Tips for first-time landlords
Making money from property has probably crossed your mind at some point. Indeed, if you have recently sold your home, there is a strong chance you have made money from its capital growth.
Perhaps you are already thinking about investing in property with money made from your recent sale.
If so, there is much to consider. Have a look at Ellis & Co’s guide for first-time landlords, which will take you through the process and outline things you need to consider before taking the plunge.
Is property a good investment?
Assuming you made a sound profit from the sale of your own home, you probably already know that, in the right circumstances, property can be an extremely lucrative investment.
However, there are factors to consider. One way to make money from property is through capital growth.
In a growing market, property values will rise and, when you come to sell, you will make money. Simple, but a ‘long game’.
In order to generate an income from property, you need to rent it out. Of course, as well as the rental income, in a positive market, you should also see capital growth from your investment.
Are there risks with property investment?
Of course. Any investment carries with it a degree of risk.
Property prices may have risen steadily for the past decade, but the crash of 2008 showed that prices can go down as well as up.
Moreover, the demand for rental properties can be strong, but it can also be slow. As you would be responsible for the mortgage payments on your buy-to-let property, an investment with no tenants can have a huge effect on your cash flow.
A rise in interest rates, meanwhile, can sometimes mean the monthly rent generated from your tenants is not enough to cover your mortgage.
These are all ‘stress’ factors that you would need to consider before investing in a buy-to-let property.
What are the costs of purchasing a buy-to-let?
Landlords purchasing buy-to-let properties face the same kind of costs as those buying property to live in.
Estate agent fees, surveys, conveyancing bills and stamp duty tax are all costs to be considered by rookie landlords.
In terms of stamp duty, those buying a second home or buy-to-let property must pay an additional 3% on each band.
And while landlords could previously deduct their mortgage interest costs from their taxable profit (yes, you have to pay income tax on your rental profit), changes in legislation mean from 2020, all mortgage interest costs on landlord buy-to-lets will be subject to the basic rate of income tax.
What would my running costs be?
Taking into account all of the above, you may have decided that you definitely wish to pursue purchasing a buy-to-let property.
If that is the case, you will need to calculate your rental yield. In order to do that, you need to know what your day-to-day costs will be.
These costs will include:
- Mortgage interest
- Fees for letting agents
- Costs of decoration
- Landlord insurance
- Bills for safety checks
- General maintenance costs
What are my legal obligations?
The safety of your tenants is paramount. As such, most of your legal obligations as a landlord will be ensuring:
- Smoke alarms are installed on all floors
- Carbon monoxide detectors are used in rooms with coal fires or wood-burning stoves
- Each gas appliance must has its own safety certificate and these are available inside the home
- Electrical devices are PAT tested for compliance
- Furniture is fire safe and all labels are on display
- The water supply is safe to protect tenants from Legionella bacteria
You must also supply a valid Energy Performance Certificate (EPC). Under new rules that came into effect from April 2018, all rental properties must carry an EPC rating of E or above.
Finally, your tenants’ deposits must be secured in an approved tenant deposit protection scheme.
What other responsibilities do I have?
Your exterior of the property and its maintenance and repair falls on your shoulders as the landlord. Problems with the roof or structure of the building must be fixed at the landlord’s cost, while utility supplies like water, gas and electricity must be kept in safe working order and maintained.
Can I access the property?
If you give notice, yes. Landlords must not do anything that could be labelled spoiling the tenant’s ‘quiet enjoyment’ of the property so usually at least 24 hours’ notice is required if you wish to visit.
Are HMOs a good investment?
Houses in Multiple Occupation (HMO) provide landlords with several rentals under one roof, so can be good ways of generating a diverse income.
A rental property is classed as an HMO if it houses three people or more as individual tenants and they share a toilet, kitchen and bathroom.
By letting an HMO, you have a degree of income protection in that if one tenant leaves, you still have others in the property paying you rent while you look to find another.
What are the rules for HMOs
A property classed as a ‘large’ HMO, boasting three storeys or more and at least five individual tenants, will require a licence.
Landlords are also subject to additional legal requirements on top of those associated with standard buy-to-lets.
HMOs must not be overcrowded and suitable cooking and washing facilities must in place. The property’s electrics must also be checked every five years.