Example Lettings Blog:
Beginners Guide to becoming a Landlord
Last time we focussed on tenants moving. It’s no myth that Spring puts a spring in all our steps and the property industry sees an increase in properties coming to market. Having given our tenants top tips on finding a new let we thought it only fair to provide our landlords with the same advice.
Becoming a landlord is a big step. Like becoming a parent your world is about to change; decision making, responsibility and duty of care are all matters to consider. Get it right and it can be an enjoyable business venture providing satisfaction and financial reward. Get it wrong and it can be stressful and frustrating. Panic not. Here’s our beginners guide to becoming a landlord, so that you can set yourself on the right course to lettings success:
Do your research
Funnily enough, this was the first piece of advice we gave our tenants too. It may seem obvious, but prior to rocking up to a few property viewings, it is well worth while thinking about what you want to manage and where.
As a landlord, your rental property is like a business venture to you and therefore you are going to want to achieve the best return on your investment. You need to investigate the yield. To calculate the yield you divide the annual rent you achieve by the purchase price of the property. For example a property purchased for £140,000 with a monthly rent of £700 per month, equating to £8,400 per annum equates to a yield of 6%. Obviously there will be costs to factor into this yield, like maintenance and wear and tear but it gives you an idea of what your investment will return over placing your money in an interest savings account.
It doesn’t always equate that areas with higher purchase prices create higher yield. Tenants are not house buyers’ their criteria for renting in a certain area depends on their lifestyle. It’s therefore important to investigate what locales generate higher rates and have high demand from tenants and then look at the price of property in that area. What you are trying to achieve is to purchase a property for a low as possible and rent out for as high as possible, in order to achieve a higher yield. A decent yield is considered to be anything of around 5% and upwards. Sheffield recently ranked the top city to invest in with an average yield of 17%. If you are looking to invest in Gloucester, we recently blogged about where to invest and you can read more here…
Hand to Hold or Go it Alone?
You’ve done your research, the purchase is going through. You’re at the point of considering how you market the property for rent once it’s yours and – possibly even more daunting – once you’ve found tenants, what will be your legal obligations as a landlord. We will come onto what your new responsibilities will be shortly, and we’re really not just saying this because we are a letting agent, but if this is your first letting experience, we strongly advocate using an agent. Most agents usually offer 3 types of package to rent out your property:
Let Only: You’ve got a property to rent out and that’s exactly what the agent will do. Market the property, conduct viewings, find you a tenant, negotiate any issues between you and the tenant, reference them, generate all the correct documentation including a tenancy agreement, EPC, Gas Safety Certificate, collect and lodge the tenancy deposit, arrange an inventory (usually an extra cost involved) and check your tenants into the property. From there, they hand over the day-to-day management of the let to you. This service is one-off fee and after that all the monthly rent comes to you.
Rent Collection: Includes everything on offer in a Let Only but the agent will arrange to collect the rent from your tenant into their bank account then pass onto you for a minimal monthly charge. One to consider if you don’t like the thought of any awkwardness in chasing your tenants if they are late with their rent payment.
Fully Managed: A combination of both Let Only and Rent Collection and on top of that the agent manages the let for you. This usually includes regular inspections of the property, handling any maintenance issues that crop up and providing an emergency maintenance service for when the office isn’t open and your tenant has an issue like a burst pipe or broken down boiler. Most agents take a percentage of the rent as their fee for maintaining this service. Obviously this will impact on your annual yield, however, if you do not live in close proximity to your property or if you have a busy life with little spare time, it may be sensible to consider this option so that your tenant has a local point of contact for any issues relating to their tenancy or the property.
Of course, you may consider to go it alone, find your own tenant and carry out all the necessary paperwork and checks yourself. The remainder of this article denotes what that will entail:
Dot the ‘i’s’ and cross the ‘t’s’
There are many procedures and checks involved in creating a tenancy which generates a fair amount of documents. Here’s our lowdown of what a new landlord will need to familiarise themselves with:
- Energy Performance Certificate (EPC): You cannot go as far as marketing your rental investment without making an EPC available for prospective tenants. An EPC rating looks like the energy performance charts you see displayed on new electrical items such as fridges and washing machines. It tells the tenant how efficient the property in relation to matters such as heating and insulation so they have an idea of how expensive it may be to heat in terms of electricity and gas bills. You can read more in our blog on energy efficiency…
- Referencing: You must reference your tenants prior to entering into a tenancy agreement. The Government recently brought in a scheme called ‘Right to Rent’, making it a Landlord’s obligation, by law, to ensure that a tenant has a right to rent in the UK. You can read more on our blog here… Furthermore, it makes sense. It would be nice to think you could take your tenants on face value but there are certain checks you need to carry out. Their previous occupancies, have they ever rented before, will their income cover the rent, do they have any criminal convictions; all are relevant. There are several referencing agencies in the UK now but if you use an agent they will carry out the referencing process for you and ensure that all the correct checks are carried out and satisfied prior to agreeing the tenancy can commence.
- Tenancy Agreement: The most common form of tenancy agreement in the UK is an Assured Shorthold Tenancy Agreement but there is cause to use a Shorthold Tenancy agreement, so you must check you are using the correct agreement for your circumstances. An AST sets out the obligations between tenant and landlord. The most important aspect of this agreement is that the landlord has the right to repossess the property at the end of the agreed term. Despite its name, the agreement doesn’t have to be short and can continue as long as both parties are happy for it to do so. There is no minimum term specified, either, although the tenant has the right to remain in the property for at least six months. Agreements vary but standard information will include the tenant(s) name(s), the landlord’s name, both parties residency (for the tenant, their residency prior to taking on the tenancy), the duration of the tenancy, the amount of rent payable, how frequently it will be paid, to whom and on what date, whether utility bills such as Council Tax are included, what services you will provide as a landlord and the notice period the landlord and the tenant need to give each other in order to terminate the agreement.
- Tenancy Deposit Scheme: You will need and want to take a damages deposit from your tenants which is usually one month’s rent plus a nominal amount of between £100 and £200. This can be used to claim against and damage to the property or failure to clean on the tenants part at the end of the tenancy. By law these monies must be lodged in a tenancy deposit scheme. There are three Government deposit schemes, My Deposits, The DPS and The TDS. We have blogged in the past about deposits and you can read more here…
- Inventory: An inventory is not compulsory but we very much advise you to have one compiled prior to your tenants moving in. A document that details the contents of the property inside and out, and its condition, an inventory is a clear way of deciphering the condition of the property prior to your tenants moving in and when they come to move out. With photographic evidence too it will certainly assist when making any claims against the deposit.
- Health & Safety: The main risk of not servicing or maintaining gas equipment is a serious gas explosion or carbon monoxide poisoning. Landlords are required by law to service all gas-related equipment at least once every 12 months. Landlords must also keep a record of regular check and the condition of equipment at all times and provide tenants with an annual gas safety certificate; to not hold a current certificate in a tenanted property is a criminal offence. In addition, since October 2015, by law a landlord must provide Carbon Monoxide Detectors in any room of their rented property containing solid fuel. Not only does this include boilers but gas appliances such as hobs and wood burners and open fires too. If you are planning on providing any portable appliances in your rented property you will be required to have these tested on an annual basis. An electrician usually offers this service for around £40 – £60 + vat and tests for any faults on Portable Appliances such as fridges, freezers, essentially anything that isn’t hard wired into the property with a switched fuse spur. Landlords also have an obligation to ensure the wiring o the property is in good working order so if you are purchasing a property over ten years old we would certainly recommend an EICR (Electrical Installation and Condition Report) being carried out by an electrician prior to your new tenants moving in so that any faults can be identified and rectified accordingly, ensuring that your property is safe for your new tenants.
Furnished or Unfurnished
It is fair to say that furnished properties tend to rent out for a higher price than unfurnished ones. However, not all tenants are looking for a furnished property so it is worth taking an agent’s opinion over whether the type of tenant your property is likely to attract will be seeking a furnished property or not. If you do decide you want to furnish your let you will need to check all upholstery (including beds, futons, sofas, garden furniture, mattresses, cushions and pillows) are compliant with the Furniture and Furnishings (Fire) (Safety) Amendment Regulations 1993 i.e. that it is fire retardant. As we mentioned above, any white goods such as fridges, freezers, washing machines will need to be PAT tested (if they are not hard wired) and it is worthwhile remembering that if you provide such appliances you will be responsible for their maintenance, so if they malfunction you will need to budget for repairs or replacement.
Communication is key
Quite a lot to take in, isn’t it? As we’ve discussed there are quite a few processes and procedures to go through in order to become a landlord. If we have one last thought to leave you with, however, it is that communication is key. If you are personable, responsive and organised, your journey to becoming and carrying out being a landlord should be a smooth and enjoyable process.
As always, if there’s anything you’d like to discuss in this week’s blog or you would like advice on where to invest in Gloucester, please don’t hesitate to contact us on XXX, email us at X@lettings.com or call into our offices for some free Landlord advice.