Many home owners consider the possibility of renting out their property, particularly if they are finding it difficult to sell. There are some key things every first time landlord needs to know.
The popularity and sheer number of property programs on television tells you all you need to know about the interest in making money out of property.
Many people see it as a way to earn a fortune and work for themselves. As always there is a little more to it than that. Programs about property development tend to focus on positive experiences and frequently talk about large profits from redevelopment and the high yields that can be achieved from letting a property.
There are many reasons why someone would venture into the letting market:
1. Their house may be proving difficult to sell
2. They have inherited a property through a family bereavement
3. They have inherited or received a lump sum of money such as retirement benefits
4. They want to dip their toe and earn some extra money
5. They have to work away or abroad but want to keep a property in their local area
6. They have purchased a property in a University city to provide accommodation for a son or daughter attending the University
7. They are hoping to save for retirement using the increase in equity that a rental property will achieve
On the face of it the process would seem fairly simple. Advertise your property, find tenants, arrange a contract, watch the money roll in. However there are some things that any first time landlord should be aware of.
If you already own your property, your present mortgage is unlikely to include a buy to let option. In most cases you can let a room in your house under your present mortgage but if you wish to let the entire property you will need to arrange a buy to let mortgage. Buy to lets tend to have a higher interest rate and require a bigger deposit and a smaller loan to value.
You present buildings and contents insurance will not cover you for lettings. Having tenants in a property has a much higher risk of damage etc. If you don’t tell your insurance company and you subsequently wish to make a claim your policy will be invalidated.
Covering your mortgage payments
You may be lucky enough to own the house outright. However, most people have a mortgage on the property they are renting out. The rent you can charge will not be dictated by your mortgage payment, it will be dictated by the local market. You must insure that the rent you can reasonably expect to achieve covers your mortgage payment. If you are using a rental property as an investment it may suit you to pay a mortgage that is slightly more or equal to the rent achieved. It very much depends on your individual circumstances.
Finding good quality tenants is not as easy as it sounds. You need to advertise or build contacts locally. You will need to arrange contracts, get references etc. and find a guaranteed method of payment. If they don’t pay it is down to you to chase. Be prepared for the fact that tenants may damage the property or fail to make payments. Owning rental properties is a business like any other so you need to manage the cash flow.
If you are a landlord you will be required to maintain the property. A burst pipe in the middle of the night will be down to you to sort, whether it’s in person or through trade contacts you have. Either way, maintenance must be considered as part of your business costs.
Non-payment of rent
You may have secured a tenant but they may refuse to pay. Even if they are in the wrong it is going to take you a while to evict and there are certain rules and regulations you need to follow. Your solicitor should advise. In the first instance don’t scrimp on contracts. You may be tempted to write one yourself or buy a stock one from the internet. This is a mistake. If you intend to run things properly take the time to have a proper contract drawn up by a solicitor. It may save you a great deal of heart ache later on down the line.
House price and rental fluctuations
House prices and rental costs can go down as well as up as they are dictated by what the local market is prepared to pay. Take this into account, particularly if you are using the property to secure your retirement.
Furnished or unfurnished?
If you offer furnished accommodation there are laws relating to the fire retardant nature of the furniture etc. If you offer student accommodation there are certain pieces of furniture that have to be present in each room of the house. Make sure you know what is required. Many landlords offer unfurnished accommodation to avoid this but the accommodation itself still needs to adhere to all relevant health and safety requirements.
Housing DSS tenants
Many landlords shy away from this option as they feel the tenants may not be of the right quality. However DSS tenants have their rent paid by the local authority so this can avoid any payment issues. Previously rent was paid directly to the landlord who made it a sound option. Now rent money is paid directly to the tenant and there has been a sharp increase in rent arrears as a result. This may change back in the future.
Using a rental agency
This is sound option for many landlords as it can reduce the risk of many of the issues I have already listed. A rental agent will, as a minimum, market your property, handle viewings and complete paperwork such as contracts etc. They may maintain the property for you or guarantee to cover your rent after a qualifying period if the property is empty. Be aware that the agency will charge a fee at the start, a monthly fee, a percentage of the rent or a combination of all three. The more services the agent provides the more you will pay. This is particularly true if you want them to cover your rent. Also bear in mind that the property may need to be un tenanted for a number of months before any rent cover comes into operation.
When picking an agent you must shop around. Online estate agents like Zevizo properties will provide exactly the same services but at a greatly reduced cost to you.
Letting a property can provide valuable income, an investment for the future and give you the opportunity to work for yourself. However you need to enter into this as a business arrangement with your eyes open to the pitfalls. If the numbers balance and you are fully prepared it can be an extremely rewarding exercise.
Zevizo Properties is a national, online estate agent, marketing properties on all the major property web sites. We list properties for rent for fees starting at £49.