AN INVESTOR’S GUIDE TO BECOMING A LANDLORD
When times of economic uncertainty bite, many investors review their portfolios to find alternative sources of income. With interest rates still fairly low, letting residential property can offer a viable long-term alternative.
But as with most investments, you’ll need to become an expert in a new field and adapt to ongoing changes in regulation. The laws governing the private-rented sector can be overwhelming, but with the correct advice, property investors can set off on the right track.
Long-term flexibility and security
According to the Office of National Statistics (ONS), rents have risen by 14.5% since 2011. For many people looking to grow their capital, becoming a landlord is an attractive option. Investing in the right property may out-perform other savings and the rent provides a steady income stream.
Most investors have a solid business-like approach to money, which is why letting residential property often suits their way of thinking. But it’s a long-term commitment and you’ll need to understand your responsibilities as a landlord.
Choosing the right property
Before investing in property, do your research. You’ll need to estimate your rental yield, which means working out how much income you can expect from the rent, minus expenses (we’ll talk about your typical outgoings later) and tax.
When searching for an investment property, check out its location and ask letting agencies and other landlords for an insight into the area. Does it contain all the usual amenities and transport links? What kind of rental income do properties of this type usually achieve? Find an experienced and trained agent to help with your search by using our find an expert tool.
When assessing a property, try to view it through the eyes of your prospective tenants. Is the property up to standard? Is it homely and in good condition? What kind of repairs would it need? How much would ongoing maintenance cost? Getting a detailed survey will help you to understand if there are any underlying problems with the property.
Knowing your responsibilities
Never forget that your investment will become someone’s home. This means that the safety of your tenants will need to be at the forefront of your mind.
Start with the new Minimum Energy Efficiency Standards (MEES). From April 2018, landlords in England and Wales will need to make sure their properties have an Energy Performance Certificate (EPC) rating of at least an E, so check this is met before purchasing.
You must fit smoke alarms on every floor and carbon monoxide alarms in any room that where solid fuel is burned (such as coal, wood or biomass). If the property has any gas appliance, you must arrange an annual Gas Safety certificate and give your tenants a copy. You must carry out a Legionnaire’s Disease risk assessment on the property before tenants move in and it’s also a good idea to have all electrical appliances PAT tested.
An accredited Domestic Energy Assessor (DEA) will also need to provide an Energy Performance Certificate (EPC), which explains the energy efficiency rating of the property. You must also give your tenants a copy of this certificate. It’s also important that you understand whether your property is a House in Multiple Occupation (HMO) and, if so, obtain the correct licence. In Scotland, Wales and Northern Ireland, you’ll also need to register as a landlord. In England, you’ll need to pass your new tenant a copy of the Government’s How to Rent Guide. In Scotland, you need to issue either the Easy Read Notes for the Scottish Government Model Tenancy Agreement or the Private Residential Tenancy Statutory Terms Supporting Notes, depending on the type of tenancy agreement in use. If your property is in Scotland, find out more from mygov.scot.
Landlords are responsible for protecting a tenant’s deposit by registering it in one of three government-authorised schemes. Although written agreements aren’t a legal requirement, it’s best practice to provide one so the tenant and landlord are both clear on their rights and responsibilities. Furthermore, it’s necessary to protect your property with the right landlord insurance.
If you’re looking for an agent that understands the legislation governing the private-rented sector, choose an ARLA Propertymark Protected agent. These agents are experienced and trained professionals who complete regular training to keep up-to-date with complex legislation and best practice.
They are also backed by Propertymark’s Client Money Protection (CMP) Scheme which means that you and your money are safeguarded. Use our find an expert tool to search for an agent.