Becoming a landlord for the first time

SamanthaFoster

I’ve had two house sales fall through and I don’t want to miss out on the house I’m buying. My long term plan was to buy somewhere cheap to rent out so I’ve decided to rent out my house that I’m currently struggling to sell. I’ve put a lot into the house and it is in good repair. I’m releasing some equity to cover the new deposit and leaving in my original deposit. (15%) it is all a bit daunting for me and I haven’t a clue where to start. I’m just looking for tips for what I need to get/do to begin with. Things like insurance, gas safety, contracts, tax etc. I’m not planning on using an agency. Thanks 

Comms69

So you dont have a BTL mortgage. Will your lender allow you Consent to Let? 
Assuming you manage to get that. Presume that you will receive zero rent.
Can you afford it?
If not, the answer is to sell at a cheaper price

Slithery

New landlords (1):advice & information :see links in next post

Thanks to tbs624

Before letting a property, get a good book (below), take a course, & read the following (Applies in England/Wales):

SEE LINKS AT THE END OF THIS POST.

Research
Learn the legal obligations, & tenant's rights. See Shelter's website below. Even if using an agent, learn the basics of Landlord & Tenant law, deposit registration, inventory management, repairing obligations, notice & eviction processes. Understand the difference between Fixed Term and Periodic tenancies. Ultimately you are responsible, not the agent.

Do a detailed budget (spreadsheet). Include all costs. Base income on 10 months a year to allow for voids, & tenants who default: a) initial set-up b) routine annual c) tenant-change-over costs. Budget d) repairs & overheads - predictable and unpredictable (eg new boiler). Add agency fees, landlords insurance, tax etc. Estimate postage, phone, petrol, documentation etc. Have contingency fund for worst-case 'tenants from hell' where you have to pay a mortgage for 8 months without rent, then pay to repair damage. Read a good book.

Permissions
You'll need
* Consent To Let from your Mortgage Lender unless you have a Buy To Let mortgage (CTL/BTL).
* Consent from your Freeholder if you have a lease (ie a flat and some houses).
* Specialist landlords insurance. Normal domestic insurance is invalid if you let the property. Compare risks as well as premiums.
* in Wales, some English councils (& Scotland) you must be registered & maybe licenced (here).

Safety & the Law
Since 1/10/15, new tenants must receive the 'Prescribed Information':
* government leaflet "how to rent"
* EPC (min E rating)
* Gas Safety Certificate if there's gas
* Smoke detectors on each floor
* CO alarm if there's solid fuel heating.

* From 1/2/16 landlords must check tenants' immigration status.

* furniture - certified fire-resistant
* electrics & electrical appliances - safe.
* Security deposit - registered & 'Prescribed Information' provided within 30 days of receipt. Failure has serious consequences. Never rely 100% on an agent.
* HMOs - special rules: check local council.

Documentation
* A good tenancy agreement. Consider the OFT's unfair contract terms guidelines
* check-in inventory should be comprehensive. Use inventory clerk? Otherwise, deposit deductions will be hard to justify
* holding deposit - refundable?
* application & vetting forms. Authorisation for credit searches
* standing Order mandate for rent payment
* letters to utilities for account hand-over
* security deposit scheme application. It's the law
* tenant info folder: boiler/appliance instructions, alarm system; how to replace smoke/CO alarm batteries; location of stopcock/fusebox etc; rubbish arrangements, emergency contact no.s for repairs; colour/brand of emulsion to touch up paintwork; current utility suppliers (+ ask the T to let you know if they switch); local doctor etc

Management
Be cautious appointing a letting agent. The right agent is as important as the right tenant. Check their credentials & get recommendations/references. Check your contract with them. Can you get rid if they're no good? See link below.

Take tenant vetting seriously, either DIY or use an agent. Check ID, references, income, credit history, immigration status etc & take nothing for granted (reference the LL before the current one - he may be keen to move them on). Consider a guarantor for high risk tenants, or if you can't vet (overseas applicants, first-time renters etc). Remember a Guarantor Agreement must be Executed as a Deed/witnessed, & guarantor given the tenancy agreement in advance - many agents get this wrong.

Don't let your agent force you to renew Fixed Term contracts if a Periodic Tenancy will suit. Agents recommend new Fixed Terms as they charge fees from both sides, but a Periodic Tenancy arises automatically. See link below.

Consider carefully whether & when to increase rent. A long-term tenant is far better than a nominal rent increase. See link below.

Consider maintenance/repairs: Use your own handyman/contractor when needed, DIY, or leave it to your agent who will have contractors.... at a price.

Decide how often to inspect (be reasonable) and include in the tenancy agreement.

Tax
You're running a business, even if it's a short term arrangement or rental to family, so you have to declare rental income whether tax is payable or not. Research the Income Tax liability and allowances before you start. Note only the interest element of your mortgage repayments is tax-deductable (see below). Consider Capital Gains Tax. If going abroad, & you have no agent, read the Non Resident Landlord Scheme - see below.

Support and advice
Join a Landlord's Association and/or a web-based source (see below). Membership fees are tax deductible, & offer discounts on insurance, documents, vetting services, training and more. Some areas have local associations affiliated to one of the nationals. Check your local Council for accreditation scheme for private LLs.

Rent Guarantee Schemes
Some Housing Associations, councils, and private letting agencies offer schemes which guarantee your monthly rental income, removing the risk of costly voids between tenants. The advantage of these schemes is obviously the certainty of regular income to pay your mortgage etc. Against this you must weigh 1) the (significantly?) lower rent you will receive; 2) the removal of your freedom to select either the specific tenant or even the type of tenant; 3) the reality that the HA/agent etc will have little concern for the protection/condition of your property; 4) the reality that their priority will be to have a tenant (any tenant) in occupation. Additionally you should ensure that your landlords insurance/mortgage terms do not prohibit the type of tenant the HA/agent plans to install.

Additionally, be aware your contract will be a commercial tenancy, not an AST (Assured Shorthold Tenancy). This has significant legal ramifications (eg S21, S8, S13 Notices don't apply).

General Advice
Remember although it may have been your home, you will be handing over "exclusive occupancy" of the property, and tenants are entitled to view it as their home, without undue interference ("quiet enjoyment"). Make sure you understand the limit of your rights (ie access - a dodgy clause in your tenancy agreement does not grant you free access)

Be business-like but fair, most tenants respond in kind, looking after your property and keeping those expensive voids at bay.

And be careful letting to friends or family - will you be willing to evict if you have to? Are you concerned about losing their friendship or love?

OK - now visit the post below (New landlords (2) )for the promised links to all the research you need to do before taking the plunge!

Slithery

New landlords (2): Essential links for further information

If you are a new landlord, or taking over management from your letting agent, the links below support the guidance in the previous post (New landlords (1)). This includes links to the relevant leglislation and regulations, as well as to other websites providing guidance and information.

Books - Try your library. (Check publication date as laws change):
The Complete Guide to Residential Letting 2015 (also available here)

Successful Property Letting 2017: (How to Make Money in Buy-to-Let)

Landlordzone (Landlord information + forum)

Landlord Law (Property solicitor!!!8217;s website - clinic, blog, resources, advice etc) + Landlaw Law links (more links for landlords)

Shelter England (Tenants' rights) Shelter Scotland

Shelter (Repairs in private rented homes)

Gov advice (Renting out your home: government website)

HMRC (Property taxes eg Income Tax on rent (and allowable expenses to offset tax); Capital Gains Tax, etc)

HMRC (Non Resident [= overseas] Landlord Scheme)

Deposits (Payment, protection and return)

Deposits (Gov site: rules on deposit protection)

Prescribed Information (RLA links to various deposit schemes' documentation)

HSE (Gas Safety Certificate rules)

EPC (Energy Performance Certificate rules)

How to rent (mandatory government leaflet)

ESC (Electrical Safety Council - Rules)

The Smoke and Carbon Monoxide Alarm (England) Regulations 2015 (from 1/10/15)

Right to Rent (Mandatory checks on tenants' immigration status)

RLA (Residential Landlord!!!8217;s Association - mixed reviews)

NLA (National Landlord!!!8217;s Association)

Letting Agents (Tips for selecting, and tips for sacking them)

Letting agents (Landlordzone guide)

ARLA (Letting agents' professional body)

The AIIC (Association of Independant Inventory Clerks)

ParagonAdvance (Tenant referencing provider !!!8211; there are others. Use Google) Letsure

Landlord & Tenant Act 1985 (Repairing obligations; LL's address; and much more)

Landlord and Tenant Act 1987 (Address for Notices; etc)

Protection from Eviction Act 1977 (speaks for itself really. Also makes harrasment a criminal offence)

Housing Act 1988 (Definitions and rights of various tenancy catagories - note AST is most common; creates Statutory Periodic Tenancies)

Housing Act 2004 (Deposits; Houses of Multiple Occupation; etc)

Localism Act 2011 (section 184 - updates to deposit scheme rules)

Deregulation Act 2015 (amendments to deposit penalties & S21 service, smoke alarms, retaliatory eviction rules)

Statutory Instrument 2015 No. 1646 (Prescribed Information at start of tenancies from 1/10/15 - Deregulation Act)

Requirements for new tenancies since Oct 2015 (Stat Inst 1646 & Dereg Act)

Tenant Fees Act 2019 Abolition of most tenant fees from June 1st 2019 Gov Guidance Notes

Shelter information on 2019 restrictions on tenant fees.

Written demands (for rent etc: LL's actual address needed) Beitov Properties Ltd v Martin

Rent Increases (how and when can rent be changed)

HMOs (Licencing of Houses in Multiple Occupation in England: A guide for landlords and managers)

OFT356 (Unfair Terms in Tenancy Agreements)

Housing (Wales) Act 2014 (landlord registration & licencing)

This advice is not exhaustive. Whole books are devoted to the subject.

greatcrested

Someone ought to make those two posts stickies....

AdrianC

SamanthaFoster said:

I’ve had two house sales fall through and I don’t want to miss out on the house I’m buying. My long term plan was to buy somewhere cheap to rent out so I’ve decided to rent out my house that I’m currently struggling to sell. I’ve put a lot into the house and it is in good repair. I’m releasing some equity to cover the new deposit and leaving in my original deposit. (15%) it is all a bit daunting for me and I haven’t a clue where to start. I’m just looking for tips for what I need to get/do to begin with. Things like insurance, gas safety, contracts, tax etc. I’m not planning on using an agency. Thanks 

So you mean you'll be looking at 85% LtV? You won't get a BtL mortgage at that level. Will your existing lender give you CtL?

What sort of raw yield are you looking at? What have you allowed for expenditure, voids, bad debts, maintenance costs? How long before your net post-tax income even covers the +3% SDLT on your new purchase?

Are you capable of severing your emotional attachment to the property, stopping viewing it as "my house", and starting viewing it as "an asset of my lettings business"?

IAMIAM

This is great, exactly what I was looking for. What are the tax implications if working abroad for 2 years.
My mortgage is roughly 75% LTV and CTL has been given for 2 years with HSBC.
If the mortgage payment is £400 and the rental income is £800 with a 10% fee for a letting agent.
Do I pay tax or not, or will my personal allowance cover this?

Comms69

IAMIAM said:

This is great, exactly what I was looking for. What are the tax implications if working abroad for 2 years.
My mortgage is roughly 75% LTV and CTL has been given for 2 years with HSBC.
If the mortgage payment is £400 and the rental income is £800 with a 10% fee for a letting agent.
Do I pay tax or not, or will my personal allowance cover this?

Depends on where you're working re tax implications. Domestically, as long as all is above board you would be just under the personal allowance. 

Obviously expenses which are deductible dont include the full mortgage payment - in fact there were quite a few changes recently (with-in 12 months) so definitely worth checking. 

What happens in 2 years time though? 

Slithery

IAMIAM said:

This is great, exactly what I was looking for. What are the tax implications if working abroad for 2 years.
My mortgage is roughly 75% LTV and CTL has been given for 2 years with HSBC.
If the mortgage payment is £400 and the rental income is £800 with a 10% fee for a letting agent.
Do I pay tax or not, or will my personal allowance cover this?

As an NRL (non-resident landlord) then unless you get written permission from HMRC the tenant is legally obliged to hold back 20% of the rental amount and pay it directly to HMRC on your behalf.

IAMIAM

Thanks. I will potentially return or may sell or may move to BTL mortgage.
It's a move with work, UAE/Asia. But I will not be resident in the UK and earning local currency.
So I still get a full tax allowance if living abroad and earning elsewhere then, so the tax implications will not really hit me, if I am reading this right. 

Comms69

Slithery said:

IAMIAM said:

This is great, exactly what I was looking for. What are the tax implications if working abroad for 2 years.
My mortgage is roughly 75% LTV and CTL has been given for 2 years with HSBC.
If the mortgage payment is £400 and the rental income is £800 with a 10% fee for a letting agent.
Do I pay tax or not, or will my personal allowance cover this?

As an NRL (non-resident landlord) then unless you get written permission from HMRC the tenant is legally obliged to hold back 20% of the rental amount and pay it directly to HMRC on your behalf.

It's kind of 'permission', really it's just registering with HMRC. It's a rubber stamp process and you get a reference number.

IAMIAM said:

Thanks. I will potentially return or may sell or may move to BTL mortgage.
It's a move with work, UAE/Asia. But I will not be resident in the UK and earning local currency.
So I still get a full tax allowance if living abroad and earning elsewhere then, so the tax implications will not really hit me, if I am reading this right. 

I dont know the tax implications in the country where you'll be working. They may consider income gained here as taxable income there