Six steps to becoming a private landlord
Setting up as a private landlord is both tempting and risky at the same time. Tempting, because if done correctly it can provide a fantastic source of income in a world of rock-bottom interest rates; but risky too, because there are a lot of requirements that landlords need to follow and a lot of things that can go wrong.
So how can you work through the potential perils to find your perfect tenants and start your career as a property tycoon? Read on to find out...
Step One: Check you can Before you make any big plans, it's important to make sure you are legally entitled to rent out your property: otherwise your project will be doomed before it has begun. If you are not the legal owner of the property (for example, if you are leasing it yourself), you will of course need to make sure you have the owner's permission and have satisfied any terms in your lease relating to subletting.
Likewise, even if you own the property, you will need to make sure that renting the property out is compatible with your mortgage, insurance and other commitments. This is especially true if you did not purchase the property with a buy-to-let mortgage: if you are ceasing to reside in a property and are renting it out instead, for example, it is at the lender's discretion whether they will permit this.
Note also that other parties may need to be informed depending on the property in question. For example, some councils now run compulsory landlord licensing schemes, so it is important to check whether this is required in your area. If your property is part of a shared ownership scheme, you will also need to notify the housing association or other parties involved.
Step Two: Make sure your property meets requirements
Once you've met these base conditions for letting, it's time to consider the legal requirements that the property itself must meet. Naturally you need to make sure the property is safe for tenants. If the property is well maintained this will help you achieve the best possible rental sum, but there are also a number of legal requirements you need to meet:
- Energy Performance Certificate: This includes information about a property’s energy use and typical energy costs, as well as recommendations about how to reduce energy use and save money. You will need an accredited assessor to carry out an EPC for potential tenants before you market your property.
- Gas safety certificate: You will need a registered Gas Safe engineer to perform an annual safety certificate, and make sure all gas equipment is safely installed and maintained. Tenants must be given a copy of the gas safety check record before they move in, so this is something that needs to be organised in advance.
- Electrical safety: The guidelines here are less straightforward here than with gas safety, but there are still clear conditions that need to be met. Both the fixed wiring (including sockets and light fittings) and any portable appliances you are supplying with your property must be safe to use. It is recommended that appliances are tested annually and fixed wiring every five years.
- Health and safety: You must make sure a smoke alarm is fitted on each storey; a carbon monoxide alarm is also advised, and is obligatory in rooms which have a usable fireplace or woodburner. Fire escape routes must be clear and the furnishings you supply must be fire safe.
Another requirement (although less well-known) is that landlords must assess and manage the risks of Legionella and Legionnaires' disease.
- If your property is a House in Multiple Occupation (HMO), you need to meet standards such as ensuring you provide fire alarms and extinguishers.
You can also use the government’s guidance on landlord responsibilities for more information.
Looking to order Gas, EPC or Electrical services? Get a quote today!
Step Three: Understand the risks and responsibilities
If you're able to meet the above conditions, you're well on your way to setting up as a landlord. However, don't dive into letting your property before considering some of the major risks:
- Fees and hidden costs: As well as the costs of the certificates listed above, there are other potential costs to consider. Income tax is usually due on rental profits (and national insurance too for some landlords), but you also have to factor in unexpected repairs needed to maintain the property in an appropriate condition, and compliance with any change in laws or taxes in future.
Then, of course, there are letting agents' fees, which can account for an eye-wateringly high proportion of rent paid (especially for managed properties; more on this below). You need to consider all these potential costs, rather than just the headline rental amount you will be charging, to make sure your figures will add up.
- Void periods: For every month your property is empty you risk significant financial loss, especially if you have a mortgage to pay on it. Although it's well known that rents have boomed in many parts of the country, it's important not to be complacent: your price needs to be realistic, or tenants won't bite.
If you're unsure how much to charge, you may want to check out our handy valuation tool to give a general guide price. You can also do a quick search on our website, or other major property sites such as Rightmove, Zoopla and Gumtree, to see what price similar properties are being advertised for in your area.
- Problem tenants: Most tenancies go off without any major problems. However, it's important to consider what could happen if things go wrong. Under the Housing Act 1988 you can't terminate an Assured Shorthold Tenancy (the standard agreement for short lets) within the first six months of the agreement. Even after this time, you have to make sure you give the correct notice, and if the worst comes to the worst there can be legal fees associated with evicting tenants.
Similarly, there is always the risk that tenants might damage or mistreat the property. The deposit helps cover this eventuality, but you need to make sure you are aware of the possible risks and have suitable insurance in place. It's useful to have an agency conduct referencing on prospective tenants, if possible obtaining a previous lettings reference to help ensure your tenants will treat the property appropriately.
- Protecting the deposit: Since April 2007, landlords have to protect their tenants' deposit with a government-backed scheme within 30 days of receiving the deposit. They also need to provide certain prescribed information to the tenants. Failure to do this properly can result in legal action, fines, or difficulty evicting tenants.
- Right to Rent: Everyone who will be living at your property must provide documentation to prove they have the right to rent in the UK. Landlords are obliged to check the documents in person; again, fines of up to £3000 apply for landlords who rent to illegal tenants and are unable to prove that they checked the tenants' right to rent.
Step Four: Choose how hands on you want to be
When it comes both to advertising your property, and also to managing it once tenants have moved in, landlords can choose how hands on they want to be. Broadly, there are three paths to choose from: - Have an agent manage your property: this has the advantage of minimising the time and work you will have to dedicate to your tenancy. Unsurprisingly, though, the costs are commensurably high, typically charged as a percentage of the rental amount (usually around 10% plus VAT). This takes a considerable chunk out of your profits, and is applied regardless of how onerous the management tasks actually are for your tenancy.
- Use an agent for tenant search: This is a middle ground, leaving an agent to advertise your property, conduct viewings and take care of things like the contract and deposit, while avoiding the large ongoing management costs. However, you are still likely to face a fixed fee of hundreds if not thousands of pounds for the service with high street agents, and your tenants will be paying considerable admin fees to the agencies too. With many agents you can also request a rent collection service for an additional fee.
- Handle everything yourself: In this situation you are in control of every aspect of the tenancy creation process, and you can keep costs to yourself to a minimum. Of course, this does mean you need to do more of the legwork, although bear in mind that there are advantages to meeting tenants yourself when you conduct viewings, for example.
If you go for this option, you should consider your advertising options. Major websites such as Rightmove and Zoopla are a great way of reaching tenants, but won't deal with private landlords directly – however, there are a number of online letting agencies who can list your properties here. OpenRent is one of these, but please feel free to shop around to make sure you have found the right provider! Other platforms such as Gumtree can be accessed for free.
Step Five: Make sure your property looks the part
If you are using an agency, this step is largely covered within the agent's fees. However, if you are managing the property yourself, you need to make sure you are showing your property off to its best advantage.
Using good photos is arguably the most important factor at this point. Professional photography can be a worthwhile investment, vastly improving the appeal of your property to tenants viewing it online for a relatively small up-front cost. Alternatively, if you take the photos yourself, make sure you use a good camera, tidy up first, and get the lighting right.
You should also spend some time thinking about how to describe the property attractively. What are the best things about the local area? Let tenants know about the transport links, parks, schools and restaurants. You don't want to be too wordy, but a well-written description goes a long way.
As a final step, you should consider how to make the property appealing when tenants come to view. Brewing some fresh coffee, putting flowers on the window-sill, baking bread - these are well-known cliches, but they contain a grain of truth. Just as good photos are crucial in getting tenants to enquire after your property, small things can make a big difference when they see it in person.
As a minimum, make sure your property is well maintained – getting this done ahead of viewings is a real investment in time because you are likely to find tenants who are happy to take the property that much more quickly if it looks the part.
(6) Get listing!
If you've got this far, what are you waiting for? Platforms such as OpenRent feature easy online listing tools, or else you can give agents a call in your local area to get quotes. If you have any questions about next steps, you can always contact us at [email protected] and we will be happy to advise.
We hope that this list has provided an outline of how to set up as a private landlord, although inevitably it isn't an exhaustive list.
Please note that regulations are sometimes different in England compared with other regions (especially Scotland and the Channel Islands, but sometimes Wales and Northern Ireland too).
