There are many reasons why you may want to become a landlord. Perhaps you have seen the rise in rental prices over the last few years and feel that, with your knowledge of property management, you can earn additional income by renting out your own property or properties that you have bought at auctions or on sites like Zoopla.
If so, read on to find out how to become a landlord in the UK.
1. Do your research
The world of property investment can be a daunting one, which is why it’s crucial you understand your local laws and regulations. While it may seem like an obvious choice, not all landlords choose to buy buy-to-let property.
Depending on your situation and investment goals, owning commercial property or renting out a room in your home might be better options for you. If you do decide buying property is right for you, make sure that
2. Starting with buy-to-let mortgages
Before even looking for properties, there are some important things to consider. First of all, you’ll need money – an awful lot of it.
If you have none, or not enough, then look into mortgages for landlords and government grants and schemes for first-time investors.
You may be surprised at what is available to help you get started with buy-to-let properties.
Most lenders will require you to put down a minimum of 10% equity when taking out your buy-to-let mortgage - so if you're buying a £300k flat, expect to shell out £30k as a deposit!
3. Understanding tax implications
If you want to become a landlord, you need to be aware of certain tax implications. You may be exempt from capital gains tax if you hold your property for at least two years.
The amount of Capital Gains Tax that you’ll have to pay on your profit is dependent on several factors such as when and how much money was put into buying it and whether or not it was your main residence when you bought it.
You will also have to pay both income tax and National Insurance if any of your tenants are working for you.
4. Keep on top of expenditure and income
Budgeting is an important part of any successful business, and it’s worth putting some time into making sure you have an accurate budget at all times.
Be sure to track all expenditures, so you can stay on top of your finances and ensure that you always know what your money is being spent on.
It might also be worth setting up direct debits from your bank account for rent, utilities and any other regular costs that come with owning rental property.
If possible, you should get into a routine of reviewing your budget each month and comparing actual income and expenditure against projected figures.
5. Don’t overstretch yourself financially
Being a landlord can be profitable, but it is also costly and time-consuming. If you’re planning on becoming a landlord, make sure you have enough cash reserves to cover emergency repairs and other unexpected costs.
Don’t overextend yourself financially; if you do decide to buy more property down the line, you should feel confident that your additional investments are manageable. Otherwise, you could face some difficult choices when something breaks down or needs upgrading.
6. Choose reliable tenants
It is always best to choose your tenants wisely. The last thing you want is for your rental property to be taken over by loud college students, party animals or deadbeats.
If you’re looking for great tenants, check out online sources like Craigslist and Trulia.
Local paper ads are also an option, but they can have more flakes than LinkedIn.
Most landlords use word-of-mouth referrals or real estate agents when they’re finding tenants – good way of filtering out those unsuitable applicants.
It's always smart to vet potential renters with credit checks, criminal records and background checks – even if they already have an excellent history as a tenant at another place!
7. Give yourself time to relax
As a new landlord, one of your most important tasks is going to be managing your tenants and their leases. However, it’s not just about evicting tenants who don’t pay: You have to maintain strong relationships with your tenants.
Take time to learn about each of them as individuals—especially if you manage multiple properties—and remember that they are living in your property and deserve at least basic respect and consideration.
How to Become a Landlord The Bottom Line
Before starting your quest for rental property, first, understand that as a landlord you are essentially running a small business. If you are uncomfortable with math or other financial considerations, now is time to hire an accountant.
Since you will be responsible for collecting rent and bills from your tenants (as well as maintaining properties), it's important that you have at least some understanding of how money works. You will also need lots of patience when dealing with slow or sloppy payers.
And if things do go badly, understand that there is very little protection for landlords - particularly smaller ones - under United Kingdom law; as such, be sure to protect yourself by working only with trustworthy tenants who can provide good references and credit checks.