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Becoming a Landlord

Buy to let Mortgage Property

If you have made the step of purchasing a property to rent out to tenants, there are a number of things to consider before you let your property. This article assumes that you have arranged a buy-to-let mortgage (if necessary), exchanged contracts and paid all relevant fees, as well as any stamp duty. Once all of these things are completed, you are ready to think about renting your property.

Your Tenants

Now you are in possession of the property, consider whom you hope to have as a tenant. Did you buy a larger house or flat near a university in order to rent rooms to students? Are you hoping that young professionals will rent your property located near local amenities? Or are you aiming to attract a family to rent a suburban home? Think about the advantages or disadvantages of that group of people for you as a landlord.

Students can be a regular source of income for short term lets, with more or less guaranteed demand for accommodation near universities and the opportunity to charge rent per room. Students will not expect expensive fixtures and fittings, but a party lifestyle may cause noise disruption for neighbours, as well as damage to the interior of your property. Also, students may want to rent rooms during term time only, which means that your property could be vacant for several months of the year. You will have to consider how you will ensure your rental income and meet any mortgage payments. Perhaps you will decide to target graduate students, rather than undergraduates, who tend to have a more work-focused lifestyle and need accommodation all year round.

Young professionals can be ideal tenants for smaller properties, as they usually have a higher income than students and will require accommodation all year round. They will look for a modern and well-designed space with smart fixtures and fittings and depending on income may be willing to pay extra for perks such as access to a garden or a parking space. Possible disadvantages of these tenants can be that they may not have entirely given up a student lifestyle and cause nuisance to neighbours etc, or in the early years of their careers they may be required to move at short notice for work. In this case it is important that you have carried out background and credit checks in advance to avoid problematic tenants.

Families can be perfect tenants for larger houses, as parents are more likely to be responsible and treat your property like their own home. Families are also more likely to be looking for a stable base and may want to rent for a longer period, which is good for you as a landlord. Most families will also have their own furniture and so you can let your property unfurnished, which can reduce your initial outlay and avoid problems with damaged fixtures and fittings. However, it is worth remembering that while parents may responsible and reliable, their children or any pets (if you permit these) could cause damage to your property. This may depend on the age of the children in the family and the type of pets they may have. If you are concerned about the possibility of damage you could negotiate a higher deposit. 

How Much Rent Will You Charge?

If you have arranged a buy to let mortgage to purchase your property the rent is probably determined by the requirement to charge tenants at least 125% of mortgage repayments. However, before deciding on your property’s rent, research the rents of other similar properties in the area. Consider any advantages your property may have to offer over others in the rental market, for example proximity to local transport links, amenities, access to a garden or even sea views. Also consider whether you will permit smoking, pets or children in the property. While you may be concerned about possible damage to your property, you may be able to charge a premium for these options and you will also increase the number of possible tenants.

Managing Your Property

As a landlord you have a number of legal responsibilities towards your new tenants. You should carefully consider whether you will manage your property or will employ a letting agent. Each option will involve expenses of both time and money. Agents will require a percentage of rent in fees for their services, but not all agents charge the same so contact a number of local companies to see what they offer landlords. At the moment many letting agents want to recruit new landlords and so may offer a good deal.

Be aware that if you choose to manage your property yourself you are liable for organising repairs to your property, arranging contracts, collecting deposits and putting them in a Tenant Deposit Scheme, collecting rent, chasing arrears, dealing with queries about the property as well as advertising the property and finding tenants. All of this takes time and money and you may find that it is more cost effective to use an agent who will have all the relevant systems and contacts in place. If this option seems attractive but you are unhappy with the terms offered by major letting companies, consider going for a small independent agent who can offer a good service to both you and the tenant.

 However if you are happy to be a more hands-on landlord, perhaps because you live near your rental property, seek advice from other landlords you may know. Ask around for the names of reliable tradesmen for repairs and consider getting legal advice to ensure you know the implications of tenancy agreements, the Tenant Deposit Scheme and what to do if any problems or disputes arise.

Advertising Your Property and Choosing Tenants

If you have decided to employ an agent, they will be responsible for advertising your property and should agree with you where your property will be advertised, for example in classified ads, on the agent’s website or on national property websites. If you decide to manage your property yourself you can advertise in the local area, by putting an advert in newsagents’ windows or even putting up a ‘To Let’ sign with a contact number. Word of mouth can also be a very effective way to find a reliable tenant, as you are likely to know a little bit of background about the tenant before you meet them.

 Becoming a Landlord

No matter where potential tenants hear about your property, arrange a face-to-face interview, asking about previous tenancies and their reason for moving. You will need to feel comfortable dealing with your tenant, so consider tenants who you feel seem pleasant and reliable people. Good communication will help to avoid problems later on. At this stage make sure that you carry out background and credit checks on the possible tenants. If these checks are positive, you can offer the successful applicant a tenancy. If you have employed an agent they will ensure all of these things are done on your behalf, and should inform you once a suitable tenant has been found.

The Tenancy Agreement

You should always make sure that you have a signed tenancy agreement before you allow tenants move into your property. This is a legal document that sets out the rights and responsibilities of both the landlord and the tenant. It contains details such as the length of the tenancy agreement, the amount of rent payable, and what is or is not allowed in the property.

 Today the default tenancy agreement is known as an Assured Shorthold Tenancy (AST) and although other types of tenancy agreement exist, this is the most common. The AST will include all the relevant information regarding the tenancy including the deposit required, your name and address (so that tenants can contact you if there are any problems with the property) and how often the rent is to be paid. If you are using a letting agent, the agent will manage all these aspects for you, but you will have to sign the tenancy agreement.

The AST assures the tenancy for six months (even if the agreed rental period is shorter than this), with a two-month notice period on either side at the end of the fixed term. If the rental period is longer than six months you cannot regain possession of the property until the end of the contract unless the tenant has breached the terms of the tenancy agreement. However, if both parties wish to continue the tenancy after the initial rental period, the contract can either be renewed or it becomes a month-by-month tenancy with a two-month notice period on either side.

Rights and Responsibilities

 

As a landlord, your rights are:

  • To receive rent on time

  • To limit the number of people living in the property

  • To have the property kept clean

  • To have tenants who do not disrupt the peace and respect their neighbours

  • To have the tenant repair, or pay to repair, any property that they damage

  • To sell the building

  • To charge a market rent 

Your duties are:

  • To maintain your property and keep it in a good state of repair

  • To fix problems such as malfunctioning plumbing or a broken boiler

  • To ensure that the property is safe to live in

  • To give tenants notice before entering the property 

Tenants rights are:

  • To live in the property without undue interference

  • To receive notice when the landlord wishes to enter the property

  • To have visitors to the property 

Tenants duties are:

  • To pay rent on time

  • To keep the property clean and tidy

  • To maintain the fixtures and fittings of the property in a good state

  • Not to disrupt the peace of neighbours through excessive noise or other activity 

If the tenant does break one of the terms of the tenancy agreement, for example by not paying rent on time or by causing a nuisance to neighbours, you can give two months’ notice to quit the property. If the tenant does not agree to leave, under terms of the tenancy agreement you can apply to the county court for a possession order. This is relatively quick and easy and the court has no discretion to refuse.

Deposits

The amount of deposit you charge depends on your property and the value of fixtures and fittings. Deposits are usually between one and two months’ rent and are paid to you or to the agent at the beginning of the tenancy to cover any possible damage or for any unpaid rent.

Since 2007 the UK Government has changed the law so that landlords must put deposits in a Tenant Deposit Scheme, which should be managed by you or your agent. On receiving the deposit you can either put it in a custodial bank account, where the money accrues interest, or into an insurance scheme. For the first option, an independent company manages the account and you will not have access to the money for the duration of the tenancy. At the end of the tenancy, the deposit is returned to the tenant along with any accrued interest. In the case of an insurance scheme, you keep the money and pay insurance premiums into the scheme. You may be charged membership fees to join but at the end of the tenancy the scheme will return the deposit to the tenant.

Within 14 days of receiving a deposit you or your agent must provide your contact details to the tenant, tell them which deposit scheme you are going to use and the contact details and provide information on the purpose of the deposit and when they can expect it to be returned at the end of the tenancy. You must also explain what will happen if there is a dispute about deductions from the deposit. You should know that failing to put the deposit into a recognised protection scheme would make you liable to pay a fine to the tenant of three times the value of the deposit.

As a landlord you must return deposits to tenants at the end of the tenancy period. You can only deduct money or retain the deposit if there are rent arrears or costs incurred from damage caused by the tenant. Advertising or re-letting costs, or normal wear and tear of goods are not normally valid reasons for withholding a deposit, and it is illegal for you to hold a tenant’s goods in lieu of any money owed to you.

If you have kept a clear record of the condition of any furniture, appliances, fixtures and fittings in an inventory that was agreed at the beginning of the tenancy it should be straightforward to explain deductions from the deposit. Once deductions are agreed, you must ensure that the deposit is returned to the tenant within 10 days. If there is a dispute, the Tenant Deposit Scheme will take possession of the deposit and will decide to whom it belongs. Usually this process will be completed within 30 days. In addition, if the tenant leaves any of their possessions in your property after they move out, you have the right to them. You can inform your tenant that this is the case, but you have no obligation to do so.

Checking into the Property and the Inventory

Once contracts have been signed and the rent and deposit have been received, you or your agent should meet the tenant at the property to ‘check in’ and go through the inventory. Make sure to explain heating and ventilation system, and the days when waste or recycling is collected. Using an inventory, agree the condition of the property, furniture and appliances that are there for tenants’ use. Make a written record of any changes to the inventory, which you and the tenants must sign and date.

Insurance

Insurance is not legally required when you become a landlord, but it is highly recommended. Cover ranges from landlord’s business insurance, which covers fire, flood and malicious damage, to fully comprehensive building insurance, which may cover legal costs and loss of rent. Insurance can cover you against liability in the case accidents that occur on your property and you can apply for extra cover for accidental damage, employer liability cover and legal protection for contract disputes or debt recovery.

In addition, home emergency cover can help with contractor’s call out charges, labour, parts and materials up to a specified amount. This cover will include maintenance and repairs to plumbing, heating and roofing, which is particularly useful if you choose to manage the property yourself and live at a distance from it.

Rent guarantee cover is very useful in cases where tenants fail to pay their rent. This can happen for a number of reasons, including redundancy or sickness. If you have unreliable tenants the process of eviction can be lengthy and expensive and insurance can lessen the risk of financial losses.

Insurance premiums are relatively inexpensive and it is possible for you to lose a considerable amount through unexpected costs, especially if you rely on rent payments to pay the mortgage on the property. Of course, how much insurance cover you choose depends on your attitude to risk, the size of your property portfolio and the extent to which you are involved with the management of the property.

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