Buy a property to rent out or not

Mumoffourkids

Ok, so I need to know what other people would do if they were in my situation. This isn’t going to happen in the next couple of months but in maybe 12-24 months.

So my current situation, I am a single parent with six kids. My eldest is almost 18 and my youngest is 3.5 years and starts school in September. My eldest has one more year at college and then is likely to go into the police so won’t be going to university but may leave home in the next year or so. I am currently renting a house but it is slightly too small for us, although my landlord is amazing and my rent is relatively low compared to the local market.

I only work part time at the moment, but I will be looking to increase my hours, increase my self employment income when my youngest starts school. Although even if I worked full time, I would not earn enough for a mortgage for a house big enough for us in the area we live in. I don’t mind moving in the local vicinity but I don’t really want to move areas completely, the kids are settled at school and I have a few close friends near me which are my support network. So buying a house big enough for us in the local area to live in is out of the question as I don’t earn enough and I don’t have a large enough deposit to make the mortgage small enough for me to afford.

So the question is do I buy a property to rent out in a different area, one which is more affordable than the current area I live in. I’m thinking north of where I live as I live in the south and it is so expensive here. I would make sure that I could cover the mortgage if I had void periods or the tenants didn’t pay.

I am worrying about when my kids have all left home and I am forced to continue renting in my retirement as I wouldn’t be able to get a mortgage when I was older. My thinking was if I bought a smaller, more affordable now, I could then either sell it when I got to retirement and buy another house, or move into it when the kids have moved out.

What would you do in my position? I know no one can predict the future, and I may die before I retire but I want to try and get prepared now.

Slithery

Do you really want to start a residential lettings business?

You need to read and fully understand the next 2 posts and all of the links they contain before coming back with any further questions.

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.

anselld

As above....
Plus you will need a lot more money - BTL is a minimum of 25% deposit plus fees, etc plus you need a decent emergency fund for repairs / voids - several £k.

Mumoffourkids

Slithery said:

Do you really want to start a residential lettings business?

You need to read and fully understand the next 2 posts and all of the links they contain before coming back with any further questions.

Thank you for your post. I appreciate the information. 

I am prepared to do a lot of research before the actual buying and I am aware of the regulations and laws surrounding letting a property. All that information doesn’t actually answer my query about what someone would do in my position. Let’s say I am fully aware of the information and am happy to go ahead and start a Lettings business but I’m not sure if it is the right thing to do for my situation.

Slithery

No, I wouldn't.

I'd invest the money in a more diversified portfolio that gives better returns with zero effort on your part.

Mumoffourkids

So you would stay in rented accommodation and carry on renting when retired but invest my money in other ways. Thank you for your opinion. I can see what you are saying about zero effort on my part by investing elsewhere. The only issue I have is the security of not owning your own home. But I would have to get over that.

greatcrested

I second the advice to invest - somewhere where your money is not tied up (unit trusts/ISA unit trusts can be sold instantly. Property cannot).

You also avoid all the risks of letting (eg tenant from hell - you've seen them on TV and read about them here!), though granted investing has risks too, though the current downvalue in the market makes it a good time to buy!

And you avoid the work, time and stress.

And later (how old are you?), as more of your kids leave home, you'll be able to consider buying a smaller property for your old age......

Mumoffourkids

greatcrested said:

I second the advice to invest - somewhere where your money is not tied up (unit trusts/ISA unit trusts can be sold instantly. Property cannot).

You also avoid all the risks of letting (eg tenant from hell - you've seen them on TV and read about them here!), though granted investing has risks too, though the current downvalue in the market makes it a good time to buy!

And you avoid the work, time and stress.

And later (how old are you?), as more of your kids leave home, you'll be able to consider buying a smaller property for your old age......

Thank you for your advice. Unfortunately I’m already 42, and with the youngest two children being only 3 and 5, I’m going to have to wait a long while for those two to move out, by which time it might be too late for me to buy a property. But I do understand your advice about investing elsewhere. I will research some more.

[Deleted User]

• How much money do you have to put down as a deposit?  
• How much are you looking to spend on this rental property?
• How much can you let this type of property for?
• Who is your target tenant?
• What rental yield do you expect to make?
• How will you manage the property from a distance?
• Will owning a BTL have an impact on any benefits you claim such as tax credits?

If you owning your own home is a priority for you have you looked into shared ownership or casting your net wider and moving to a less expensive part of the country?  Like the others on this thread I'm not sure that renting your home whilst owning a BTL elsewhere is going to give you the desired outcome.