Tips for new landlords
Taking on a buy-to-let property can be daunting, especially at a time of increased regulations and taxation in the public rental sector.
Being a landlord involves a lot of work – buying the property is arguably the easy bit. There are many things to get right, from marketing and maintenance to your legal obligations – and it’s easy to be overwhelmed in the early stages.
Here is a checklist of some of the key points you need to know when starting out as a buy-to-let landlord.
Pick your property wisely
Yield is what you’re looking for as a landlord – that’s the money you’ve invested versus rental income. High rents don’t necessarily produce good yield, for example, you may let out a property in London for a large monthly sum, but if your mortgage is high – and you have to add on costs such as service charge – your yield will be lower than in an area where rents aren’t as high.
Student towns, such as Nottingham and Liverpool, regularly top best buy-to-let areas to invest in, while the north – the north east in particular – is often a good yield bet.
Once you’ve chosen your area, you need to narrow that down even further – to the postcode, to the street. Each area will have a natural cap that dictates how much rent you can realistically charge – tenants are unlikely to pay over the odds on a property on the same street as one considerably cheaper. This is important to bear in mind if you take on any major improvements as you could end up pouring a lot of money into a property that delivers lower returns on your investment.
Who do you want to rent to?
This is perhaps the first question you should ask as it will influence where you buy your property. For example, if you want to rent to students, you’ll need to invest in a property near a university; young professionals? Choose a one or two-bed flat near transport links; families? They will require a larger property and, ideally, outdoor space.
If you are an ‘accidental’ landlord, that is you’ve inherited or come into owning a property rather than buying one specifically for letting out – you should consider the area the property is in and the type of property it is and target your ideal tenant based on these details.
Get the right insurance
With so many other obligations to juggle, it is easy to forget about insurance, but you must be properly covered to protect your investment.
Landlord insurance goes beyond basic house insurance and with a wide range of landlord insurance policies available, you need to consider how much cover you need and want. This should include buildings insurance, accidental damage cover, public liability insurance, malicious damage insurance and legal protection. Read more on the type of insurance you need here (link to article What insurance do you need as a landlord? From December 2018)
What kind of licence do I need?
In an attempt to improve the housing standards for tenants and filter out rogue landlords, a growing number of local authorities are introducing licences. Currently, more than 60 councils in England require landlords to apply for permits to let out their properties. The type of licence you need varies from council to council and the type of property you rent.
The three main types of landlord licensing in England are: mandatory licensing, additional licensing and selective licensing. Read more on licences here (link to What you need to know about landlord licences from November 2018). Several landlords have received huge penalties for failing to have the correct licence, so it’s important to check with your local authority to avoid any unwanted, potentially crippling, fines.
Check you are compliant
There’s a great deal of compliance red tape for landlords to untangle and you must understand your obligations or risk a penalty. Here is a round-up of a few of them:
- All landlords are required to be able to provide tenants with an Energy Performance Certificate, better known simply as an EPC, on the day they move in.
- The controversial Right to Rent check means landlords face huge fines and up to five years in prison for renting to tenants who do not have the correct paperwork to stay in the UK. This is where referencing is important.
- Gas appliances and flues must be safety checked annually by a qualified Gas Safe registered engineer. A record of the annual gas safety check should be provided to your existing tenants within 28 days of completion, or to new tenants upon the start of their tenancy.
Get a good letting agent
If that all sounds a bit daunting, your best option is to seek out a good letting agent who will take on the paperwork burden as well as being best placed to find good tenants. The convenience of a letting agent often outweighs the cost.
A letting agent will organise tenant references, draw up a tenancy agreement, arrange an inventory, either through them or a specialised third party and undertake the marketing and viewings of the property.