If you are thinking of becoming a landlord and thinking of renting a property for the first time, then we have some renting tips for you.
It is essential to buy a property at the right time, at the right price and in a reasonable location.
If you have not bought a property yet, you should look at the cycle of our economy as it stands now. You have your up’s and your down’s. We have been on the up for a long time; hence the house prices are likely to go down. Given the scourge of COVID-19 that plagues all of us, to some extent, will affect our house prices.
Before COVID-19, UK property was already considered 50% overvalued by the world, bank, which was later revised at 30%.
We accept there will be a time to buy, that time is not yet. What we are going through now will take effect and feed through in about five months. At best we may go through a “correction” with the house prices stabilising in the 4th quarter. The worst scenario is where we go through a worldwide depression; currently, we are at the mercy of COVID-19.
What does becoming a landlord involve?
Becoming a landlord in the UK is not easy, as some may think. It is a business and should be treated as such. It is crucial you know what is involved in becoming a landlord. We will walk you through to the basics how to become a landlord in the UK.
We can’t promise by reading this; you will avoid all landlord related renting issues; however, it will go a long way helping you.
If the property you wish to rent is in Wales, then from 23rd November 2016 you will need to be accredited to manage your own property. Please read our blog on rent smart wales.
What are the benefits of becoming a landlord?
· Income, this is undoubtedly the main reason many consider becoming a landlord.
· Tax deductions.
· Long-term security.
· Flexibility of managing an investment.
What are the risks of becoming a landlord?
Some of the risks and problems landlords generally face is:
· Broken promises.
· Payment problems.
· Lack of Maintenance.
· Bad letting agent.
· Loss of rental Income.
· Malicious and accidental damage.
· Water damage.
Becoming a landlord, in our opinion, is an excellent idea, we accept renting is not everyone’s cup of tea. It is no doubt, financially gratifying.
Renting out a property for the first time
Becoming a landlord and renting out a property for the first time should be a pleasant experience. Landlords need to take their responsibility seriously. You do not want to be sued by the tenant, or fined by the local authority, for non-compliance of licensing issues or disrepair.
You could spend years building your property portfolio and through a silly mistake, end up losing money. Becoming a landlord, or thinking of renting a property, we need to look at what you need to know:
Never rely on one expert’s opinion, indeed including mine. Check, do your research, seek their views.
Complying with legislation – ensuring you are aware of your legal obligations. We have broken down the area’s you need to cover:
- Common law
Rent guarantee insurance for tenants
You can protect yourself when thinking of renting a property for the first time. The rent guarantee insurance for tenants may give you peace of mind. If you do opt do this, then read the inclusion clauses in the insurance policy. You can obtain a draft copy before taking out a policy.
The Exclusion clauses are equally important, and you need to know, under what circumstances can your policy become invalid. The exclusion clauses, usually are much longer, so read them carefully. If in doubt, seek clarification from the broker, and get it in writing.
You should inform your building insurer that you intend to let the property. Make sure you have the evidence they are aware the property is let.
If you are obtaining a buy to let mortgage, all good and well, if you own the property, you need to inform the lender you intend to let and seek their consent. Before doing this, read your current mortgage terms & conditions before you tackle the lender. Lenders will usually charge higher interest on the mortgage if the property is let.
In recent years, the government has introduced a raft of various legislation. It is imperative; you are aware of what they are. Some councils have introduced licensing, so check if the property you intend to let, requires licensing. Inform the council you intend to let your property and ask them:
- What help can they give you?
- What do you need to do legally, to let your property?
No harm in asking, you may have further local resources to help you. Some councils may have grants to make your property more energy-efficient.
It is crucial, the tenancy you use is good a well-written agreement. It must be balanced, fair but needs to cover your backside. The tenancy, must by law, be fair.
You cannot and should not amend the agreement, where you reverse some of your legal obligations. It is a landlord’s legal obligation, to carry out annual gas inspections, and ensure the property is in good repair, safe and complies with health and safety. You cannot reverse these, to read the tenant is responsible for landlords’ obligation. Even if the tenant wants them reversed, do not do it.
This situation can arise, where the prospective tenant is a plumber, electrician, carpenter, or a builder and agrees to do the work for a reduced rent. I have defended enough cases for landlords with these scenarios. My advice to you is very simple, it can get messy, expensive, so do not do it.
There is an exception to this rule. If the tenancy:
- is not an assured shorthold
- does not come under the housing act
- is a common law tenancy
Then I would argue you should reverse the repair clauses to read; the tenant is responsible for repairs and maintenance.
Let me give you a scenario; you let your property to a letting agent. The letting agent, in turn, lets to who they will. With this arrangement, your tenant is the letting agent. The letting agent is the landlord to the people physically in your property.
Because your tenant is a company, it is not capable of being an assured shorthold tenancy. For this reason, it may be a good idea to reverse the repair clauses in the agreement.
Why am I suggesting you consider the above is due, to my experience in litigation? Most letting agents, deliver an excellent service and are honest. However, a few rogue agents could end up giving you sleepless nights.
The contract you may be given to sign is likely to read; you are responsible for the repairs. In some arrangements, it even has clauses, the agent (your tenant) will carry out any work required and deduct the cost from the rent.
I have dealt with countless cases where landlords are faced with deductions almost every month. Often for alleged repairs that were not needed or never carried out.
There are lawyers who nationally only help landlords. These lawyers who deal with defences and licensing issues daily, see all weird and wonderful situations. Is there anyone better to write a tenancy then any one of these companies? I personally think not.
The only tenancy I know, written by one of these companies, is by Mr Sasha Charles of Landlord Advice UK.
For the above reason, the tenancies used by The BLA are written by Landlord Advice UK.
Never leave a signed copy of a tenancy agreement with a tenant, that the tenant has not signed. Never give possession of a property before you have a signed copy of a contract to hand. To not deliver possession of the property, until you have the advance rent and any deposit monies that have been agreed.
Only once you have the above, then give possession of the property to the tenant. Some prospective tenants may require written confirmation, the offer of a tenancy, to get a deposit from the council. Be aware, do not give a written agreement under this guise; you are not required, nor is one needed.
Some councils have a template for this purpose; you complete, sign, and return this to the council.
It is useful to know the basics of civil law, if possible, study this. Not every eventuality is, or can, be covered by housing law. The law in England, Wales and Scotland for landlords differs, so be conscious of checking what applies or does not apply to you, when letting a property.
Do I need Credit and referencing when renting out a property?
If you are thinking of becoming a landlord, then you need to familiarise yourself with credit and to reference.
It is a legal requirement landlord or if you have an agent that you check the prospective tenant has the right to rent before you let. The British Landlord Association credit & reference report also includes the right to rent.
Always carry out a credit referencing check on a potential tenant. Before you start spending money on a credit check, make sure the tenant has completed a tenancy application form. The application will request all the necessary information. You need to study this, make some necessary checks, ask the tenant some question, consider if the tenant is right for you, for the property.
Checking the tenant out is a vital part; getting this right could save you years of headache, time, and money.
Be a detective, don’t take everything you see or hear or receive as correct, the truth or original.
Once you have done the above, and you are not overriding your gut feeling (a bad feeling) proceed with a credit check.
Best places to invest in property
You probably heard the term, location, location. Well, the location should be high on the list, when looking for the best places to invest in property. A property in a good location will mean that you are likely to keep your tenants for longer, and your void periods are less. A property in a good location will let much quicker.
So, avoid bargain properties in undesirable areas. An empty property may mean, you pay the council tax until it is let. Yields in undesirable areas, look good on paper, but in practice, the story generally is a lot different.
Unexpected Buy to let maintenance
Keep the property in good condition and carry out any preventative work as required. Prevent the breakdown of any appliances by regular servicing. This will reduce the frequency of urgent repairs. In some instances, loss of service may mean you have to give your tenant compensation, due to lack of service. If, say the tenant had no hot water, or heating, gas cooker or washing machine. These items, if not working, the tenant would be entitled to some compensation.
Do landlords need to register with ICO – GDPR
It is essential; you are aware of the privacy laws, and how to handle the information you hold for your tenant. You will need to visit the ICO website and see if you need to register. Most landlords will need to be registered.
Tenant not paying rent
A tenant not paying rent can be a stressful time for a landlord. When it comes to a tenant not paying rent, the justice system is not on a landlord’s side. Tracking down rent payments takes time and effort. It may cause your mortgage payments to be late, causing you financial difficulty. You could have a tenant who damages the property, and you are left with a bill to repair the property.
The cost of evicting a bad tenant, in addition to finding a new tenant, is both expensive and time-consuming. You will need to consider the following costs:
- Court fees
- Legal fees
- Council tax
- Possible property clean-ups & repair
- Loss of rent (2-6 months)
Gas Safety Check
Landlords must ensure that all gas appliances, pipework, and flues are maintained in a safe condition. To provide this, a landlord gas safety check must be done annually by a Gas Safe engineer.
From April 1st, 2020, all new and existing properties must have a minimum EPC rating of ‘E. You cannot let a property without an EPC.
Should I allow tenants to smoke in the property?
Check your insurance policy, it is a fire hazard and could have an impact on your property, furniture, and decor, so consider this carefully.
Smoke and Carbon Monoxide Alarms
A smoke alarm must be fitted on each floor of the property, and a carbon monoxide alarm is a requirement in rooms which has a wood fireplace or wood burner.
Every electrical appliance in the property must be safe to use; the electrical installation in the property must be safe and ideally up to current standard. There is no mandatory requirement for electrical installation safety testing. We recommend you have routine inspections, by a qualified electrician.
Minimise risks of Legionella
You are required to ensure there’s a minimal risk of Legionella in the property, read our guidance.
Deposit Protection Scheme
If your tenant paid a deposit on or after 6 April 2007, then you must by law use a tenancy deposit protection scheme.
You do not need to take a deposit from a tenant. If you have received a deposit from a tenant, you must by law, protect it under any one of the 3 Deposit Protection Service, which is government-backed schemes. My Deposits is one of the schemes, also known as Mydeposits.
You can use DPS or TDS these are the other 2 Deposit Protection Service companies.
You must protect the deposit within 30 days of receiving the deposit; you must within 30 days, give the tenant a copy of the deposit certificate, and the deposit prescribed information.
Failing to comply with the deposit legislation, means the tenant can claim up to 3 times the value of the deposit, as compensation.
You do have an alternative to taking a deposit which is ZERO deposit, which comes as a pack when you do a credit & Reference check. Instead of taking a deposit, you can purchase insurance that covers your legal expenses and the value of a deposit. With this type of arrangement, you do not need to take a deposit.
Right to Rent legislation
Ensure your tenant has a right to rent in the UK. Landlords are legally required to ensure their tenants have a legal right to rent and reside in the UK. You are required to check the identity of each applicant, for example, passport and driving license.
Should I rent out my property furnished or unfurnished?
It is your choice. However, note, whatever you provide if it breaks or through general wear, you will need to replace or repair it. Professional landlords very rarely let a property furnished or with any white goods. More to go wrong, you fit the bill. Any furniture that forms part of the tenancy must be fire retardant.
Should I ask for a guarantor when renting out a property?
If you like a prospective tenant, but they fail on credit and referencing, you have an option to consider accepting a suitable guarantor. You can ask for a suitable guarantor to be provided. A guarantor is someone who agrees to pay the rent or covers the damage to the property if the tenant does not pay. It is crucial you carry out credit & referencing checks on the guarantor.
When renting out a property should I allow pets?
Entirely for your consideration. Should you agree to pets, we recommend you ask your tenants, what pets they have, and how many. Write in the tenancy, what pets, and how many are permitted.
Should I use a letting agent?
Using a letting agent Letting agents are useful, and most are worth the service they provide if you don’t have time to manage your rental property. However, they generally charge a fee of between 8-15% of the rent.
A letting agent will do the work for you and can arrange viewings, secure tenant references, and check a prospective tenants credit history, bankruptcy, right to rent etc.
Letting agents generally do a good job and can reduce the stress of renting out a property. There are good and bad letting agents, if you are going to use a letting agent, chose one carefully.
This blog will give you some insight into what is involved in becoming a landlord; it will not and does not cover every renting eventuality. You should seek legal advice before venturing into the Buy to Let market. Note legislation is changing rapidly, even more so now, because of COVID-19. Check to ensure the content of this blog is relevant and up to date.
Set a firm foundation for your buy to let, by going through what your tax strategy is going to be. Do not take an attitude; you will see how things go. You should know the options, the pros and cons. If you intend to invest and build up a portfolio, you must consider using a limited company. Seek advice on a limited company, as a vehicle for your properties, and consider the disadvantages of owning it personally. Holding property personally may have financial implications for you. You will have to pay income tax on your rental income, minus your day-to-day running expenses.
Your accountant should be able to advise you.
Author: Sarah Featherstone
Author: Sarah Featherstone
Source: British Landlords Association
Date: 14th of August 2020