How to become a landlord - Pikl

How to become a landlord

Estimated Read: 10 minutes.

Many people find that renting out a property can be a steady source of income but being a landlord is not all about sitting back and waiting for the money to flow in. There are a whole host of regulations and responsibilities to consider and to help you negotiate this minefield, we have created a handy guide if you are just starting out.

Law and responsibilities.

There are several laws governing what landlords can and cannot do in the UK. You will be responsible for keeping your property safe, maintained and obtaining the proper paperwork. You will also need to be aware of your tenant’s rights as well.

Once you are up and running, typical day to day responsibilities may include:

  • Fixing anything wrong with the property. This could be anything from the boiler going down to the drains getting blocked. If you are not able to do this yourself you will need to hire a tradesperson to do this.
  • Conducting health and safety checks and risk assessments. If you do not you could be breaking the law and be held liable if any accidents happen.
  • Drafting tenancy agreements and getting tenants to sign the relevant paperwork.
  • Making sure rent is collected on time.
  • Inspecting the property to make sure it is still in good order.
  • Finding new tenants and conducting background checks.
  • Keeping up to date with your accounts and expenses. 
  • Answering tenant queries. 

For the full list of rights and responsibilities, check out the government’s website for England & Wales and here for Scotland. They also outline current rules regarding tax. How you declare you tax can affect what you claim for and how much tax you have to pay. You may want to hire an accountant to advise you regarding this if you are not sure.

The costs.

Now that you know the regulations and responsibilities that come with being a landlord, you should write down a list of all the potential costs involved. Typical costs can include:

  • Buying your property if you do not already own it. This will have the typical costs of buying a house associated with it including potential estate agent and legal fees. If you are seeking finance then you will need to take out a buy to let mortgage.
  • Fixing and maintaining the property.
  • Acquiring the relevant paperwork.
  • Potential legal fees such as for drafting contracts or taking tenants to court.
  • Hiring a letting agency to manage your property if you can afford this. 
  • Marketing costs associated with attracting new tenants.
  • Paying taxes and potentially hiring an accountant to help you with this.
  • Buying new furniture and making sure it is safe if you choose to furnish your property. 
  • Potential costs if tenants do not pay the rent on time such as bank charges.
  • Paying for insurance.

Once you have an idea of the likely costs and expenses you may incur, you can use this list later on when factoring in how much to charge for rent and filling in tax returns.

What kind of property do you want your tenants to live in?

How you market and present your property will affect what kind of tenants you will attract. Think about your ideal tenant. Are going to attract students or professionals? What is their income level likely to be? Depending on who you are trying to attract, you will need to make sure your property is relevant for these people. Research the area surrounding your property. Look for nearby amenities and what the average rent and properties in the local area are. Your research should inform who is realistic to attract.

Once you have done this research, the next step should be deciding what to do with the property itself once it is safe and ready to go on the market. Furnishing the property may help you to attract tenants that do not want to do this themselves but there will also be a higher cost required in sourcing furniture and maintaining it. Alternatively, there may be less costs with an unfurnished the property but you may attract a different type of tenant.

If you are looking to attract students or tenants that want convenience, you may want to consider including utilities such as energy, water and broadband as part of your package.

The type of tenant you attract may also be a factor in what type of mortgage you can get, which may not allow certain types of tenant.

Laying down the rules.

When setting your tenancy agreement, you may want to implement certain rules to help protect your property, which you can specify in your tenancy agreement. This agreement forms the basis of a contract can be used to evict the tenant if things do not go to plan, provided you have followed all of the necessary rules and regulations. Tenants that have pets or smoke could cause damage and require you to clean or repair the property so you may want to think about rules regarding this. You may also want to include regular inspections so that you can check that the property is being kept in a reasonable state of repair.

Many tenancy agreements also ban subletting, which is where the tenant lets out the property to someone else (normally called a subtenant). There has been a lot of bad press regarding subletting, especially with the rise of Airbnb and in cases where tenants have done this without their landlord’s consent. Most landlord insurers and mortgages do not allow subletting. However, it is worth noting that subletting is not always bad. For example, if you own your property outright or you have a specialist mortgage that allows your tenants to sublet, allowing your tenants to do this may help them pay the rent more easily provided you already have a good relationship with them. If you do decide to allow this or are worried about your tenants subletting or doing Airbnb without your consent, Pikl can provide specialist insurance cover to protect you in case the worst happens.

Regardless of the rules you choose to stipulate, keep in mind that your tenants will be living there. Make sure that your rules are reasonable, proportionate and stick within the law.

Setting your rent and maximising your income.

By now you should have a list of all of your potential costs and done market research on your local area to get an idea of the average rent and prices. Make sure that your rent is proportionate to your area and the type of tenant you are trying to attract. Lower prices are not always better. If you are attracting higher value tenants, they may expect a higher rent and ignore properties with lower rental costs due to perceived lower value. If you are hiring an agent to manage your property then they can help you with this but factor the costs of agency fees into your rental price. To make sure being a landlord is profitable, you need to make sure your rental income exceeds the costs you will incur.

If do not have a property to rent out yet or you are wondering at this stage whether it is even worth renting out your property then this is a good time to work out the likely rental yield once you have decided on the rental price you would be likely to set. This can help you calculate the likely return on investment you could get compared to investing your cash elsewhere. To calculate the rental yield, divide the annual rental income by the assumed value of the property (if you don’t know the value of your property or the rental income for a particular area, property websites such as Zoopla and Rightmove are going for giving you a rough idea). Once you have done this, times this amount by 100 and you should have the figure. An example of how this is calculated is below:

Annual rental income of £21,600 (£1,800 per month) / property value of £300,000 x 100 = 7.2%

In the above example we have a rental yield of 7.2%. Once you have calculated yours, this figure can help you consider whether you may get a bigger return on investment elsewhere (such as buying a different rental property or even compared to different assets such as pensions and bonds). When doing this, you may also want to factor in the current rate of inflation to see how this will impact your returns. If you are applying for a buy to let mortgage, the mortgage company may consider the rental yield when approving your application. For advice on this subject, you may want to speak to a financial adviser.

When looking at rental yields, you may want to consider the short term letting market if you are looking for higher return on investment. Our article that compares renting out your property on Airbnb to having long term tenants discusses this in more detail. Doing a combination of the two may be the best way to balance risk with with a maximum return on investment, provided your insurance and mortgage provider allow this. Examples of how to do this could be hosting on Airbnb in between tenancies or having a mixed portfolio of landlord and Airbnb properties.

The benefits of hiring an agent.

There are several benefits to hiring an agent to manage your property. These can include:

  • Local knowledge of the area.
  • Marketing.
  • Sales expertise when attracting new tenants.
  • Day to day management of the property and collecting rent.
  • Mediating disputes with the tenant.
  • Guaranteed rent (not all agents offer this and the rental income after agent fees may be lower).

Should you decide to go it alone, you will have to do everything yourself. The advantage of doing this is that you will have more control over your own affairs. If you do go with an agent then you will have to factor in agent fees when balancing your income against your losses.

Getting insurance.

Getting landlord insurance is not compulsory. However, it is strongly advised. Your property is worth thousands of pounds and insurance can protect you against risk of damage. It can also protect you against things like liability for tenant injuries and loss of rent if something unexpected happens. Having insurance may also be a requirement of obtaining your buy to let mortgage. Our landlord insurance article discusses everything you need to know to get started. If you also rent on Airbnb as well as having long term tenants at your property, our specialist insurance cover has the flexibility to allow you to do this.