The Ultimate Guide to Becoming a Landlord in 2020

Is it time you started thinking seriously about becoming a landlord? If it’s something you’ve been considering, this guide is for you. From getting started through to vital things to consider, our residential property management experts have all the advice you need to make a go of it.

Why should I become a landlord?

The number of private rented sector households in England more than doubled from 2.1 million in 1996-1997, to 4.7 million in 2016-2017. As a response, in the UK, there was a 27 per cent increase in landlords from 1.97 million in 2011-2012, to 2.5 million in 2015-2016. This, combined with the prediction that 59 per cent of 20 to 39 year olds in England will be renting privately by 2025, proves that ‘Generation Rent’ is on the rise.

What’s more, the Office for National Statistics (ONS) reports that private rental rates in the UK have seen a 14.5 per cent increase since 2011, proving that landlords’ income is on the rise.

Whilst being a landlord requires a great deal of commitment, many find that with help from professional property services agencies, and the backing of supportive schemes such as guaranteed rent, renting property in the private sector can provide a very healthy passive income.

Is my property suitable for rental?

Whether you are purchasing a property specifically for the rental market, your own property is becoming vacant as you move in with someone, or you have inherited a home, there are standards it will need to meet before it will be considered suitable for tenanting.

All properties offered for private rent in the UK must be fit for habitation in compliance with the Homes (Fitness for Human Habitation) Act 2018. Plus there are other factors to consider when preparing your property for a new tenant, not least gas, electrical and fire safety. If you are considering offering an HMO (house in multiple occupation) for rental, then there are various specific rules to follow.

Aside from the suitability of the property itself, it is important to consider whether rental demand for your property type is adequate in the area. You can take advice from a residential property management specialist, or consult the likes of Zoopla or Rightmove to see what’s in demand locally.

How do I get started as a landlord?

You’ll need to approach being a landlord in the same way as you would starting a business.

Firstly, you’ll need to register as self-employed with HMRC within the stipulated timescale. It is always a good idea at this point to form a relationship with a trusted accountant. Choose one that comes recommended, preferably by another landlord. They will be able to help you set up your landlord business in the most tax efficient way, and will ensure you stay on track with all your finance and tax reporting responsibilities.

Having experienced property industry professionals on your side is always a good idea. Not only will they be able to steer you in the right direction, they’ll also help you when it comes to making important decisions.

A good property lawyer is a must, and you may wish to engage a property services or lettings agency to help you manage your property. There’s more on this below. Some landlords take advice from a consultant or mentor, usually an established landlord with extensive experience, able to share insights and market knowledge.

What do I need to consider as someone who is new to residential property management?

There are various things to take time to consider before becoming a landlord and letting out your property.

Who will manage my property?

Residential property management agents can be especially useful if you are planning on being more hands-off than hands-on. Many landlords prefer to hand over the day to day running of their properties, particularly if they already have a day job and are simply looking to earn a passive income from renting.

A property management agent will cover everything from marketing your property and sourcing tenants through to referencing, organising check-ins and interim inspections; taking care of maintenance and repairs including dealing with emergency call-outs; rent collection; end of tenancy check-outs and preparing the property for a new tenant, and plenty more including making sure your property complies with all the various legislation that applies to private rented properties.

A managing agent who has experience as a landlord themselves will be able to offer an inside perspective and added value, so always bear this in mind when making your choice.

Do consider the costs though, and how they will offset against your earnings. Also look closely at what each property services agent offers for their fee, as this will vary quite a lot.

Should I rent my property furnished or unfurnished?

Furnished properties tend to attract a greater monthly rental value. You will however need to consider the additional costs involved in repairing or replacing whatever you supply at the end of the tenancy. Also bear in mind that you are responsible for the safety of anything you supply as part of the tenancy.

Should I allow pets in my rented property?

More than half of households have a pet, according to SpareRoom. It’s also reported that pet owners are finding it increasingly difficult to source rental accommodation that welcomes four-legged friends. In fact, 78 per cent of tenants struggle to secure pet-friendly accommodation.

Whilst there is an obvious risk associated with allowing pets, property services experts will advise that doing so can boost the rent-ability of a property, and may attract good, long-term tenants. Some landlords do agree to allow pets, but the associated risk is reflected in a higher than average rental rate.

Should I allow smoking in my rental property?

The majority of landlords will outlaw smoking in their properties. It is a health hazard, a safety hazard, and can significantly reduce the lifespan of furnishings and décor.

If you do ban smoking, be sure to make it clear to your tenants and include it in your tenancy agreement. It’s also wise to carefully check your interim inspection reports for any evidence of smoking.

What are the costs involved in being a landlord?

Your aim as a landlord is to cover most of your costs via your rental income. Here are some of the main outgoings you’ll need to consider:

Preparing for rental: Not all properties are ready to rent. You may need to factor in costs for refurbishment, and for making sure your property meets all the applicable regulations, including fire, gas and electric safety. You’ll also need to allow for providing all the necessary certificates, including an Energy Performance Certificate (EPC), a Landlord Gas Safety Certificate (CP12) and an Electrical Installation Condition Report (EICR). If you are renting out an HMO then you’ll have additional responsibilities and costs to consider, including licensing. A licence may also be necessary for letting standard family homes, depending on the rules set down by the individual local authority. Our guide to preparing your property for a new tenant provides helpful advice on what needs to be done to get a property ready for rental.

Furnishings and appliances: If you are letting your property furnished then you will need to budget not just for supplying furnishings, but also for maintaining and replacing them periodically. All furnishings supplied for private rentals must meet the Furniture & Furnishings (Fire) (Safety) Regulations 1988 (as amended). So, if you are planning on leaving that ageing three piece suite that came as part of your inheritance, you may need to think twice if it doesn’t bear the necessary fire labels.

Repairs: It is highly advisable to set aside a contingency fund which you can tap into should unexpected costs arise, such as repairs. A leak, a flood, a broken appliance… all these unanticipated issues can put a strain on finances unless there are sufficient back-up funds available to cover them. Remember to keep receipts for any repairs, as the costs will usually be tax deductible.

Residential property management fees: For landlords taking a hands-off approach, there will usually be property management fees to factor in. These do vary, but will generally be around 10 to 15 per cent of the rent. There are however alternatives such as the homes2let rent guarantee scheme where there are no fees, admin costs or commission to pay.

Mortgage repayments: If you have borrowed to finance the purchase of your property then you will need to factor in the repayments as a cost, even during void periods. It is important to be aware that if you have a regular mortgage on your rental property rather than a specialist buy to let loan, you must get permission from your mortgage lender before letting it out.

Insurance: Whilst tenants are responsible for covering the cost of any contents insurance they wish to put in place to protect their own belongings, it is down to the landlord to take care of the buildings insurance. It is also vital for landlords to cover their own contents such as carpets, appliances, beds and sofas for theft or damage, especially when renting furnished. Other recommended insurance for landlords includes liability, legal expenses and home emergency cover.

Legal fees: For peace of mind, landlords are advised to have their tenancy agreements reviewed by a property lawyer to ensure they are sound. Other legal fees may arise from time to time, for example when there are issues with a breach of tenancy agreement, or repossession proceedings need to be pursued.

Tax: You will need to pay income tax on the profit you make on your rental income. This equates to your income, minus allowable expenses. You will also be liable for Class 2 National Insurance if what you do constitutes running a business. Your accountant will guide you in this respect.

Void periods: You will need to account for periods when your property is not tenanted and you have no rent coming in. Costs will still be due during these periods, so you’ll need to factor in a contingency, or choose a guaranteed rent solution that covers you for these in-between times.

Residential property management with a difference, from homes2let

homes2let offers a unique solution for landlords who are seeking the hands-off approach to renting their properties. It’s a solution that takes away all the hassle of property management, offering a fully comprehensive service, combined with a guaranteed rent scheme that sees rental payments continue, even during void periods.

If you are looking to become a landlord, but really want to take the easier route, our property services offering could be for you. To learn more, you are welcome to get in touch. We look forward to speaking to you.