Traditionally the UK property market has been more focused on owner occupiers as opposed to landlords and tenants. Unlike Germany and France, where under 50% of property is owner occupied. Until 2001 over 69% of property was owner occupied, but that trend is changing, and today the number of people renting property is at its highest level since the early 1960s.

This change in renting policy has come about for a number of pertinent reasons. Buying property has become enormously expensive, and as a result, property has slowly been moving out of reach for young first-time buyers who are now being forced to rent. In the 1980’s the average age of the first time buyer was mid-to-late twenties, while today that has risen to mid-thirties. As a consequence, the demand for rental property has increased and for longer rental periods, which is all good news for landlords.

In addition, in the UK residents were driven by political and social motivation to own their own homes. Renting was seen as a ‘waste of money’. Today the social ‘stigma’ of renting has disappeared, instead being replaced by practicality and the understanding that despite the fact mortgage interest rates have remained ridiculously low for a number of years now, this has done little other than help fuel the rise in property prices, taking them further out of reach of current tenants who aspire to be a home owner.

As an example, UK property prices on average rose by nearly 7% in 2015, yet wages only went up by 2%.

With London property prices predicted to rise by some 50% over the next 10 years (according to the Financial Times) it is becoming abundantly clear that the number of tenants will also increase as property becomes more and more unaffordable for the younger generations.

Everything points towards investing in property on what is referred to as a ‘buy-to-let’ basis. By this we mean buying a property with the sole intention if immediately renting it out. This could be purely to provide you with regular income from your investment, or it could be that you have bought the property as a long-term investment which has involved taking on a mortgage and the rental income is already earmarked to cover the mortgage payments. The advantage of buying property as an investment is that you can generate an immediate return through rental income, while also creating a long term increase in the value of your investment through the rise in value of the property.

On paper this would all seem like a simple and straightforward way of investing in such a way as to provide you with financial security in the future. However not every private landlord is as successful as they could, and should be, usually as a result of approaching becoming a landlord in the private housing sector lacking sufficient information and experience. There are many pitfalls you can easily avoid, and better to learn the easy way than the hard way!

As a result, we have compiled a short and comprehensive guide on how to be a successful residential property landlord and how to maximise your chances of investing successfully in the UK buy-to-let property market. From choosing the right property to deciding whether to set up your own property company or not, we intend to give you invaluable advice that will help ensure your property investing is as successful as possible.

1

What to buy?

Much of your success as a landlord will depend not just on what you actually do once you have bought a property, but on the property you actually decide to buy itself. To this end, it cannot be stressed strongly enough that you need to do a great deal of homework before you buy any property and, most important of all, disengage your head from your heart.

When buying investment property, it is all too easy to fall into the same trap we can when buying a home for ourselves. We are so used to looking at kitchens and bathrooms and if they are not to our taste, we tend not to buy that property. When investing in buy-to-let property, personal taste comes bottom of the list of priorities. Instead, it is all about the bottom line, buying a property that will generate the greatest rental income for the minimum outlay.

We have already covered the buying process in our article Buying a Property to Let, so we will simply touch on what was discussed in greater detail.

  • Do your sums and establish early on what you can afford to pay for a property.
  • If you need to borrow money to buy your investment property, do ‘worst case scenario’ calculations for when interest rates may rise
  • Establish if you are going to do the maintenance yourself or employ tradesmen, this may influence buying a brand new property as opposed to a period one
  • Establish if you are going to let the property yourself or employ a letting agent
  • Buy the right property for the location. Establish which areas of town are popular with students, young executives or families, and target property that will appeal to that specific market
  • If you are looking to becoming a full-time investor, you may wish to consider buying a property that requires upgrading first, then letting it out as opposed to selling it when the work has been finished

Becoming a successful property landlord isn’t just about buying any property and advertising it for rent in the local paper. Careful research will show you what yields you should be aiming for (yield is the net return on capital invested, or in simpler terms, rental income less costs incurred, divided by the value of the property, then expressed as a percentage). Market research will help you establish where there is a shortage of property to let and therefore where you can command premium rents. Clever market research will help you to identify ‘up and coming’ areas where you can sacrifice lower rental income in return for greater growth in the value of the bricks and mortar you have invested in.

2

Becoming a Landlord

Anyone who buys a property and subsequently lets it to a third party automatically becomes a landlord. However, there are various types of landlord, and at the very beginning you want to establish which type you want to be, and the financial implications of that choice.

If you want to fully immerse yourself in the world of being a property landlord, you may find it more cost-effective to do all the physical letting of your property yourself, along with the maintenance and upkeep. You may choose to divide the responsibility up between yourself, a letting agent and a managing agent, you may opt to set up your own property investment company to take full advantage of tax benefits, or you may just become an investment partner with someone, taking a dividend but having no overall physical input.

You may be aware that mortgage interest relief has now been reduced to the basic 20% rate of tax, while stamp duty has been raised by 3% across the board for the purchase of second or multiple properties. This has greatly affected the smaller investor with one or two properties, but you may wish to see an accountant or a financial advisor as registering as a company can have considerable tax advantages.

Legally, you are perfectly entitled to let out your own property as a private landlord. You are strongly advised to use the services of a solicitor to set up the tenancy agreement until you are 100% familiar with them. Today the most common form of tenancy agreement is an Assured Shorthold Tenancy Agreement which is usually set up for a period of six months to a year, and can be renewed for the same period of time. From a landlord’s point of view, the tenant can continue under the terms of an assured shorthold tenancy agreement, with the landlord, under Section 21 of the Landlord and Tenant Act, able to issue the tenant with a Section 21 notice of termination of the tenancy agreement giving two months’ notice to quit the property.

If you feel you don’t want to become involved with your tenants and the financial aspect of letting out your property, you can employ a letting agent to find you a tenant, and someone who will oversee the letting of your property throughout the duration of the tenancy agreement. For this, the agent will usually charge a fee in the region of 15% of the monthly rental income, plus VAT%. Now this fee is tax deductible, but with tax relief reduced to 20%, this makes letting more expensive than it used to be. However, a good letting agent is responsible for finding a tenant and managing the property once the tenant is in occupation, so it can be worth the extra cost for extended peace of mind.

Of course if you are thinking big and want to build up an empire of buy-to-let properties, then you will need to seriously consider creating a company for your property dealings. Having access to a substantial sum of money can allow you to buy one property outright, or with only having to provide a 25% deposit if you want to get a mortgage on a buy-to-let property, you can expand your potential empire well beyond one or two properties. Interestingly, one of the loopholes in the new increase in stamp duty is that owners of 15 or more properties are exempt from the stamp duty increase.

Finally, you may just be interested in being a landlord in name only, but have next to nothing to do with the day-to-day running of a property letting business. There are many shrewd investors who choose to back property investors and who will pool resources to buy into major property developments with a view to mass letting blocks of properties to management companies. Similarly, certain property investors will invest more in people than physical bricks and mortar. Crowdfunding has become an increasingly popular way of attracting investment in property, so there is a far greater number of options available to you as a property owner and bona fide landlord. Check out our Guide to being a Landlord article.

3

Responsibilities – legal and otherwise - when letting property

Many who become landlords of buy-to-let property do so almost by accident, often letting out their own home while working abroad or elsewhere in the UK for a year or two. However, if you are letting out your home to a tenant, to do this successfully then there are two people you have to inform. The first is your mortgage company if you have a mortgage on the property. Your mortgage company will have lent you money on the basis you would be the occupant of the property being used as security for the loan. Having a tenant in occupation alters the mortgage company’s legal standing with regard to gaining occupancy in the event you default on your loan.

Secondly, and this is one than many first time landlords forget, remember to let your insurance company know that you are letting out your home. You cannot use standard domestic bricks and mortar insurance for property that is let out. Similarly, if you have let the property furnished, you will need to advise the insurance company covering your contents of the change in occupation. In both instances, expect to see a substantial increase in your annual premiums paid.

Other than that, when a tenant takes occupation it is not a dissimilar situation to when you have sold and moved home. You need to advise all the utility companies of the name of the tenant and you need to make it clear in the lease you have set up for the property that the tenant is responsible for all services and taxes liable on the property from the day they take occupation.

As a landlord, in return for rent paid, the tenant has the legal right to expect the property’s main structure to be safely maintained and to be able to enjoy uninterrupted occupation of the dwelling during the agreed period of the tenancy. During that time and as the landlord, you will also be responsible for ensuring that everything supplied with the property remains in perfect working order. The tenant will be responsible for the overall day to day internal condition of the property, but nothing structural or which relates to services. If there is a leaking pipe, it is your responsibility as landlord to have it repaired, not the tenant’s responsibility. If there is a leaking roof, it is the landlord’s responsibility to fix it. If there is gas central heating, it is your legal responsibility to get the gas boiler serviced every year.

In the simplest of terms, being a landlord doesn’t just involve buying a property, finding a tenant and receiving rent, there is appreciably more involved, and you can become as involved as you wish on a personal level.

However, while we are discussing the legal aspects of being a landlord and what would be required of you, there is also the law which exists behind what you are not allowed to do. For a start, you are not allowed to increase the rent during an agreed period for the lease. You are within your rights to increase the rent as much as you wish when the tenancy agreement comes up for renewal, but before that your hands are tied.

Unless the tenant is in agreement, you cannot legally enforce them to vacate the property prior to the ending of the tenancy agreement.

If a tenant falls behind on rental payments, you are legally entitled to serve them with notice to quit the premises. However, if the tenant refuses, legally you are not allowed to evict them from your property, which also included changing the locks when they are not present. Believe it or not, if you do that, you will be charged with breaking and entering, even though you own the property.

If your tenant falls behind on rent, you have to apply for an eviction notice through the courts, and the tenants can only be evicted by court-appointed bailiffs if they refuse to vacate the premises of their own volition. This is the down side of being a landlord, and cases of non-payment of rent are not uncommon. Invariably, by the time you get vacant possession of your property the inside will have been left in a dreadful condition, and on top of losing out on rental income for anything up to a year, the security deposit paid be the tenant will only cover one tenth of the cost of making good the inside of the property.

Of course you can always insure yourself against non-payment of rent by a tenant, and this can prove to be extremely beneficial for those who require the rental income from their let property to pay the mortgage. Such insurance policies will also cover you for legal costs involved in evicting a tenant and are remarkably affordable.

As an example, Rentguard offer up to £2,500 a month cover and up to £15,000 of legal expenses and the premium is only £99.00 per annum.

4

Establishing Yourself as a Landlord

It may be that as a landlord, you choose only to have one buy-to-let property in your portfolio, a type of pension fund that relies on a tenant paying rent to pay the mortgage you have on the property, while over a twenty-year period they will ideally see the property more than double in value. After five years you may see the rent covers more than the mortgage, but with the passing of time comes additional maintenance costs. A successful buy-to-let investment is one which pays for itself with regard to immediate returns, but which increases in capital value year on year.

Of course there is also the often overlooked option of the HMO, or house of multiple occupancy. Where a traditional flat may see you achieve a yield of say 6%, an HMO is capable of returning around 9%. However, HMOs are maintenance-heavy investments, not just from a financial aspect, but also from a time management angle. Usually HMOs require additional and continual maintenance, rent payment can be sporadic, and tenants can be troublesome, but the higher rent paid as individual occupants compensates for the additional input required.

5

Conclusion

Deciding to rent out property isn’t for everyone. Certainly substantial sums of money are involved, and this can make some of you feel uncomfortable. However, unlike investing in stocks and shares, while the value of your investment in property can go down, in the long term property is not renowned for losing its value completely. On the contrary, as a long-term investment, there have been few better options than property and certainly where the near future is concerned, that does not look like it will be changing anytime soon.

Ultimately, one of the greatest secrets to succeeding in renting out property is to talk to those who are in the know, those who have walked along this path before you. As human nature would have it, we all like to talk about how we have succeeded, and successful property landlords are no different.

Where renting property is concerned, never rush anything. Do your research and do your homework. Knowledge is a powerful thing, and where property is concerned, you cannot have too much knowledge. Talk to estate agents to learn about the best areas to buy property. Talk to letting agents to discover what property achieves the highest yields and which properties let most easily. To be a successful landlord you need to know your local market like the back of your hand.

And don’t forget to look forward, to plan ahead. As an example, check with the local planning authority what plans there are for future development where you live or where you want to invest in buy-to-let property. Discovering that there are plans to build a new university in an area of a city is your signal to invest in accommodation that would be suitable for renting out to students. As an example, the buy-to-let property market is likely to become very buoyant in Hereford now that plans for the new university have been given the go ahead. Being a successful landlord doesn’t mean concentrating only on the here and now, it is investments for the future that could well prove to be your most successful as a landlord.