Renting out a property for the first time
Are you renting out your property for the first time or wondering how you can become a landlord for the first time? Then we’re going to answer all your questions today!
This blog will cover some key points to think about as a new landlord or if you are considering renting out a property for the first time. If you prefer to watch me talk about this, rather than read, then you can view the full video below.
I’m a London-based property agent and I help clients buy, sell, rent, or manage property so I’ve got perspective coming from different points of view so wanted to share with you some of my top tips and things to think about if you’re a landlord for the first time or perhaps you’ve been landlord with one or two properties and thinking about building your portfolio. So let’s get into it.
The first thing you should think about when you’re buying a property is a Buy to Let mortgage.
A Buy to Let mortgage is not the same as an owner-occupied mortgage. So you definitely want to be able to understand the different types of mortgages – what types of restrictions there might be associated with those mortgages.
The other thing to consider is what type of property because it might impact the mortgage that you can get.
Whether it’s a single-family property, say a one or two bedroom flat, or is it a HMO (houses of multiple occupancy), where it might be three, four, five or more units or beds in the property and they’re going to have their own restrictions and compliance rules, which could also affect the mortgage that you get.
The other thing that I’ve seen is when you might look to buy and rent out your property as a corporate or short let, that’s going to impact the type of mortgage you can get and also your insurance.
Insurance is the other thing you’re going to need to think about, not just from the view of the right type of insurance but how much that insurance might cost. We manage properties for our landlords as corporate or short let, and I know that there’s additional insurance we have to put in place that actually lines up to the nightly rate that we’re able to charge and that definitely adds an additional cost.
The other thing to think about is where you might look to buy your property and that might have implications on whether you’re going to be prepared to manage that property for yourself or might need a local lettings agent or property agent to help you find the tenant, do the tenant referencing administration and then the ongoing property management. It’s one thing if you’re a working professional and you live in Northwest London but you might look to buy a property in Southeast London where the yields and the rental return might be a lot better – logistically, that’s going to be a challenge if your tenants are calling for different maintenance issues so you definitely want to factor in the cost of using a lettings agent or property management agent to look after your property.
Leading into that is the whole process for finding the tenants.
One of the things that I think landlords often underestimate is how important the tenant referencing process is and how there are real restrictions in terms of what you can and cannot do. There are a whole list of right to rent guidelines that you have to stay in compliance to that have heavy fines. This includes verifying the nationality of someone and that they have a right to rent in the UK. The other things you definitely want to go and check is the worthiness of the tenant, do they have a history? Are they of creditworthiness – such that you want them in your home? Also, how many people are going to be living in that property, and do you have all the names and have they been identified as occupants into the property?
Another thing to think about with the recent changes in the landlord and tenant fee ban that took place on the 1st of June, is what types of deposit you’re going to be able to hold and the fact that they need to be held in a government sponsored tenant deposit scheme. There’s a lot of regulations and restrictions that go along with managing a property, you definitely want to know what that is and not just assume you can keep the money in your bank account or not actually have it registered properly.
This brings me to compliance – one of the things I think in the UK – being a landlord is heavily restricted, so whether it’s gas safety checks or EPC’s, there are a lot of things you need to make sure you’re keeping in compliance with on an annual and regular basis, as well as ensuring you are maintaining this property properly for the health and safety of your tenants. That’s even before we get into finding the right property for you.
I’ve mentioned a little bit about areas and where you might think about owning the property from a logistics perspective but it’s definitely going to impact the yields you’re going to get. One of the things we often struggle with in London is where to get the best yields for my clients. London, given the property prices and how strong a market’s been over the last several decades, it does mean that investors or buy to let owners have a harder time getting the rental yield that might warrant owning the property and holding it long term. So you definitely want to make sure that you’re factoring in not just the cost of owning the property, but managing it and compliance because that’s going to impact your yield and also how much you want to put into looking after that property.
One of the recent changes we’ve also seen is the reduction in the mortgage interest you can offset against your taxes. That’s having a dramatic effect on the return that many of our landlords are seeing and it’s actually giving them pause to think – does owning this property still make sense? So, you want to factor in the economics of it as well there was a wear-and-tear allowance that’s also been taken away so you want to make sure you look at all the costs of owning a property, managing it, looking after it, personally I own several properties and I know the benefit of having a source of passive income and how that can help build long term wealth so I’m definitely a supporter of owning properties but I also recognize it isn’t for the faint of heart, some years are going to be great, some years might not be great.
One of the things we’re seeing, especially in London, is the rental yields that some of my landlords some of the rents that my landlords got in the past is not necessarily what they’re able to get today especially as there’s more new builds that are coming online and renters have a good amount of choice, so again that’s something you want to think about when you’re looking at the property you’re going to buy is what are your tenant’s looking for – what type of properties and beyond just the things we’ve already talked about is making sure you keep that property in good condition, because that will certainly impact the amount of rent you can get over time.
Owning a property is a living breathing investment, it means that and perhaps after a few years you might have to be painting new walls changing carpets updating it and refreshing it so that it continues to be appealing for potential tenants.
I hope that’s given you a taste of some of the things you need to think about if you’re going to be renting a property for the first time or letting out a property as a first-time landlord. If you have any other questions, make sure you comment on this blog, or do head to my YouTube channel for weekly news about the London property world.
