Advice to Landlords
Advice When Letting your property yourself
In today's world everyone in the UK believes there are big bucks to be made from letting property. Historically the British have been described as a nation of shopkeepers, they are now a nation of landlords. Like any business venture you enter into, it must not be entered into lightly. There are many things that need to be considered before anyone should enter into the buy-to-let market. If you do it properly the investment can be both safe and lucrative, if you get it wrong you could end up in trouble!!
- Types of lets
- Financial Considerations
- Finding a tenant
- Furnished or Unfurnished
- Legal Considerations
- Additional Considerations
- At the end of the Tenancy
- Useful Links
Types of Lets
- Company Lets
- Short Lets
- Students
- DSS and Housing benefit
Financial considerations when letting a property
Have you chosen a suitable mortgage? (See our guide on mortgages)
Consider an appropriate amount of rent to charge for the property.
This can easily be done by looking at how much similar properties are asking for. Don�t �over-price� your property. If you want �����£650 per calendar month for the property but the �going rate� is only �����£595 then it will take longer to let the property out. If you could get �����£595 within a week then the chances are you would have to wait a month to get �����£650, if not longer. If the property is empty for one month prior to you obtaining �����£650 then the lost rent in that month would take 12 months to �claw back� (i.e. 1 month at �����£595 equals 12 months at an additional �����£50 per month). Given that the tenant is not likely to be in the property for a year you will never actually get the money back and have therefore paradoxically lost out by charging more!!!!
No investment should be entered into purely for a short-term gain.
That basically becomes a gamble as opposed to an investment. The chances are quick bucks will not happen unless you are particularly lucky. Many property investors argue that the value of property doubles every 7 years. Even if this is the case you must look at the expenditure you are likely to incur over the period and this can eat into your capital gains. Considerations include:-
- New heating systems
- Electrical wiring might need updating over time
- Gas certificates need replacing every year.
- General maintenance � new taps, new fencing etc�
- Empty periods and adverts to market
- Letting agents fees (you can avoid these by using our services)
- Buildings insurance
- Mortgage payments
Consider gearing ratios.
Gearing is the debt to equity ratio and if balanced correctly can lead to greater than average returns for a smart investor if considered with EVA (Economic Value Added). Imagine a situation where you own a property outright that has a value of �����£100,000. Interest rates are rising at 5% and property is rising at 10%. That means by the end of the first year the property is now worth �����£110,000 � a rise of �����£10,000. You have lost interest you would have got from the bank of �����£5,000 therefore your EVA (Economic Value Added) is �����£5,000. You are �����£5,000 better off than if you invested in a bank. Imagine if instead of buying one house with your �����£100,000 you actually bought 4 houses with 80/20 mortgages. You therefore owe �����£320,000 but own �����£400,000 worth of property. In that year property rises by 10% (as previously). As a consequence your property portfolio has now risen by �����£40,000 in one year. The lost interest is only �����£4,000 therefore you have an EVA of �����£36,000 and are getting a rate of return of 40% on your investment instead of 5% in a bank. You may ask: what about the mortgage payments I will have to make on �����£320,000 mortgages? Answer: You will find that the rent paid by the tenants will cover the mortgage payments � in addition the reason that the lost interest is only 4% and not 5% is because you still have �����£20,000 held in a bank account to cover contingencies gaining you 5% interest. Put like this you can see why so many people are investing in property. Like other forms of investment such as shares property can fall but unlike other forms of investment the value of property is never likely to go to zero. The other point to note is that people always need to live somewhere, even those that don�t choose to invest in the property market have to buy property to live therefore there is always going to be demand for property.
Finding a Tenant
Private Letting
If you decide to advertise the property yourself you have to consider the cost of advertising in the local newspaper,time spent answering telephone calls and showing potential tenants around. Once you have found tenants an Directgov website. It is recommended that a standing order is set up for the monthly rent.
Using a Letting agent
You can use an agent either to just find a suitable tenant or find you a tenant and manage the property. Under the option of the letting agent managing the property for you, typically the agent will charge at least 10%+VAT per month of the rental income. Included in this service is collecting the rent, contacting tradesmen to attend to repairs, and attending to any issues the tenants may have. Please note that the landlord is liable to pay any costs for repairs and not the letting agent. The letting agent usually holds the deposit. This might be more suitable to landlords who live outside the area.
If you decide to use the letting agent to just find tenants then they will usually charge between 0.5 or 1 times the first months rent. Included in this service is references,viewings, setting up a standing order, putting the council tax and utilities bills in the tenant's name and providing a tenancy agreement. Other charges such as inventory check, varies depending on the agent. Manging the property yourself might be suitable for flats and apartments or if you locally.
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Furnished or Unfurnished
Unfurnished property might be more suited to a family house, such as a 3 or 4 bedroomed house or larger properties in the country. Suited to a family who are settled in the area with children. They may stay for the longer term. Remember that a furnished property may look nicer and could let quicker even if the new tenants are looking for unfurnished. You can always take the furniture out before they move in. Another option is to hire furniture while potential tenants are being shown round.
Furnished property might be more suited to a young professional's property, such as 1 or 2 bedroom flat,apartment or small house. Suited to someone who is young and looking to move on after 12 month. Typically they dont want the expense and hassle of moving furniture form place to place.
A typical furnished flat or house should at least have:
- chest of drawers
- a double bed
- a wardrobe
- kitchen or dining table with chairs
- a sofa
It is advisable to include a microwave,some kitchen utensils,pots and pans.
It is typical that for both unfurnished and furnished properties the kitchen includes washing machine, fridgefreezer and a cooker.
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Legal Considerations when letting a property
- All gas appliances and pipe work must be checked annually by an Approved Code Of Practice (ACOP) qualified and Council Of Registered Gas Installers (CORGI) registered installer. You must give the tenant a valid gas safety cert at the beginning of the agreement and ensure this is validated every 12 months.
- All electrical installations must be checked by a member of either the National Inspection Council for Electrical Installation Contractors (NICIEC) or the Electrical Contractors Association (ECA) every 5 years, or more often if specified on the electrical certificate.
- You must supply one battery operated smoke alarm to the ground floor and one for the landing � these must be fixed to the ceiling. A �hard-wired� can be installed at no great expense and can provide a greater level of peace of mind. It is important that the tenant is asked to test the alarm each week, and that the landlord changes the battery once a year. The alarm should be vacuumed and wiped annually to ensure dust is not blocking the sensor.
Please note: Providing smoke alarms may not be adequate or appropriate for houses let in multiple occupation. If in doubt please contact your Private Sector Housing Office. - Make sure your tenancy agreement allows you to enter the property to carry out maintenance and repairs, after giving the tenant reasonable notice.
- Ensure there are enough amenities for the number of occupants that the property is intended to accomodate.If the property is let furnished, you must make sure that furniture and furnishings comply with the Furniture and Furnishings (Fire Safety) (Amendment) Regulations 1988. A summary of these standards is available from the Trading Standards Office or the Department of Trade & Industry.
- Show the tenant around the property before the start of the tenancy and provide and agree a written inventory for the property.
- Provide the instructions for appliances in the property.
- Provide a written tenancy agreement clearly stating:-
- if a bond or deposit is payable, and how it will be retained or returned at the end of the tenancy. Click here for more info
- the rent payable, including method of payment and the date payment is due.
- whether charges for gas, electricity, water, telephone or council tax are included in the rent.
- any valuables or items that are cherished for sentimental reasons, (although we recommend that such items are removed before letting).
Click here for further information on tenancy agreements
Additional Considerations
- Ensure the tenancy agreement you use I acceptable to your mortgage company. Ensure that you are allowed to let the property with the type of mortgage you have on the property. Some mortgage companies may charge a �premium to let� of 1% on top in interest per annum.
- Give the tenant details of the appropriate person to contact in case of emergency. Include name, telephone number and convenient times to ring.
- Where required, provide details for applications for benefits to the benefits office to avoid unnecessary delay in payment during the tenancy
- Carry out repairs to the property promptly.
- Give reasonable notice if access is required to the property.
- Act immediately on urgent repairs to the property, particularly where the health and safety of the tenants may be at risk. Ensure you are contactable and if not give the tenant an alternative number.
- Ensure sufficient dustbins/refuse containers are provided, and that refuse is collected and disposed of.
- Keep accurate records of all incomes and expenditures relating to the property � this will make it easier when completing your self assessment tax return at the end of the financial year.
- Try to keep a good relationship with the tenant, they are more likely to look after your property if they see that you care about their well-being.
- It is also a very good idea to credit check any potential tenants - click here to do this
At the end of the tenancy
