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What Do I Need to Know Before Becoming a Landlord?
What to Consider Before Becoming a Landlord
Whilst becoming a landlord can certainly prove to be a lucrative endeavor, experienced property owners will understanding that there is a lot to consider before renting out a property. Alongside keeping up to date with constantly updating reletting laws and legislations, landlords must navigate multiple expenditures from repair costs to letting fees to taxes on income and sales of the property, the road to becoming a landlord can initially seem intimidating.
Do You Need a License to Be a Landlord?
To determine if a landlord requires a license they will need to check if their local authority has implemented a selective or advanced licensing scheme. However, with this being said regardless of the landlord’s location they will need to obtain a license if they are letting a HMO or house in Multiple Occupation, as this is the only mandatory scheme. Landlords can expect to pay around £500 for a landlord license that will last for five years, although this may vary between local authorities.
If a landlord is found to be letting out their property without an appropriate license, then they could be ordered to repay any amounts of rent they have collected, alongside a fine commonly around £30,000. It is also likely that the owner of the property will face a rent stop order, be prohibited from letting a property, and be prevented from recovering possession of the rental. In some cases, the local authority can assume the management of the rental property from the owner.
Is Landlord Insurance Worth Having?
Similarly, to the more common residential insurance policies, landlord insurance is intended to protect the owner, the property, and its occupants. Whilst some may try, accepting tenants into your property whilst still using a residential insurance policy will not provide adequate cover and will more than likely be considered a breach of any buy to let mortgage that has been taken out against the property.
Unfortunately letting to tenants is not always plain sailing, accidents, damage and unforeseen events do occur and having an appropriate insurance policy in place can financially safeguard the owner. With this being said there are some instances where the owner will not need to take out certain policies, particularly landlords that exclusively offer unfurnished rental opportunities will not derive any value from taking out a contents insurance policy.
Whilst they are under no legal obligation to do so, although as mentioned many mortgage providers demand this, landlords will need insurance to protect their property in the event of fire or flood damage, theft and vandalism amongst other things.
Do I Need a Buy to Let Mortgage?
Unlike a residential mortgage that will use the applicant’s income as a guide for the amount, the provider will lend, with a buy to let mortgage the rental property’s expected rental yield will be scrutinised to determine the amount the future landlord can borrow. Whereas residential mortgages may demand that the applicant produces a minimum of a 5% deposit, buy to let mortgages will require landlords to put forward a 25% deposit.
Landlords will also find themselves exclusively repaying the interest gathered on a buy to let mortgage, instead of periodically repaying the value of the home, as this capital will be reclaimed by the lender once the property has been sold on the market.
Does the Property Comply With Safety Conditions?
Under new rules your property must be ‘green’ to the extent it must have an Energy Performance rating of E or above in order to comply with the Minimum Energy Efficiency Standards. You must prove this by getting an Energy Performance Certificate check, and then give a copy to your tenants. at the start of each new tenancy.
The property must also be checked by a Gas Safe engineer to ensure there are no leaks and that it is safe to live there. A copy of this certificate must also be given to the tenants prior to their moving in. Electrical safety checks aren’t mandator but it is a good idea to get one, and to ensure any portable appliances are PAT tested.
Smoke alarms on each landing and a carbon monoxide detector in rooms where there is a fire, are also mandatory. Fire restrictions are even tougher in an HMO and where there must also be a fire extinguisher, safety blankets and regular fire drills with all residents involved.
Is It Worth Being a Landlord?
As a landlord you will have to pay tax on rental income if, together with any salary you receive, your income is above a particular sum. Then there are fees for marketing the property, management costs and repairs. Worse still, you may even encounter void periods where the property is empty for several months at a time, leaving you to fork out for two mortgages at the same time.
What if You Get Bad Tenants?
No landlord wants to think about the possibility of having problem tenants. But they do exist. Not to mention the time and exorbitant costs associated with evicting a problem tenant and reclaiming possession of the rental property.
This is why many landlords hail the referencing process as the best way to highlight any tenants that may cause problems further into the tenancy. These rigorous background checks will see the tenant’s identification scrutinised, alongside their financial position to ensure that they will be able to consistently meet their rental obligations. Perhaps most telling of all is the reference from a previous landlord, allowing the new landlord to understand if the rent had been paid on time, the rental was returned in a good condition at the end of the tenancy, or if there were any complaints of excessive noise or antisocial behaviour.
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