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If you decided to become a landlord, congratulations. Becoming one could change your life and your approach to property forever. Perhaps you decided to invest in real estate and earn some passive income from renting properties out, or you may be unable to sell your home, and you’re considering renting it out in order to pay the mortgage. Regardless of why you’re about to become a landlord, here are a few things you need to know first.
Landlord Licenses
Legislation introduced in 2006 created landlord licensing. The purpose of the landlord license is to ensure that the properties meet certain minimum standards. Before you become a landlord, find out if you need a landlord license from your local council. This is separate from things like an Energy Performance Certificate required to let or sell a property.
The Responsibility You’re Taking On
As a landlord, you’re obligated to maintain the property. Experienced landlords suggest doing a little and often approach, doing little repairs so that you prevent major problems. Expect to spend at least £250 per year per property. This is aside from refurbishment costs like cleaning up after a prior tenant moves out or fixing up the property to attract tenants. This averages several hundred pounds a year.
Landlords have a legal obligation to make sure the property is safe. This is why all gas equipment is inspected annually by a registered Gas Safe engineer. Tenants should be given a gas safety check record before they move in, and you should give it to them within a month of the annual safety check being done.
Landlords must ensure that the electric system is safe. This includes the wiring, fittings, and all electric appliances. Landlords are required to get an Electrical Safety Certificate. The laws regarding EICR or electrical installation condition reports went into effect in 2020. The new law means that you must be able to provide an EICR to tenants, the managing agent, or local authorities within thirty days of their request.
Businesses like electricalsafetycertificate.co.uk can perform an electric system inspection for or as well as emergency light testing and fire alarm testing. They will be able to issue the certificate for you, where you’ll be able to see what grade your system has and which issues would need to be addressed for the unit to be compliant.
The Costs of Owning Rental Properties
The biggest expense most property owners have is the mortgage. If you want to buy your first property, it is currently difficult to get a mortgage without a 20% deposit. If you already own several properties, banks will require evidence that you’re earning a profit from the properties before they loan you more money. If you have a mortgage, the mortgage lender can require you to have landlord insurance. It is advisable to have landlord insurance even if the property is paid for. You can choose the level of coverage, such as whether you only cover the building or cover the contents, too.
If you choose to use a letting agent to find a tenant and collect the rent, they’ll take at least ten percent of the monthly rent. Their assistance may be worth it if they minimise the expensive “void periods” when you don’t have anyone living in the property. If they also do property maintenance and deal with tenant queries, they’ll take 15 to 20 percent of the monthly rent.
You’ll probably need to pay income tax on the profits earned on a rental property as well. The taxable amount is what is left over after subtracting allowable expenses like letting agent fees, insurance, legal fees, and property repair costs. Property owners used to be able to write off most of the interest on buy-to-let mortgages, but the mortgage interest tax relief that landlords can claim has been declining since 2017.
Also, note that the wear and tear allowance was abolished in 2016. You can now only claim the actual cost of what you replace. You’ll also have to pay property taxes every year. If you’re buying a property, you’ll probably have to pay a 3 percent buy-to-let stamp duty surcharge.
References
As a property owner, you want to check the references of new tenants. After all, it is easier to reject a tenant who hasn’t paid their rent regularly than to evict them later. This is why you must follow up with previous landlords. Furthermore, you want to verify their employment and check their credit. More importantly, you have a legal obligation to ensure that tenants have a right to lawfully live in the United Kingdom. This is outlined in the Immigration Act of 2014. Failure to run this check can result in a fine or even jail time.
Tenancy Deposit Protection
When you receive a deposit from your tenants, you must protect it in a tenancy deposit protection or TDP account. There are three different schemes available, but you must protect the deposit within thirty days of receiving it. Furthermore, you must give the tenant the Deposit Protection Certificate information. Fail to do this, and you may not be able to evict the tenant, and you’ll be forced to return the full deposit. That’s assuming you’re not hit with a fine of up to three times the value of the deposit.
The Record-Keeping Requirements
You’ll need to have a formal tenancy agreement to protect your rights as a landlord. Then keep a copy of the agreement in case disputes arise later. We mentioned the need to have regular safety checks earlier. You must keep records of these checks. It is not only legally required, but it helps to keep your property insurance valid. If you want to protect the property in a furnished unit, have a detailed and accurate property inventory. Document the condition of the unit’s contents before you rent it out, if you want to be able to deduct the cost of repairs or replacing items from their deposit.
The high price of British property is forcing many to rent rather than buy. This makes it a great time to be a landlord, but you need to understand what is involved before anybody moves into the property.