Thinking Of Becoming A Landlord? Here’s Some Advice | Pip Milburn
For many homeowners looking to purchase a second property, renting out their primary residence can seem like an attractive proposition. But buying, maintaining and even selling a buy to let property can be more expensive than many people realize and landlords now also have a growing list of responsibilities and licenses designed to keep their tenants safe. So if you’re thinking of becoming a landlord but aren’t sure what you’re getting yourself into then read this first.
Landlords pay tax
There’s no escaping the tax man and landlords are required to pay income tax on the profit they make from letting out their property just like any other business owner. The profit landlords make is calculated by taking the total earnings from the property and subtracting any allowable expenses. Allowable expenses for landlords include letting agent fees, their landlord insurance costs, any maintenance and repair costs for the property, legal fees related to the property and interest on buy-to-let mortgages. Remember that this income will be taxed in addition to your primary income and it may be worth hiring an accountant to discuss how this will affect your earnings.
If you’re buying to let, mortgage lenders will want to see proof of earnings
Mortgage lenders for buy to let properties will want to see evidence that the estimated rental income is sufficient to comfortably cover the mortgage repayments with most looking to see a profit of around 145%. In legal language, this is known as the interest cover ratio and the exact figure can vary from lender to lender. If you’re confused about how to prove your interest cover ration then get its always best to speak directly to the professionals such as Keoghs Solicitors.
Landlords have a lot of legal responsibilities
In order to keep prospective tenants safe and to avoid exploitation, landlords now have quite a variety of responsibilities and licenses they need to adhere too including:
- Safety responsibilities
Fire – It is the landlord’s responsibility to provide smoke alarms on every storey of a property and a carbon monoxide alarm in rooms with solid fuel appliances. Landlords must also ensure that their property has sufficient fire escape routes, that the furniture is rated to fire safety standards and may also need to provide fire extinguishers.
Gas – Landlords must have all gas equipment installed and maintained by a registered gas technician and yearly safety checks must be conducted.
Electrical – Landlords are responsible for the upkeep and maintenance of all wiring and electricals within the property.
- Energy efficiency responsibilities
Landlords must provide new tenants with an EPC rating to demonstrate the energy efficiency of their property. All new rental properties must now also meet a minimum requirement of an E grade.
- Right to rent checks
Landlords are responsible for carrying out right to rent checks on all prospective tenants including assessing that they have the right to live in the UK. These can be conducted by the landlord or through a letting agency. It’s important to remember that a ban on letting fees was introduced in January 2019 and came into force in June 2019 which means that fees can no longer be charged by letting agents to tenants.
- HMO licencing
If your property is above 3 stories high or houses 5 or more people from 2 or more families then you will need to apply for a House In Multiple Occupation Licence.
Get help with your tenancy contract
Your tenancy contract is what keeps you safe and shouldn’t be overlooked. The government is currently considering implementing minimum tenancy durations of 3 years with 6-month break clauses, however, these have yet to come to fruition. In the meantime, ensure that your tenancy agreements are legal and binding to protect you in a court of law, remember to implement 6 monthly break clauses so that both you or your tenants can leave the agreement should your circumstances change.
Build a home you’d want to live in
As a landlord, you are in a position of power but remember that you are also legally obligated to provide a standard of living to your tenants. Although renting your property out is designed to make you a profit you should also be mindful of the needs of your tenants as this will increase the likelihood of you finding someone who will stick with you long term and look after the property you provide them with. Decorate your property neutrally, make it inviting, provide long-lasting furniture and stay on top of maintenance and safety issues to keep your tenants safe.
*This is a collaborative post.