentially increased rent, then tenants with pets are for you.
However, if the thought of added maintenance and cleaning raises your stress-levels then you should probably avoid it!
So Why Choose an Agent
We at Cribs Residential Lettings Ltd are determined to ensure all of our Landlord clients receive the best service. Communication is so important to us and we operate every means of communication to keep our Landlords involved and updated with everything we are doing. We will always remain protected with our association with Property Redress Scheme, UKALA, Client Money Protection, DPS Schemes, so you will always be safe in the knowledge that we have you and your property covered.
Safe & Legal - with legislation changing and updating all of the time we make it our priority to ensure all of our Landlords, their respective property and tenancies are safe & legal at all times. Our staff keep on top of the changes so that we can protect YOU.
CPD - we continue to educate ourselves through our membership with UKALA, not only with legislative changes, but with procedures, marketing, trends, innovations in the industry and much much more so that we remain confident in our abilities.
Time - We known how important this is to our landlords, we will look after everything for you, marketing, safe & legal compliance, referencing, credit checks, right2rent checks, utilities notification, inventories, safety certificates, insurances, rent collecting, payments, arrears, property inspections, reports, maintenance and servicing, legal notices, check-in and check our procedures, deposit dispute resolution, rent reviews...….PHEW !! That's quite a list of items and I'm sure you will agree using us will save you so much time.