If you are considering purchasing a property to rent to tenants, you need to take steps to ensure your investment gives you the return you need. We take a look at some tips to help you succeed.
Buy-to-let is less popular than it has been in the past due to higher mortgage rates and a substantial Stamp Duty surcharge of 3% for second and subsequent properties. There is also a proposed overhaul of letting rules coming, which could make letting tougher for landlords, with restrictions on rent increases, more powers for tenants to challenge eviction notices and an end to fixed-term tenancies.
But for those who want to buy-to-let, the good news is that the rental market is very hot, with more tenants than property available. Following our tips may help you make the best of being a landlord.
Do your research and choose your property carefully
As a landlord, you need to ignore your personal tastes and preferences and take a good look at which property will give you the best return. This includes the area, the type of property and the way in which it is presented.
You could choose to let to families, professional couples or students. Choose the right area for your ideal tenant as well as an appealing property. Families will appreciate some outside space while professional couples may be prepared to forego this in return for a sleek, modern flat.
A good layout is important as well as clean and neutral decoration. Avoid a garden that will need a lot of maintenance as you cannot guarantee that your tenants will take care of it. Similarly, quirky properties will limit your market.
If you will be buying a house to let to students, you need to be aware of the legal requirements for ‘Houses in Multiple Occupation’ or HMOs, which include the need for a license, registration and inspection by the local authority.
Calculate the return you can realistically expect
You need to look carefully at the figures. As well as the deposit and mortgage you need to factor in other expenses, including:
- Stamp Duty, to include the 3% surcharge
- Legal fees
- Agency fees for finding a tenant
- Agency fees for property management if you do not want to do this yourself
- Buildings insurance and maintenance costs
- Landlord insurance
- Professional fees if you need ongoing help from a solicitor or accountant
- Health and safety costs, such as electrical safety certificates and maintenance of fire alarms
- Capital gains tax on sale
You should also assume that the property may be unoccupied from time to time when you are between tenants, particularly if you need to carry out updating or decoration.
Understand what you will have to provide and what you can do as a landlord
You need to ensure that you know what you have to provide and that you have the budget and scope to deal with this.
Gas and fire safety checks will need to be carried out on a regular basis.
Tenants have a number of rights which must be complied with, including being provided with the government’s ‘How to rent’ guide and having their deposit protected in a Tenancy Deposit Scheme.
You will also be required to verify their identity and check that they are legally permitted to live in the UK.
Rent increases can only take place as specified in the tenancy agreement and there are strict rules governing eviction.
Know how to deal with the tax situation
Rental income is taxed in accordance with your tax bracket. There is a tax credit of 20% on mortgage interest.
There may be a benefit to some landlords of setting up a limited company to purchase and own property, but this is not always advantageous, so you need to take professional advice about your own circumstances.
Some expenses can be offset against income, so you need to understand what is allowed and what is not. If you need an accountant to deal with this aspect, you will need to factor in their costs.
Decide whether you want an agent to deal with the management
If you are not able to drop everything to find an emergency plumber or deal with a crisis at the property, you may prefer to employ a managing agent. They can deal with all aspects of the rental, including finding a tenant, verifying their identity, ensuring the deposit is dealt with correctly, drawing up an inventory, ensuring you are legally compliant and arranging for maintenance to be carried out as necessary.
Contact us
If you would like to speak to one of our expert property lawyers, ring us on 0333 3055 189 or email us at info@lpropertylawyers.co.uk
