Becoming a landlord
It’s important to go into the buy-to-let market with your eyes wide open, aware of all the ins and outs that are involved in becoming a landlord.
Here are a few things you need to consider upfront, when weighing up whether you’re the right sort of person for the job (because afterall, it is a job).
Find a property
Never underestimate the amount of time it could take to find the right property. Would you prefer a new build or an older property? Newer properties should come with fewer maintenance issues, but an older property may give you the opportunity to add more value.
Also, think about how many bedrooms the house has and how many tenants it could home. If your property is going to house more than three tenants, who aren’t members of the same family (commonly known as a ‘house share’), it will be classed as a House in Multiple Occupancy (HMO).
House of Multiple Occupancy
HMO’s often offer higher gross rental income but the downside is, they can often suffer from more frequent tenant changes and usually incur higher fees and
HMOs can sometimes require a different type of licence, and those at higher occupancy levels (five or more tenants) will need to be registered.
As a landlord for this type of property, you need to ensure that:
• The house is suitable and offers comfortable living standards for the number of tenants living there.
• Either yourself, as the private landlord, or the letting agents you’ve chosen, needs to be ‘fit and proper’. This means a clear criminal record and no history of having previously breached any landlord laws or code of practice.
• You need to send your annual gas safety certificate to the council.
• When requested, you can provide safety certificates for any electrical appliances.
• You install and maintain smoke alarms in the property.
Find a tenant
Probably one of the most important things when renting a property is a) finding tenants to occupy the house, and b) finding the right tenants. You don’t want to end up with troublesome tenants who cause you nothing but problems.
The type of tenant you want to attract will largely determine the area you look to invest in. For instance, if you want to attract students or professionals, you’d probably be looking for a property that has maybe 3-5 rooms that can each be rented out individually. In terms of location, for students and young professionals, being within easy reach of the city/town center is often desirable, along with good transport links too.
In comparison, if you’re looking for long term tenants then you might want to attract a family looking to settle down for a few years. The location would no doubt be nearby to local schools and amenities, and you’d likely be looking for a 2-3 bed property that you can rent out as one whole unit.
Different types of tenants can include:
These tenants might be working in the area, or the UK, temporarily, and are often high earners looking for a more upmarket property for a short period of time, and often a fixed amount of time according to their employment contract. These tenants will often rent through a letting agent rather than directly through a private landlord.
These tenants are likely to rent for a long time, rather than save money to put down a deposit on a house. Professional tenants look for easy transport links to make their commute to work as easy as possible.
Since the selling off of council houses, the private rented sector has become more popular to dss tenants and those living on benefits, than the amount of people living in social housing.
Students are short-term tenants who rent out either in the city center or nearby areas, from around one to three years, typically. Again, a student renter would look for excellent transport links in and out of the city and to their relevant campus. The type of tenants you let to can impact the availability of mortgage lenders, as not all lenders will lend on all tenant types.
A letting agent can be really valuable in finding and vetting prospective tenants. They can help with securing references, credit checks etc. which comes at a cost but could be money well spent.
The property is your sole responsibility so anything that needs repairing, maintaining etc. will come down to you. You need to make sure you’re easily contactable via phone and email, and it’ll be your job to find the right people to fix the problem, whether that be a plumber, electrician etc.
It’s also important to remember that it’s not always just the inside of the property that needs maintaining. If you invest in a property with a garden, tenants might not
maintain it, so to avoid any potential problems you might want to consider either hiring a gardener or making the garden as low-maintenance as possible i.e. patio
slabs rather than grass.
You need to be prepared for having to deal with all types of tenants, including the difficult ones. Are you willing to have difficult conversations when needed? This could be anything from missed rent payments, a rise in payments, inspections or handing out an eviction notice? If you think you might struggle with this side of being a landlord, you could employ a letting agent who would be the tenants first point of contact.
The market can be quite unpredictable at times so it’s important to be prepared for this. It’s wise to have funds, aside from your landlord income, to insure you against
any downturns. As well as changes in the market, there might also be times when your property is unoccupied. You’ll need to have a back-up plan for paying your mortgage during this period.
Buy-to-let is a medium to long-term investment, so the first thing you might want to ask yourself is, can I afford to tie my money up for a period of time?
How much to borrow
The terms for a buy-to-let mortgage are constantly changing; it can be difficult to keep up to speed with it. For instance, higher and lower rate taxpayers are often
treated differently or a five year fixed mortgage might get you a bigger mortgage than a two year fixed.
Typically, landlord mortgages require a higher deposit than you’d need for a residential mortgage, meaning the loan-to-value (LTV) ratio could be smaller than
other mortgages, such as first time buyer mortgages, for example.
Buy-to-let mortgage rates can vary depending on several factors, such as:
• Your credit score
• How much deposit you’ve put down
• How risky the loan is
• The type of mortgage product recommended for your circumstances
For these reasons, it’s always worth seeking advice from a qualified mortgage adviser whose job it is to be ‘in the know’ when it comes to buy-to-let.
Pricing the rent
Deciding how much rent to charge your tenants can be tricky. Generally speaking, the amount you set the rent at will be determined by the market itself. A good way
to get a feel for how much you would charge would be to look online at Rightmove and Zoopla and see what a similar size property in the same area is charging.
Once you’ve purchased the property, and therefore know the cost for stamp duty etc., and how much you can expect to receive in rent, you can then work out your
For example, this could be:
Property value: £165,000
Rental income (monthly): £700.00
Your expected rental yield: 5.09%
If, after you’ve done the calculations, this amount isn’t quite what you expected, then you can make a decision whether to go ahead with your buy-to-let venture.
Because we play by the book we want to tell you that…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.