Our top tips for new landlords
The current economic climate is creating a whole new class of ‘reluctant landlords’, according to a recent article in The Sunday Telegraph. These are people who are renting out the family home in order to move elsewhere. In a better climate, they would have sold up, but with the rental market continuing in strength, allowing strangers to take control of your house suddenly seems a much better idea.
The trouble is, as David Salusbury, chairman of the National Landlords Association, explains, these landlords do not know the basic mechanics of how to rent out their homes. "It isn’t something to be undertaken lightly," he says. "With a single letting you are putting all of your eggs in one basket - there is no Plan B".
That said, there are plenty of things that can be done to smooth the path of a 'reluctant landlord'.
Here are our top tips:
Make a financial plan
The first important thing to do is to work out whether letting your property really is a financially viable proposition. If you are renting just one property, and have a full-time job, dealing with tenants can be a lot of work.
When you make your financial plan, take into account the cost of renting the property out, including any changes that will have to be made to the property. Also bear in mind that there will be ‘void periods’, where no-one is in your property, in your calculations. Contact several local agents to get a realistic estimate of the likely rental income.
Be aware of tax
Work out the tax implications of renting out your property. The rent you receive will be treated as income and taxed in line with your basic or higher-rate tax bands. However, there are certain things that can be offset against the tax. These include mortgage interest payments, letting agency costs and maintenance expenses against the taxable rental income.
Make sure your property is up to standard
Spend enough to make your property a tempting proposition - particularly if it is a family home.
Parents with children will be more concerned about shabbiness and safety issues than young sharers.
Be flexible with your requirements and don’t put in unnecessary restrictions on children and pets unless you have a real reason to do so.
Make sure your home is safe to be rented out
Plenty of things that you have been prepared to live with for a long time will not be suitable if someone else is coming to live in your property.
You will need to obtain a gas safety certificate from an engineer registered with gas safety body 'Gas Safe'. You will also need to get the wiring checked by a qualified electrician. "It would be good practice to get a certificate for this too," Salusbury, at the NLA, says.
Some larger properties may also need fire detectors before being rented out.
Have an appropriate mortgage
Make sure you inform your mortgage company, says Malcolm Harrison of the Association of Residential Letting Agents (ARLA). In some cases, your mortgage company will not force you to change your mortgage, but they all have different criteria.
You may find that your lender forces you to change to a buy-to-let mortgage with a higher interest rate. Do not be tempted to leave your lender in the dark about your tenants. If you don’t inform them, you will be in breach of your mortgage conditions, and your insurance would be invalid should anything happen.
Get insurance cover
Talk to your insurer. If you are renting your property out, you are still responsible for buildings insurance on the property, as well as your own contents, fixtures and fittings. The insurer will need to know that the property is being rented out.
A specific landlord’s insurance policy will cover you for things like loss of rent and landlord liability.
Get a proper tenancy agreement
Make sure you get a proper tenancy agreement, says David Salusbury, chairman of the National Landlords Association (NLA). Do not just rent to friends, assuming that this will go alright. "These are the lettings that are most likely to go wrong," warns Harrison, at Arla.
An assured shorthold tenancy agreement is the standard. This must be for at least six months and guarantees you will get your property back at the end of the agreement.
Customise your tenancy agreement
Customise the agreement to suit your needs. Don’t just rely on standard clauses. "For instance, if you have a garden, make sure that the agreement makes clear that the tenants have to keep the garden up," Salusbury says.
Harrison suggests that it is worth insisting on a professional clean when tenants move out. "Everyone’s idea of clean is different", he warns.
Agent or no agent?
Decide whether or not you want to use an agent to let the property. If you use one, be aware that they could keep between ten and twenty per cent of the rental income. However, a novice landlord might welcome the help with finding a tenant and checking them out.
Always check references
Make sure you take references from potential tenants. If you are letting through an agency they should do this for you, but you can also do this yourself. "It doesn’t take much time to put a call through to an employer or a previous landlord," Salusbury says. "Always check that someone is who they say they are."
Make use of the landlord deposit scheme
Lodge your deposit with a landlord deposit scheme. From April last year, all tenants’ deposits must be protected. There are two different types of schemes - you can either lodge the deposit with a ‘custodial scheme’, handing it straight over to a third party. Otherwise, you can pay an insurance premium to a deposit scheme and keep the money.
Contact Rutherfords Lettings for help and advice.
