With the rental market becoming more and more popular, becoming a landlord has never been more appealing.
We have compiled a guide of the important points to remember when considering buying your first investment property, including the implications and potential pitfalls of being a landlord.
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Pick the right property
Do your research. You’ll want to attract the right tenants, achieve the highest rent possible for your property, and avoid void periods between tenancies.
Ask Normie & Co. for the best advice, we will tell you the location and type of properties that are highly sought after by tenants. Our local market knowledge is second to none.
Consider regional variance, do apartments let more easily than houses in the area you are looking to buy? Never forget that Buy-to-Let is considered to be a medium to long-term investment.
Pick the right mortgage
With Buy-to Let slipping into the mainstream there are an ever increasing number of products to choose from. With more choice, often comes more confusion. Again- Research is the key!
If you’re buying a property to rent out, you’ll need a buy-to-let mortgage. These differ from conventional mortgages you use to buy your own home, so it’s important to understand how they work...a good mortgage broker or your bank may be a good place to start. Normie & Co. can recommend a Mortgage Broker on request.
Other things to consider….
Include "running" costs in any calculations
When considering a residential lettings investment and carrying out your financial calculations don’t forget all include all the extra costs incurred when running a second property as a business.
As landlord maintenance remains your responsibility, in a house this might mean decoration between tenancies, in a leasehold property regular service charges or maintenance charges as well as any ground rent are still the concern of the landlord.
Don’t forget to include costs of annual gas safety checks, buildings insurance and any rent guarantee insurances you might require.
Consider both capital growth and good rental returns
Ultimately, the property you buy and where, is likely to come down to what's financially viable. As a buy-to-let investor, you will either be relying on capital growth (increase in the value of the property over the medium to long term) or rental yield (income generated from the property expressed as a percentage of the property value). You'll need to work out which of these has the greater advantage.
For example, if your initial costs are so high you are unlikely to attain a good rental yield, you'll be depending on property prices rising.
If, on the other hand, you are buying a cheaper property to rent out to several students, you will be relying more on the rental yield.
A good rental yield is generally benchmarked at around 5% a year. However, some properties might reap yields as high as 7%-plus.
The decision whether to have your property managed
The legal obligations for a landlord in the current climate is ever increasing. If you decide to instruct Normie & Co. to manage your property we will deal with the main rental obligations.
Check out your tenant properly
Normie & Co, like any good letting agent will have access to professional credit referencing services and will use specialist companies to assess the tenants suitability. Decisions regarding referencing are made using a number of factors including credit checks etc. Where possible references are also taken from current employers to confirm earnings . A tenant assessment would not be complete without references taken from a previous managing agent or landlord where possible. Assuming a potential tenant passes referencing Normie & Co. will be able to offer a rent guarantee product that may be beneficial.
Make sure you are covered
As a landlord you are responsible for insuring your property, buildings or contents. Many owner occupied policies do not give you the cover you require and you should check you hold the correct insurance policy.
Leaseholders letting out their flats will often need to inform their management company that the property is let. The management company can then ensure that the buildings insurer is advised.
If you let a property that was formerly your main residence and you do not have a buy-to-let mortgage you will need to inform your mortgage company to make sure you are not in breach of any terms. Some mortgage companies simply charge a small admin fee to process this information.
Is rental income taxable?
Yes, rental income is subject to income tax, and will need to be declared to HMRC. In addition any profit you make when you sell your buy to let property will be liable to Capital Gains Tax (CGT). As with all tax related matters seek professional advice.
It’s not all bad news, there are a number of expenses that can be offset against the rent you receive to reduce your tax bill, including letting agency fees, mortgage interest costs and maintenance expenditure, again please seek professional advice as tax law can change.
Produce a detailed inventory
The inventory is your only proof of how the property was provided at the outset. It should accurately describe, in fine detail everything within it. Should a dispute arise and need to be adjudicated on at a tribunal, this document will need to paint a tangible picture to people who have not seen the accommodation so that a judgement can be made.
Normie & Co. will arrange an inventory to be carried carried out before a tenancy starts and after the tenancy ends. Without an inventory the chances of successfully deducting costs, should it be necessary, from a tenant's deposit is very slim.
Insist on a deposit
It is usual to insist on a deposit of five weeks. Holding this deposit will offer protection to you against any damage caused by the tenant or dilapidations (subject to inventory being in place). A deposit is not to be used for compensations for general wear and tear.