Please note that information contained within this Guide is current as at May 2014 and could be liable to change. While it is our intention to provide independent and up to date information within the Guide, any content therein should not be taken as advice. Please always use the services of an independent professional for anything you are unsure of. We cannot be held responsible for the content of any third party links contained within this guide.
SECTION ONE – THE BASICS
The property market has always been seen as a “safer” investment (notwithstanding property crashes and the latest economic crisis). Overall, property prices have suffered from lower levels of fluctuation than alternatives such as the stock market, and thanks to continued low interest rates property may, over a period of time, provide better returns than any bank account.
Since 2007 and the global recession, property prices dropped and many property owners found themselves in negative equity. As at 2014, however, prices in most parts of the country are showing signs of increasing again, so once again there is a chance for capital growth on top of rental income.
Figures show that property values have risen, on average 8.4% across the country in the last twelve months , and there are also attractive rental returns to be made.
The Land Registry has useful stats and data based on property prices and sales since 1995 which may be useful if you want to research values etc.
At the time of writing, the UK reportedly has 1.4m private landlords , perhaps endorsing the fact that being a landlord may still be profitable. Some landlords may have taken advantage of recent property slumps to invest with a view to yielding long term capital growth.
Others may have suddenly become an accidental landlord, perhaps by inheriting a property that they have then decided to let, or by renting out a room in their home in order to bring extra money in.
Whatever the reason, if you own – or have decided to invest in a buy to let property - then our guide provides useful hints and tips on how to manage your investment, details on fulfilling any legal obligations, plus links to additional resources.
For starters, here is a quick overview of what you’ll need to think about - some of these topics are covered a bit more in depth later on in the guide.
Choosing the property
When buying a property as an investment, there are a number of things to consider. Location, for example, will have a big impact not only on the rental income you receive but on demand. If the area does not experience high demand then it might take longer to find a tenant. In the meantime, the property will sit empty and bring in nothing at all.
Many first-time landlords make the mistake of thinking that buying a "fixer-upper" is always cheaper than buying a property that is already in good condition. This may often be the case, but you should take stock of what needs to be done and how much it will cost before you assume it is a bargain.
You should also bear in mind that this will affect how soon you will be able to start letting the property. The longer any refurbishment takes, the more outlay you will have in terms of mortgage repayments (unless you are a cash buyer of course).
Letting the property
If you want your investment to be low-maintenance, or your property is quite a distance from your home address, then you may want to use a letting agent
They will take a regular fee or portion of the rent, but in return handle most of the day-to-day work associated with the property.
You should also familiarise yourself with the obligations you have as a landlord. Safety requirements are particularly important, such as
- all electrical appliances must have European CE safety certification
- a full, annual gas safety survey must be carried out by a registered engineer
- any furnishings must meet the appropriate fire safety standards.
- the tenant must be provided with copies of the gas safety certificate, certificate of electrical efficiency, and with manuals for all gas appliances
These are discussed a bit more in depth below
Protecting your property
Ensure you have adequate landlords insurance in place. If you have a mortgage on the property, this may typically be required as a condition of your contract with the lender.
Even if it is not an obligation, it may be a very good idea. Cover will protect the structure, and if you opt for it, the contents too, against unexpected damages (eg. flood, fire etc) as well as any liability issues (in case you are sued for injury / loss / death etc as a result of something that happened on your property to a tenant).
At UKInsurancenet, we can help you find the most cost-effective and appropriate solution for your landlord cover and are always happy to provide guidance and advice.
Think about what type of tenants your property is suitable for. This will be dictated by the location as well as the property type. When you advertise the property, do so in the places that your target tenants are most likely to look.
Do not forget that as far as the tax office is concerned, your rental property is a business. You must ensure that all earnings are properly declared for tax and that you comply with all necessary regulations.
Unless you are able to buy the property outright, choose your mortgage carefully. As with any financial product, you should shop around for the most cost-effective rates. If you intend to let to students, bear in mind that many buy to let mortgages do not allow students as tenants and some insurers may also place restrictions on who you can let to.
Your legal obligations as a landlord
Being a landlord is a business, and just like any other business, it comes with certain legal obligations. If you want to invest in a buy to let property, it is important to familiarise yourself with these obligations so you can ensure that none of them end up neglected. The ramifications of not upholding your obligations could cause expensive legal action being taken against you as well as your insurance policy and even your mortgage becoming void.
A number of parties are likely to have some degree of financial interest in your property. As a bare minimum, this will include you and your tenant. Often, it will also include a mortgage provider and, in some cases, your letting agent. And let us not forget the tax man, too!
As such, there are a number of financial responsibilities you must abide by
- all rental income must be properly declared to HMRC and is subject to tax. You will, however, be entitled to subtract expenses relating to the property such as maintenance from the taxable sum – this is discussed in more detail in section two
- in order to let out a property on which you have a mortgage, you must have a specific buy to let mortgage. If yours is a residential home that you are now planning to let – even just one room - you must check with your mortgage provider first;
- you must protect any deposit received from your tenant, using a registered tenancy deposit protection scheme , within 30 days of receiving it. Remember that though you hold onto this money, it still legally belongs to the tenant;
- any rent increase during the terms of the tenancy must be fair (based on average rents in the local area);
- any deductions to the deposit at the end of the tenancy must be agreed with the tenant. If an agreement cannot be reached informally, a dispute can be raised through the deposit protection scheme and both parties will need to provide evidence;
- once an agreement has been reached on any deductions, the deposit must typically be returned within ten days;
- most mortgage lenders will require that your shared financial interest be protected by an adequate level of landlords buildings insurance
Health and Safety obligations
One of the key obligations affecting landlords is that they must provide tenants with a safe and habitable environment. In practice, this breaks down into a number of smaller obligations, including:
- any electrical appliances included with the property must carry the European CE safety certification mark;
- while you do not have to carry out an annual electrical safety check (as you do with gas appliances) you are legally obliged to ensure that any electrical items and systems (such as plugs and sockets) are safe when a new tenant arrives, and throughout their tenancy;
- a complete gas safety survey must be carried out on a yearly basis by a gas safe registered engineer, and a copy of the certificate provided to the tenant;
- tenants must also be provided with instruction manuals for any gas appliances, and with an electrical efficiency certificate;
- any included furnishings must meet relevant standards for fire safety – you can read more about your obligations and legislation relating to furnishings here;
- all necessary repairs must be made in good time, especially when they relate to a safety issue. Usually you need to give tenants 24 hours' notice before accessing the property but exceptions can sometimes be made for emergencies, especially when the problem represents an immediate hazard. Failure to rectify any repairs could lead to an investigation by the HHRS You can read more about the HHRS in our article here;
- note that for houses in multiple occupation (HMOs), you may have further obligations, such as the installation of fire safety doors. Find out more here
Are you an accidental landlord? (The Rent A Room scheme)
There are people who are landlords who may not realise it. If you are one of the many homeowners who are bringing in extra income by renting out an empty room in your home, you may be what is termed an “accidental landlord”.
Before we discuss what being a landlord means, here is some background on the Rent a Room Scheme
Rent a Room scheme
If you are a resident landlord (ie you live in your home and you rent out furnished accommodation in your home to tenants) then you can earn up to a threshold of £4,250 per year tax-free (figures correct as at May 2014 - these rules may change). This applies whether you let out a whole floor or just one room.
It is imperative that you either opt to join, or not join, the Rent a Room Scheme. You may need to complete a tax return relating to your let depending on whether you join the scheme or not. For more information, visit the Money Advice Service
If you’re not in the Rent a Room scheme, income tax will be due on any rental income you receive (after deducting any costs associated with the letting). These costs typically include:
- repairs (not improvements);
- utility bill
More information is also available here: Rent a Room Scheme
What you need to know
Having a lodger in your home means that even though you are still living in the property, you have certain obligations to meet and duties to carry out to ensure you protect your tenant and yourself.
Get your mortgage lender's approval
Have you contacted your mortgage lender and sought their approval? Before you even think about letting a room in your home – or even the whole of it – you need to get your mortgage provider’s approval.
Failure to advise your lender of your letting intentions and obtaining their permission could see you in breach of contract.
If you have residential home insurance, typically you will need landlords insurance.
This applies no matter that you are still living in the property and are letting out just one room. Having a tenant may come with additional risks. For example:
- your tenant slips on loose carpet and injures themselves quite badly. You could face a substantial legal bill where you are sued by your tenant for personal injury / loss.
- your property may be more liable to suffer from malicious or accidental damage or even theft by having a “stranger” and any of their visitors in the property; etc
From an insurer’s point of view, there can be hazards relating to running a business in your home (and that is what being a landlord is). This means it is imperative that you protect you, your tenant and your home with landlords insurance.
As a landlord, you are legally obliged to provide your tenant with a safe and habitable environment. These obligations typically include:
- yearly gas safety checks
- making sure your property meets health and safety standards (so there is not excessive heat / cold and the property is free from hazards – eg loose carpet on the stairs);
- having fire–safe furnishings;
- regular checks of electrical sockets and appliances; etc.
The message is, even though you may only be letting out one room in your home while you remain a resident there also, you are still a landlord, so you need to fulfil all the obligations associated with this.
10 tips for new landlords
Becoming a landlord can be a rewarding experience. With the UK economy continuing to improve, more people are putting money into property. If you are a new landlord, there are a number of tips that can help you make the most of your investment.
1. Be realistic
Before the 2007 economic crisis, bricks and mortar was considered to be a sound long-term investment. While there are signs that the UK economy is starting to pick up again, be realistic. If you think that you can buy a house, stick a tenant in it and then sell it on after a year and make a huge profit, be warned that this is hugely unlikely.
Being a landlord can be a full time job, and it can be hard work, as well. It isn't easy money, despite what some TV programmes portray!
2. Think about time investment
Do not make the mistake of thinking that your property will bring in money with no effort. Your investment will require day-to-day running. If you are not willing to invest the necessary time, you may wish to use a letting agent. Consider their fees when thinking about the financial benefits of your investment.
3. Don't forget tax
A property investment is a business in the eyes of the law, and rent is subject to the same tax as any other form of income. Make sure you comply with all necessary tax law, and consider the implications financially when making your investment. Scroll down to section two to: Tax, financial considerations growth and yield - and find out more.
4. Make the property attractive
It is worth spending a little more to ensure the property is attractive. Even if redecorating or fixing minor issues won't justify a rent increase, it will likely mean that your property spends less time empty.
5. Obtain a proper tenancy agreement
A proper tenancy agreement will give valuable legal protection to both you and your tenants. Even if you do not use a letting agent for the property's day-to-day running, consider having one draw up the agreement for you.
6. Customise the tenancy agreement
Getting a tenancy agreement drawn up professionally does not mean you cannot have any input. Consider putting in any specific clauses the property may benefit from, such as requiring the tenant to maintain any gardens etc.
7. Get an appropriate mortgage
In order to let out a property that has a residential mortgage on it, you will need permission from your lender. If buying a new property, you will typically need aspecialist buy to let mortgage If you apply for a residential mortgage in full knowledge that you will be letting the property, you could find yourself facing allegations of fraud. This article explains more.
8. Inform your insurer
You will be responsible for landlords insurance on the property, and this will likely be required by the terms of your mortgage, as well. As with a residential mortgage, if you already own the property but it has not previously been let and you now wish to, your insurer must be informed.
9. Know your obligations
Landlords are subject to a number of safety obligations, such as the need to carry out yearly gas safety inspections. There are also many financial obligations, such as lodging deposits with a recognised protection scheme. Get to know your obligations to ensure that all are properly met.
10. Take references
Before settling an agreement with potential tenants, take references. It takes little time or effort to call their employer or run credit checks, and could avert a disaster. If you are using a letting agent, they will usually do this for you.
SECTION 2: MONEY, MONEY, MONEY
Tax, financial considerations growth and yield for landlords
If you buy to let, you are effectively entering into a business venture. Like any commercial enterprise, one of the principal bugbears is likely to be the payment of tax on any profits made. This might be a necessary evil, but an understanding of your tax liabilities may give you at least a chance of minimising your exposure.
Taxation matters are notoriously complicated, so in this brief article it is impossible to cover every aspect of the landlord’s tax and financial status, but the following may be some of the more important factors to note.
Do note that the following should not be taken as financial advice and / or guidance and that independent advice from a tax professional is recommended.
Who owns the let property?
Sole ownership – if you are the sole owner of the property, you pay tax on the income you derive from this source, i.e. the profits from rental income, taking into account the personal taxation allowances you are granted before tax is payable. If you have no other income and your profit from the let property is less than your personal tax allowance, you pay no tax;
Joint ownership – if the property is jointly owned, then each of the owners pay tax on whatever share of the profits they receive, taking into account their respective individual tax allowances;
Company ownership – if the property is owned by a limited liability company tax is still paid on the profit made by the company. However, this might be charged at a lower rate than individuals paying a higher rate of tax. In that case, there may be a case for the transferring ownership of the property to a limited liability company.
One of the keys to managing your tax liabilities and overall financial situation lies in carefully maintaining a complete record of all your expenditure and income, namely
- expenses invoices and rental receipts;
- previous years’ income and expenditure statements, together with tax returns made;
- property details – when you bought it and what it cost (including related costs such as survey and legal fees; and
- the dates of any periods you lived in the property as your principal home before or in between those times that it was let
There are a number of landlords accounting software packages available designed to make managing the financial side things easier. If you planning to use an accountant while you just “keep the books” speak to him or her first. They may suggest software that they are familiar with. This could save you money in the long run in accountancy fees - the quicker the accountant can assess and audit your books, the less they should charge you. Make it easy for them and use software they like!
Don’t think that you can get away with not keeping records and declaring rental income – when you get found out (and you inevitably will), the penalties could be very high indeed.
If you are buying to let with the help of a mortgage it is important to remember that the interest you are paying on that borrowing may be deducted from the rental income you receive – mortgage interest is a deductible expense.
This is in keeping with a mortgage taken out by any business – and your buy to let enterprise is a business as far as the Inland Revenue is concerned.
The same may be true of personal loans which you might take out in order to support your buy to let business – the interest is typically tax deductible.
As a landlord, you are likely to be more than aware of the many expenses you are likely to incur in the course of your enterprise – repairs, fees to letting agents, advertising, insurance and the like. As far as that insurance is concerned, here at UKInsurancenet, of course, we are more than aware of your need to account to the taxman for your expenditure.
The important point to note is that all such on-going expenditure is typically tax deductible – and your detailed records are likely to be critical in being able to offset such expenses against your tax liability.
Whilst business expenses may be tax deductible, however, you might want to note that capital expenditure is not. The distinction is a fine one, open to some confusion. You may find helpful, therefore, a useful tool, published by HM Revenue and Customs to help you distinguish between the two.
Further reading is available from the Which? website.
Risks and rewards of being a landlord
Many decisions in life are likely to involve a careful weighing up of the pros and cons, or the risks and rewards of a particular course of action. Deploying this same kind of balancing act may help you decide whether you are cut out to be a landlord and in the business of buying to let.
You might not want to be put off by the risks, but it might certainly help to be aware of them from the outset. These might include:
- finding the time – being a landlord may prove to be a either a part-time or a full-time job. So much depends on the type of property or properties you own, the state of repair or maintenance of the building and the kind of tenants you are able to find, as well as whether you use a letting agent or not. If you are new to the business, you might want to beware of under-estimating the time it may consume;
- letting – your business relies on your finding paying tenants. Your judgment on the property’s attraction for tenants is likely to have been a major consideration when deciding to buy. But what if they do not materialise? You may have to consider more target-specific marketing or finding more successful letting agents;
- tenants from hell – though they might not quite qualify for such a description, problem tenants may prove the bane of any landlord’s life. Once again, careful selection, attention to tenant references and reliable letting agents might help to make life better;
- upkeep – although you made a substantial investment simply in buying the property, this is by no means the end of the story. From the very word go, there is likely to be essential on-going maintenance costs and the need for repairs may increase over time.
The good news is that despite the risks, there could be some decidedly handsome rewards, too
- you can expect a return on your investment by way of rental income. Rental income, after all, is the very foundation of your buy to let business. Finding and keeping tenants who pay their rent on time and keeping a close rein on your on-going expenditure may lead to satisfying profits;
- the safety of bricks and mortar represents a time-honoured belief of the security of investing in property in this country. It is certainly true that although property values have their ups and downs, the long-term trend has historically been upward. Even if you decide that being a landlord is not for you, the sale of your buy to let property may reap a capital profit. (Don’t forget that property values can also go down – a lot – and you could be left in negative equity)
- once you have set up your business, tenants are installed and a programme of maintenance and repairs has been finalised, you may be able to afford to sit back and relax a little, confident in the knowledge that the enterprise is practically running itself and no longer soaks up all of your time and effort (talk to us here at UKInsurancenet about landlords insurance cover for your property and you may rest even more easily)
- by the same token, therefore, an income stream from let property may provide an extremely useful second string to your bow. If you are made redundant from a job or career, or are no longer able to work because of injury or ill-health, your role as a landlord may provide the alternative source of remuneration.
On balance, therefore, it might be argued that the rewards of being a landlord outweigh the costs – especially when you have bargained for and are prepared to manage those potential costs.
Money saving ideas
When you are busy managing your portfolios, it is easy to forget to keep an eye on your spending. Small or regular expenses have a particular habit of slipping by unnoticed, but they can really mount up when there are multiple small costs involved.
Keeping an eye on your spending is best done on a monthly basis. Closely inspect each bank statement to see where each item of expenditure has gone. Think about which costs could be cut or eliminated – even the smallest ones – and see how much of a saving it might mount up to.
Never neglect property maintenance
A small problem is cheaper and easier to fix than a big one. Emergency call-outs push the price up even further. For this reason, even relatively minor problems with your property should be fixed as soon as possible to prevent bigger problems from emerging later on.
Small maintenance issues are easy for both landlords and tenants to put off, but making sure they are seen to promptly can prevent the problem from worsening and save a lot of money down the line.
If a problem goes unfixed and it causes real damage to the property (eg a small leak causes extensive water damage), you could find yourself making a claim on your landlords insurance. Not only will you be liable for any excess (which is the first part of a successful claim that you pay), but you could lose your no claims discount, pushing up the cost of your insurance at renewal.
In short, preventative maintenance is cheaper and less disruptive than emergency repairs. In particular, little jobs like clearing gutters, cleaning drains and fixing leaks or other issues with a roof can ultimately save you money.
It will also result in less inconvenience for your tenants, and in extreme cases it can prevent the property from becoming temporarily uninhabitable which could result in lost rent.
Regularly review your ongoing costs
Ongoing costs such as landlords' insurance and domestic emergency insurance etc should be reviewed regularly if you want to make sure you are getting the most appropriate deal.
The market changes constantly, so if you neglect to keep an eye on your options then you could find yourself spending money unnecessarily when you could get an equivalent product for less from another provider.
Exactly the same principle will apply to utilities if you pay them, though usually these will be the tenant's responsibility.
If you are on a fixed rate mortgage, make a note to revisit it prior to the fixed rate period ending. At that time, most buy to let mortgages will revert to a standard variable rate. You may be able to find another mortgage that offers more attractive interest rates.
If your property is a furnished let, then source good quality items at places like auctions. Or, if you have multiple properties all with the same tenant type (eg students) bulk buy (at a discount) the same furnishings so they can be used across all your properties.
If DIY is not your forte, either engage the services of a local, trusted builder to carry out any repairs and maintenance etc. Or, attend a few courses at your local Adult Education Centre to pick up the basics. Of course, things like gas maintenance need to be carried out by a qualified professional, but for things like a dripping tap, having some basic knowledge could save you money in repair and call-out charges.
7 things you need to know about landlords insurance
When calculating your income and expenditure relating to your investment property, you may see insurance as just another cost. It is. However, insurance forms a very important of your letting business and the importance of it shouldn’t be disregarded.
Here are 7 things you need to know about landlords insurance...
Your mortgage contract and insurance
If you have a mortgage on your let property, then having appropriate buildings insurance will usually be a condition of your mortgage. This is because it protects both the lender’s and your financial interest in the policy.
As an example:
- imagine you purchase a property and get a buy to let mortgage on it;
- but you fail to insure it.
Should something happen to the property, you will have to finance the cost of repairs out of your own pocket. Bearing in the mind the figures for fires, for example - for the period 2011-2012 (which are the latest figures available from the Government), there were 43,500 dwelling fires – this shows just what a risky decision not to get insured is.
Without suitable landlords buildings insurance, If your property was destroyed by fire and razed to the ground, you would still be liable to service your mortgage repayments – even though you have nothing physically to show for your investment, nor any rental income
There wouldn’t just be the financial issues either – if, as part of your mortgage contract with your lender, you were obliged to get insurance, and you didn’t, then you could face legal action against you for breach of contract.
Even as a cash buyer, insurance is still regarded as a necessity, not only to protect your interest in the property, but to cover any third party liability issues
If your let property is repossessed due to you failing to keep up the mortgage repayments, then do note that legally, you still have to insure the property until your mortgage lender sells it.
If you are in the process of buying a property, you should ensure that you arrange buildings insurance cover from the date that you exchange contracts. Many people mistakenly believe that they do not have to worry about insurance until they complete. This is wrong.
Owner-occupier insurance will not do
Traditional owner-occupier home insurance cannot be used for a buy to let property. This is because, while there are many similar risks faced (such as structural damage caused by flood and fire etc, and theft) a let property also faces additional risks (for example, third party liability etc).
If you do use a traditional home insurance policy to insure your let property and you need to make a claim, your insurer is well within their rights to refuse to pay your claim as it is a fraudulent policy.
This latter point could also affect you getting any insurance in future (such as motor).
The need for unoccupied property insurance
If your property (whether it is an investment property or your own residence) is going to be left empty for 30-45 consecutive days, then you will need additional cover in the form of unoccupied property insurance.
This is because an empty property (and a property can still be empty even if it is furnished – by empty, this means that no one is living there) is more susceptible. Empty homes can be more of a target for vandals and thieves. Plus, things such as a small leak inside the property, if left unchecked, could cause a lot of damage. This would result in a higher claim amount.
That is why specialist empty property insurance is needed – to protect against these extra risks.
Not all cover is the same
When arranging your insurance, you may simply compare one policy against another in terms of price, and then choose the cheapest. While there is nothing wrong with this approach - after all, who wants to pay more for something than they need to? – it is imperative that you compare the cover on a like-for-like basis.
Many people assume that all policies are the same and have identical product features and benefits. This is not the case, however. For example, not all buildings insurance policies offer cover against subsidence as standard. This applies to owner-occupier policies too.
Also, while at UKInsurancenet we offer cover for malicious damage caused by tenant, not all other insurers will.
So, check the policy wording and never automatically assume that the policy gives you all the protection you need.
If you are letting your property on a furnished or part-furnished basis, then you may want to consider landlords contents insurance. Not only will this provide protection should the items get stolen or damaged by an insured risk (such as fire or flood) but some policies also provide cover for malicious damage (limits apply).
If you are letting your property as an unfurnished let, then it is your tenant’s responsibility to ensure they have appropriate cover for their possessions.
If you have any questions relating to your landlords insurance cover, please feel free to contact us and we will be more than happy to help.
Useful tool:Buildings sum insured calculator
What grants could you be entitled to
As a landlord, you may be entitled to some financial help if you carry out certain improvements to your property. Here we look at some of the most common ...
Energy Efficiency Grants
Many current property grants are aimed at helping people to make properties more energy efficient. For landlords, this may take one of two forms – LESA or the Green Deal.
The first of these is the Landlord's Energy Savings Allowance (LESA). This is given in the form of a tax allowance rather than a cash grant, so instead of receiving money you pay less to HMRC.
For each home, landlords may receive a tax break of up to £1,500 for carrying out works designed to improve the property's energy efficiency. Note that this is per dwelling, not per building, so multiple homes in the same building may receive separate grants.
The Green Deal
Alternatively, landlords may benefit from the Green Deal, which allows landlords (as well as owner-occupiers) to pay for energy efficiency works through a property's energy bills. Once improvements have been made, energy bills should reduce. In the case of some improvements such as loft insulation, this reduction can be very significant. However, at first the bill payer will continue paying the same rate, with the difference being used to pay for the work.
Under the Green Deal, instead of being out-of-pocket, a bill payer will notice no change in their circumstances at first, and then benefit from lower bills once the work has been paid off. However, as the tenant will usually be paying the bills, landlords will need their agreement before using the scheme.
Empty properties may be eligible for grants under certain circumstances. These are usually provided by local authorities and can vary significantly from area to area. As such, it is an avenue that will require exploration with your own local authority.
It is difficult to generalise about empty home grants because they can vary so much, but usually they will be intended to make a home habitable. If this is the case, any money received will have to be used for this specific purpose. Another possibility is that you may be required to make the property available as social housing for a given period after the work is completed.
Empty home grants can be competitive and will require qualifying circumstances. They can be a good way, however, to make newly-obtained properties that are in need of work into habitable dwellings.
HMO stands for Houses in Multiple Occupation, and refers to single properties that are inhabited by multiple people and are essentially treated as separate homes with shared amenities. This is a common situation for student lets, and is also often favoured by those looking for a way to cut living costs through a house share.
If you want to make a property suitable for multiple occupancy, your local authority may be able to provide a grant for this purpose.
Like empty home grants, HMO conversion grants are handled by local authorities and therefore vary a lot between different areas. However, the grants may be as high as £30,000 and are aimed at implementing the standards required for HMO properties. This might include improvements to meet minimum safety requirements, or improvements to areas that will be shared such as bathrooms and kitchens.
SECTION THREE: THE PROPERTY
Making wise property investments is a key issue for your success as a landlord. The qualities you look for in a building will be different from the qualities sought by owner occupiers, and your decision on which property to invest in must be based on your ability to earn a regular rental income to recoup your investment.
Here is an overview of some of the main types of properties that you may consider investing in.
Property auctions are often popular places for landlords to find properties, and there is always the potential to pick up a bargain. You could start your search by visiting a website like Auction House. These buildings may be ones that have proven difficult to sell through the standard route, or they may be repossessions, but this is not always the case.
If you decide to go this route, you should
- always research in advance. Ask for a catalogue weeks before the auction, and then hire a surveyor to check properties that interest you for possible problems like subsidence or rising damp, which can be costly to repair;
- decide upon a budget, perhaps by researching property values in the area. Bidding more than you want to can be easy at an auction if you get carried away;
- make sure you definitely have the funds available because you typically have to pay the initial 10% deposit on auction and the remainder of the amount within 28 days or so;
- when viewing a property, take along a trusted tradesperson to get advice about the possible renovation costs.
Read this BBC Guide to Buying At Auction.
Properties requiring renovation
Buying a property that is in a state of disrepair is often off-putting for owner occupiers who may not be keen to spend extra money and time doing up the building. For landlords, however, it may prove to be a good investment.
Not only might you be able to pick up a bargain, but the competition could also be less, making it a potentially attractive opportunity.
The main thing to remember is to avoid making an investment if you have no idea how much it will cost to renovate the building. Costs can quickly spiral out of control if you do not have a plan in place, so make sure you find out in advance just how much you will need to pay.
Don't forget that there may even be grants available if you want to bring an empty property back onto the market, such as those provided by local councils (for example, this empty property scheme operated by Ealing Council), so you may want to research these first.
It is also important to consider the issue of landlords insurance. As soon as you purchase your property, remember that it may remain unoccupied for a long time as you renovate it, in which case you may require a separate policy for empty properties in addition to a standard insurance policy.
At UKInsurancenet we have policies that offer up to 90 days cover for those properties which are currently unoccupied at inception i.e. when the policy is being taken out. This happens very often for example when the property has just been purchased and there is remedial work eg. decorating and some building work re change bathroom etc and / or kitchen improvements prior to the property being let and a tenant going in.
Then in these circumstances only a few insurers will offer cover and we are more than happy to do so.
At the opposite end of the scale, you have new-build properties. These are attractive because they may typically require fewer repairs over the years, making them easier to maintain. If you buy off plan, you can often get attractive discounts, such as free carpets, money off and / or white goods.
For the money that you have available, a new-build property may be smaller than an older property, which may affect the rental income you can earn. This can also affect the type of tenants who you attract, because many tenants, especially families, may want to live in a larger property.
On the plus side, flats and apartments (of a good standard) often attract corporate lets.
Choose your investments with care
Choosing the right buildings to add to your portfolio is one of the most important things you can do as a landlord. Rather than just looking in the same places as owner occupiers, consider looking at other options such as at auction or properties in need of renovation to find buildings that may be more suitable for earning a long-term rental income.
How to find property
Finding a property is not difficult if you are a landlord. After all, you could go to any estate agent and find something suitable in the same way that owner occupiers do. In fact, many landlords have ongoing relationships with their local agents, who can give them a “heads up” on forthcoming opportunities before they are marketed.
However, if you want to look in different places to homebuyers in order to find other opportunities, there are a number of options ...
The internet makes searching for properties easy. Search for websites that focus on buy-to-let opportunities as well as for websites that have been set up specifically to sell buildings privately.
Many people may want to sell their buildings quickly and to bypass estate agents and their fees, so private sales like this can prove to be good opportunities.
Adverts in the press
Many people now use the internet to advertise properties, but you may still come across interesting adverts in the local newspaper. Make it a regular habit to scan through the ads on a weekly basis and see if anything looks interesting. You may find that there are some bargains to be had for those who look carefully.
Another option is to look in trade publications for landlords. In these you may find other landlords selling their own properties.
You may be able to find some good investment opportunities at property auctions by searching a website like Future Auctions. A building may be sold in this way because the owner has difficulty selling via an estate agent, but this is not always the case.
You may find that some properties are in need of renovations, so always research any building you are interested in very carefully, and hire a surveyor to check it for problems. And as always, if a bargain looks too good to be true, be very cautious.
You may find that some properties are in need of renovations, so always research any building you are interested in very carefully, and hire a surveyor to check it for problems. And as always, if a bargain looks too good to be true, be very cautious.
If you do need to make renovations, make sure you have suitable insurance in place. Buildings that are unoccupied for 30-45 consecutive days or over may not be covered by a standard policy and you may need to buy extra cover for empty properties.
These are property clubs where you can find opportunities that are not typically available to owner occupiers. Buildings may consist of new builds and other properties suitable for the buy to let market.
You will also meet other landlords who may recommend opportunities that for whatever reason they are unable to invest in at any time, making these good places for networking. However, you should be wary of scams, as explained in this Mortgage Finance Gazette article.
Find the most suitable properties
Finding the most suitable properties is essential for any landlords who want to start or add to their portfolios. Use some of the above areas to try and find opportunities that may be ideal for your portfolio, and choose your investments carefully.
Furnished vs unfurnished
There may be pros and cons to both furnishing and not furnishing your let property.
But firstly, what are the differences?
Unfurnished properties generally have the basic items such as carpets and white goods, but not “extras” such as TV’s and crockery etc.
A furnished property typically has everything someone may need when they live in a property – so, the bed, cupboards, a table and chairs, bathroom scales, mirrors, pictures and even a washing up bowl! The idea is that someone literally moves in with their own possessions and everything else is for them to use.
One other option is part-furnished properties. These tend to have the basics, plus maybe a small desk and some chairs. This means tenant can bring in their own bits and pieces too.
The importance of an inventory
The above definitions should be used as a guide only and it is very important that both you and any tenant are in agreement as to what is included as part of the rental agreement, and what isn’t.
An inventory can also be referred to as a schedule of condition and need to list everything from a teaspoon up to a bed, along with details of their existing condition (eg if they are brand new) and any existing damage (such as a scratch on a coffee table).
You can prepare an inventory or, if you have one, your managing agents can do it on your behalf.
Take photo evidence of the more valuable items such as furniture and white goods. Make sure the digital image is dated for today’s date, or take a photo of today’s newspaper with the headline and date readable, to confirm this was the condition of the furniture on that given day.
Both you (or your managing agent) should walk through the list with the tenant and, once you are both in agreement that it is a true representation of what is inside the property, copies should be signed by all parties, each should keep a copy.
An inventory is also very useful when calculating the amount of sum insured required if you are purchasing landlord’s contents insurance.
How to decide
Only you can decide whether you want to let your property as furnished, unfurnished or even part-furnished. Your decision will be influenced by a number of things – your budget, the size of the property (can you afford to furnish a big house for example), as well as the tenant type you are looking to attract.
Pros of letting your property furnished
- potential tax breaks - you can typically take advantage of tax deductions on wear and tear of existing furniture or replacement, though do rules apply;
- for a first time renter, moving in to a furnished property means they don’t have to supply any of their own furniture, making it cost-effective;
- you are more likely to let your property quicker than if it is unfurnished – particularly to corporate lets (if the furniture is of good quality);
- younger, more mobile tenants tend to be attracted to smaller properties, so a furnished property may suit their needs;
- you own the furniture, meaning that the tenants can use it, or you can use it yourself if you intend to move back in once your existing tenants move out
Pros of letting your property unfurnished
- you will not need landlords contents insurance as the tenant will be responsible for his or her own contents;
- if yours is a large flat or house, you’ll typically attract families and older couples who probably will have their own furniture;
- if you decide to sell the property at some stage, there will be less hassle and costs, as there will be very little furniture to move;
- you don’t have to worry about your furniture being damaged and any ongoing replacement costs as well as quibbles with the tenant over damage;
- soft furnishings (such as armchairs, mattresses and sofas) must conform to the legal fire resistant standard. In an unfurnished let, you don’t have to worry about meeting certain furniture fire safety regulations;
- as the tenant has invested money in their own furniture and moving it in etc, they may stay in your property longer
Marketing your property
So, you’ve got your property and it is ready for letting. Maybe you have just bought and refurbished it, or maybe it has been standing empty for quite some time and hasn’t attracted the (right) kind of tenants.
You may have put the letting of your property in the hands of your local agent or maybe you want to find a tenant yourself and save yourself some money on finder’s fees.
If it is the latter, there are a number of strategies you can employ to make sure your vacant property isn’t empty for much longer. Firstly, think about the tenants you are trying to attract, that way you can tailor your marketing.
What is your property type?
If you have a big, four bedroom home close to the shops, station and schools, then you’ll typically be looking for a family. Similarly, if you have a bijou apartment in the same sort of area, then your target tenant may be a professional person or couple.
Maybe you have a flat or a house in multiple occupation (HMO) near to Universities and colleges? Then your target audience may be students or teachers.
TIP: Do note that some landlords insurance policies have restrictions on who you can let to (for example, at UKinsurancenet we can offer cover for all tenant types , such as DSS recipients and students, but not all insurers do). Depending on your situation you may need to rethink your target market. Or, a potentially easier option is to find another insurance policy that does cover your proposed tenant type.
You can then think about focusing your advertising to that particular audience. You can use the traditional methods of marketing such as:
- the local press;
- shop windows;
- lettings websites (such as www.openrent.co.uk);
- social media (such as Facebook, Twitter as well as specialist forums that match tenants with landlords);
- word of mouth (via trusted friends and family);
- a landlords’ association - they may be able to give you useful tools and information.
Plus, there may be extra options for your specific circumstances. So, with student lets for example, contact your local University – often they will allow you to advertise your property for free.
If yours is an empty property, then contact your local council Empty Property Officer – they often have useful contacts as well as details of schemes that you can be matched to in order to get your property lived in again.
Do you have a portfolio of properties? Then why not build your own website? Using blog software such as WordPress will enable you to easily update and change your website. There are also “off the peg” packages available online too.
Wording your ad
The wording of your ad can make all the difference to how your rental property is perceived.
- if you are looking to attract professionals with no children, then advertising the second bedroom as a “home office” can suddenly sell a whole lifestyle;
- for that big family home, place the emphasis in any advertisements on the secure / large garden (if it has one) or the proximity to good schools etc.
Don’t forget to use good quality photos that offer a true and honest representation of your property. Obviously, focus on the “best” bits of your property – that new kitchen; those beautiful bay windows, or the immaculate garden – and avoid calling rooms / garages “small”. “Compact” conveys the same message in a more positive way!
Things you shouldn’t do
So, that is all the hard work out of the way – you know your target audience, you are actively marketing your property, and hopefully soon you’ll have a tenant. In the meantime, there are some things you need to be mindful of:
- no matter where you are advertising, never actually say that the property is currently empty – this is like an open invite to burglars and squatters. When taking photos of the front of the house, do it in such a way that any road names or stand out landmarks are not visible;
- visit the property regularly and make sure the outside is well kept and tidy. Set up lights on a timer switch to give the impression of someone being at home, again as a deterrent to burglars;
- check you have adequate insurance - a standard landlords insurance policy will normally become invalid typically after 30-45 consecutive days of the property being unoccupied (depending on your provider). You’ll typically then need unoccupied property cover;
- finally, if your property is your residential home and was not bought with the intention of being rented out (for example, you need to move abroad for work for a while and want to have a tenant there in the interim), don’t forget to advise your mortgage lender. They do have a right to refuse you to let your home out, but in most cases, they will stipulate certain conditions that you must adhere to and may charge you a fee.
7 magnificent tips on building a relationship with your tenant
You have taken all the steps to get your property ready; marketed it; met all your legal obligations in terms of safety etc - and hopefully your property will be let soon.
Once you have got that all important tenant – or tenants – here’s how to build up a good relationship with them. We are not suggesting that you form a friendship – rarely does business and friendship work – but by having some form of relationship based on mutual respect and trust, your letting may be more successful.
This may mean you keep your tenant at your property for longer (saving you the hassle of voids and re-marketing it for a new tenant etc) and makes for an easier life for everyone.
Of course, you may decide to use a lettings agency, in which case they should be managing the relationship for you.
Here are a few ideas ...
- on moving in day, make up an information pack – something that lists all the local takeaways, the vets, refuse collection days, details of emergency dentists and doctors – and even include rail and bus timetables if you really want to go that extra mile
- in case of a domestic emergency, give them a contact number (which will be either yours, your lettings agency or a domestic emergency service ) they can call if there is an emergency such as burst pipe etc;
- respect your tenant’s privacy but suggest you visit them at an agreed time during their first week there to see how they are settling in. Suggest they write down any questions or concerns so you can deal with them on your visit;
- do politely remind them of noise pollution rules and ask that they do respect their neighbours. If there is a shared drive with a neighbouring property, for example, remind them of that fact so they don’t cause an obstruction;
- encourage email communication - that way you have a written trail of everything should problems crop up further along the line. It can also save any misunderstandings for both parties;
- in the same vein, always respond to any communications quickly and professionally. This will help build up trust in you being a great landlord (and everyone tenant wants the perfect landlord!);
- finally, ensure the property is well-maintained and that you keep your tenant “in the loop” if repairs are taking time for a valid reason.
Letting can be a rewarding business both financially and on a personal level - by taking the steps above, you can make sure that both you and tenant start your journey together in a professional and pleasant way.
Building and managing a property portfolio
Once your first let property is successfully up and running, you may decide that you want to invest in more properties. This is called a property portfolio.
So, what do you need to know about building and managing a property portfolio?
Firstly, it is important to remember that just because one of your let properties is a success, that you can go ahead and snap up any other properties and be just as successful.
All the same rules still apply when choosing a property or properties – the location, the target market, whether the investment is likely to earn an income, and long term capital appreciation etc. Make sure you do your due diligence with every potential property.
There are potentially a number of investment opportunities for a landlord looking to expand their property portfolio aside from the traditional route:
- buying off-plan – this is where you buy a plot where a development is being built. Buying at such an early stage in the development means that you can often get great discounts, plus, once the property is actually finished, you may have seen some capital growth too;
- buying at auction – many of the properties will be repossessions or probate properties, where the seller is looking to shift the property quickly. This means you may be able to snap up a bargain (but do remember that when buying at auction, you need to have the finance pre-agreed in order to complete within the typical 28 day window after you have “won” the property. You’ll also need a 10% deposit payable on auction day;
- investment property finders – these are specialist companies that help you find suitable investments, from advising areas of growth to sourcing suitable properties. Their expertise comes at a price, of course, and unlike the other options above, you will be charged a fee. Some landlords, however, prefer to use this sort of service – it’s up to you as an individual to decide if you need help.
How do you finance a portfolio of properties?
At the time of writing, the bare minimum amount of deposit you will need be will be 25% of the loan-to-value (LTV). The larger the deposit you have, the more attractive mortgage deal you may be able to get – there are plenty of buy to let (BTL) mortgages available, but they require a 40% deposit.
Some landlords will buy a fixer-upper, do it up and sell it on for a profit, using the profit to put towards a BTL deposit.
Others will remortgage one of their existing properties (as long as there is equity in it of course) and use the remortgage monies as a deposit.
If you have savings sat somewhere (and typically not earning a particularly great rate of interest), you may wish to use them to fund a deposit.
How you decide to finance your investment portfolio will be based on your own unique financial circumstances as well as attitude to risk.
Joining property investor forums as well as keeping abreast of the property market may you make a more informed decision.
Managing your portfolio
Having a portfolio of properties can be a full time business. For each property you will need to ensure you meet your responsibilities to your tenant, repair and market it as necessary; and manage all the relevant paperwork and book keeping.
If you have a small number of properties, you may find you can keep on top of managing them all fairly easily.
However, if your properties are far flung or you have a number of them, you may wish to use the services of a managing agent. While costs are involved in using them of course, you may find it is less of a headache for you.
As with everything about property investment, only you can decide how you wish to manage your properties.
Finally, a reality check
Having a property portfolio can be big business – but it also a huge commitment. Remember
- the larger your property portfolio, the more financially exposed you will be if property prices drop;
- if you sell one of your properties for less than you bought it for, you will need to plug the gap in your finance;
- you will get good tenants and bad tenants – accept that as part of the job and don't take it personally;
- unlike other investment such as shares, if you need to access money from your portfolio quickly, it could take a while to sell a property.