Becoming a landlord could be a good option if you can't find a buyer for your home. With consumers nervous about the state of the housing market, more are choosing not to buy which is pushing up rents. However, this can also be daunting - casual landlords must make sure they know all the laws and legislation so they don't make mistakes that could leave them out of pocket. Here are our top tips:
Make sure you're properly insured Buildings insurance is obviously a must but many landlords overlook contents insurance. Even if you are letting your property out unfurnished, you still need cover for carpets, curtains, kitchen and bathroom units in the event of fire or water damage, and many landlords rent out partially furnished properties, so contents insurance should also be viewed as a necessity.
A standard contents policy will probably not cover you if your former home is rented out, but there are a number of specialist landlord insurance providers.
Landlord insurance differs from regular home insurance. A comprehensive policy should cover the property, contents and landlord liability. With the property cover aspect, you will need to declare the rebuild value of the home in case it is destroyed by flood or fire, etc. Don't be tempted to undervalue the property to lower premiums as it may catch you out.
It is the responsibility of tenants to take out cover for their own contents, but you should still ensure your contents are covered. Try and find a policy that offers new-for-old replacements on items. Also ensure the policy covers landlord liability as you are responsible for the safety of your tenants. This aspect should take care of any damages and legal costs in case a tenant hurts themselves due to a fault in the property - such as a burst water tank.
We have a landlord insurance listings page featuring a number of providers you may wish to consider when shopping around for suitable cover.
As with any insurance policy, shopping around is crucial so you can find the cheapest offer with the correct level of coverage. According to Moneysupermarket research, Property Quote Direct and CIA offer consistently competitive premiums. For a 40-year-old male owning a two-bedroom flat in Birmingham, premiums can be as low as £83.50 a year, based on a £250 excess from Property Quote Direct. If you want a lower excess, CIA quoted £120.34 for the same property with a £100 excess.
Keep your lender informed If you are planning to rent your home out, you must contact your mortgage lender. It may be willing to accept a change of tenure without you having to remortgage, although you will probably be charged a higher rate of interest than that you are currently paying.
If your existing lender isn't willing to lend on a property that is rented out, you will have to remortgage on to a buy-to-let loan. This may also be worth doing if the premium you will be charged by your existing lender to change the tenure is high and you are not tied in to your current deal.
For mortgage advice call our team direct on 0845 345 5705.
Make a suitable tenancy agreement Most lenders insist that you have an assured tenancy agreement in place if you rent a property out. Often contracts run for 12-months but you can have clauses included such as a break clause for one or both parties after six months.
Even if you are letting your property to someone you know it is still worth getting a contract signed by both you and your tenant - don't rely on an oral agreement as this can be difficult to enforce.
You can download template agreements from the internet or buy them from stationers. However, if you are a first time landlord it is probably worth seeking professional help and advice from an estate agent or solicitor - it will cost a bit more, but it should give you extra peace of mind and the tenancy agreement is likely to be more comprehensive.
Remember, do not sign any contract until you have read and understood everything within it.
Get references You should definitely ask for references before signing any rental contract, and don't be afraid to check that they are genuine. If you want to find a tenant quickly it may be tempting to cut corners, but remember: it is you who will ultimately pay the price if you end up with a tenant from hell.
If you are not confident about doing background checks yourself it may be worth employing an estate agent to do it.
Who is going to manage the property? If the boiler breaks down or a pipe bursts in the middle of the night, will you be happy to take a call from an unhappy tenant? If the answer is no, consider using an agent to manage the property on your behalf.
The cost of using a managing agent varies so shop around before signing up - you could pay anything from 5% to 15% of the rental income, although much will depend on the level of service you opt for.
If you decide to use an agent you also need to agree on a few things such as what happens if a builder, plumber or electrician is needed at the property - do you get to decide which tradesman is appointed and can you approve the quote before the work is carried out?
Obtain safety certificates The Landlord and Tenant Act of 1985 requires landlords to ensure electrical installations are safe when the tenancy begins, and landlords are obligated to ensure that electrical appliances are safe - checks must be carried out every five years. It is also a requirement of law that checks are carried out on gas appliances and flues annually. Look for a CORGI registered engineer to carry out the checks.
Energy performance certificates must be obtained for properties to let after October 2008. These certificates tell you how efficient your home is based on bands from A-G - the most efficient homes, in band A, should have the lowest fuel bills. You can find more information on these certificates here.
Make full use of tax breaks You will be liable to pay income tax on the rent you receive, but landlords can offset many of their costs through taxable allowances which can significantly reduce their tax bill and, in some instances, reduce it to zero. However, according to Paragon Mortgages most landlords are unaware of what they can claim for.
For example, landlords get tax relief on mortgage interest, professional fees such as solicitor and letting agent's costs and they can also deduct the cost of replacement furniture, white goods and furnishings.
For more information, visit the Revenue & Customs website, or speak to an accountant.
Have your say: Are you a landlord who can offer tips and advice to others? Or maybe you are in the process of trying to sell or let your property. Why not visit our forum and share your experiences with other members.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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