Buy To Let: How To Become A Landlord In The UK
Becoming a landlord is the most profitable way to generate a passive income. If you can afford to take on the cost of a second mortgage on a rental property, you could build yourself a sizable nest egg for the future while also enjoying a little extra monthly income to help you pay your bills or save for a holiday. Renting a home or apartment comes with responsibilities as well as a return on investment, so here is this quick guide that covers the important points to help you decide if it is the right investment for you.
Investing In Property
When renting to private tenants, your rental yield is the most important figure. How much you rent your property for should cover your costs, such as the mortgage, and provide you with a little profit. Over time, your rental income will pay for the property giving you a highly valuable asset. To get the highest rental income possible, you need to identify properties in sought-after areas and make some small but sensible investments in the home to increase your yield. Homes that require structural alteration will cost you a lot of money to renovate and negatively impact your return.
Look for homes that need a little modernising and a fresh coat of paint to push up your rental income. You can get the work completed quickly by painters and decorators near you that have the experience to leave you with a high-quality finish. MyBuilder can help you find local painters and decorators that come recommended and reviewed by other property owners who often include photos with their reviews allowing you to assess the quality of the work. Find a professional painter or decorator to help you get your rental property on the market quickly, so it is earning you money shortly after you complete the purchase.
Know Your Responsibilities
In an ideal situation, you will rent your property to a great tenant that will make their payments on time and will cause you any major problems or issues while they rent from you. Before you let your property, you need to ensure you have all the correct paperwork in order which fall into four basic categories; deposits, safety, property, and tenants.
Landlords are legally required to hold their tenant’s deposits in one of three approved schemes; the Tenancy Deposit Scheme, the Deposit Protection Service, or MyDeposits. If you do not put their deposit in one of these schemes, you may have problems later in the tenancy, including if you need to evict your tenant for any reason. These schemes protect both parties.
Before you can let your property to a tenant, it needs to have been inspected by a qualified and registered gas engineer to ensure the property is safe. This must also be done once a year during the tenancy and between lettings. The property’s electrical system also needs to be checked by a qualified electrician, and they must check the fuse box is in full working order, and PAT test power outlets.
The property also needs to be checked for fire safety. The home should have working smoke alarms and at least one carbon monoxide detector. If the property has access to a fire escape, it is up to you as a landlord to ensure your tenants can get to it quickly and that it is safe to use. If a fire escape needs maintenance, you will need to get in contact with other landlords and homeowners in the building to get the work completed and share costs among the different landlords.
Making A Profit
If you have tenants in your property consistently their rent payments will pay the mortgage over time, essentially buying the property for you. This is the biggest benefit of being a landlord, but it will take decades to realise this return. In the short term, you should be able to make a little money every month as their rental payment should be more than your mortgage liability plus your costs and taxes.
The monthly or yearly yield may only be a small percentage of your investment, but it will often be more profitable than keeping your money in a savings account or bond. Make sure you include a contingency fund in your budget. You may have to spend money on the property during your time as a landlord, repairing a broken hot water boiler for example. Though these expenses are rare, they can be expensive so it is a sensible idea to have the money saved to cover the costs.
Becoming a landlord can help anyone prepare for their future and put them in a strong financial position as they approach retirement. With a responsible tenant that makes their payments on time, there is very little that can go wrong for a landlord.