How to Become a Landlord: Guide, Tips & Mistakes
Becoming a landlord can at times be difficult. Buying a property can be expensive and take up a lot of time. But then there’s the landlord duties that you have to deal with. Things are even more complicated if you’re renting out a property for the first time.
As regulation and government restrictions increase in the industry, times are tougher.
Reading up on how to become a landlord and getting advice & tips are therefore all the more important. Its vital landlords stay on top of their game.
There’s a tonne of duties that need to be taken care of: Getting the right property, finding tenants, inspecting your property… Just to name a few. With a lot of duties, there can be a lot of mistakes!
Many landlords opt for a letting agent to help assist landlord duties. You can use our letting agent fee compare tool to find your ideal agent.
Enter your postcode and a few details about your property, then agents in your area along with their fees & ratings will be shown. General advice if you are renting out a property for the first time, is to seek the help of an agent.
In this guide on how to become and landlord, we focus on:
- Decision on becoming a landlord & getting your buy to let property
- Renting out your property for the first time
- Growing as a landlord
How to become a landlord: Decision on becoming a landlord
Crunch your numbers for your buy to let
Before buying the property, it’s important to get a good grip on your finances.
Landlords should know their expected rental income and expenses.
Following which, as a landlord you need to know how much the tax man will take. This will leave you with how much profit you have each month/year.
It’s savvy to also know your payback period.
As a landlord you have to usually fork out a 25% deposit. However this isn’t a “real cost” as the deposit isn’t money spent. More so its equity you have in the property.
When you come to sell the property, as long as the price hasn’t decreased, you will get that money back.
However stamp duty, solicitor costs and arrangement fees are sunk costs that you will not get back.
You should look at the total sunk costs involved in buying the property. Then work out your payback period.
If total costs are £30,000 and you get a rental profit of £800 a month, you get paid back in 37.5 months, just over 3 years.
Opportunity costs of investing in a buy to let
Before buying your property, it’s prudent to check other investment opportunities.
One example is investing in the stock market.
There are little barriers to entry to invest in the stock market. No stamp duty or solicitor fees.
If you pick right, there are massive profits to be made. The S&P 500 index, which tracks the top 500 U.S companies, has experienced growth of 30% in some years.
Of course with potential rewards there is risk. There could be a market crash which sees value knocked off your investments.
Look at your options and conduct a benefits analysis. The best investors in the world diversify and invest in a range of different options to mitigate risk.
Buy in the right area
There’s not much you can do if you’ve already bought your property. But if you’re looking for a buy to let property, location is key.
Avoid focusing on buying a property in an area you would like to live in.
Instead focus on where renter would like to live.
Student areas & properties close to public transport are charged at a premium. This is because of the likelihood of continuous demand from tenants.
Getting the right mortgage
Mortgages for buy to lets require a significantly higher deposit & incur higher interest rates.
As the finances involved are very high, decisions on which mortgage lender to choose are critical.
Landlords need to shop around on various comparison sites to make sure a variety of providers are looked at.
In addition for a numerous mortgage advisors on the market, offering impartial advice. It’s prudent to talk to at least 2 as a minimum, to see what’s available.
Locking yourself into a mortgage
It may seem like a good idea to lock yourself into a long fixed term mortgage, especially while interest rates are so low.
This may be a good idea as interest rates may increase in the future, so getting a 5 year fixed mortgage may sound sensible.
But there could be an opportunity cost landlords should factor in.
If a property value increases, landlords looking to buy more properties may use some of the increased value to buy another property.
But if you’re locked in for 5 years, taking equity out of a property may activate early exit charges with your mortgage provider.
If therefore it’s more cost effective to wait until your fixed term has expired, by that time the market may have moved and you miss out on some cheap deals.
Become a HMO landlord
When looking at how to become a landlord, if you’re planning to be a HMO landlord, there are wider requirements you need to look out for.
Usually if your HMO is going to include over 5 tenants or over a certain amount of rooms, you will need to get a HMO license with your council.
Each council differs in terms of the exact requirements and conditions.
Research and confirm with your council what is needed before you get the ball rolling.
Keep a pot of money to the side
Its sweet when the rent is flowing in, your mortgage is covered and you’re making a tidy profit.
However markets can turn, interest rates may go up and property damage can occur.
These scenarios can put a risk to your rental profit.
It’s good practice to keep a pot of emergency funds to the side, should you need to cover losses for a period of time.
Choose the right landlord structure
When becoming a landlord, you can choose to buy your property as an individual or within a business/limited company.
Under both, letting agent fees, insurances, accountancy fees can be expensed, bringing your tax bill down.
Operating under a business, will also mean that you can expense interest paid on your mortgage.
Due to legislation, this isn’t possible to do when you’re an ‘individual’ landlord.
Check with an accountant or financial advisor when picking which option to choose. There are many factors to consider that are bespoke to each person.
How to become a landlord: Renting out your property for the first time
Don’t value your rent too high
It is prudent to not price yourself out of the market. If there are other properties in your area on rent/available for rent, you want to ensure your property is priced competitively.
Unless your property has unique selling points other properties locally don’t have, you need to match what other properties in the area are doing
Don’t value your rent too low
On the flip side, another common mistake is pricing your rent too low.
Pricing your rent low may help getting in tenants quicker.
However you need to be wary of the long term opportunity loss of charging lower than average rent.
Charging £50 less a month is £600 a year. Over 3 years that’s £1,800.
If you then wanted to bump up your rent in the future, you’ll then need to have the awkward conversation with your tenant.
Even worse, if your tenant can’t manage the extra rent, you may need to look for a new one.
Pick the best property manager or letting agent
You could decide to get a property manager or letting agent to manage your rental property. This is a good option for those renting out your property for the first time.
A good property agent can help landlords a significant amount.
Rent collecting, finding tenants, managing inspections etc are all activities a property agents can handle.
However getting the choice of property agent wrong can lead to dismayed tenants and risks to the landlord.
If issues aren’t fixed quickly or the property not maintained correctly, landlords could face a loss of rental income and/or financial penalties.
Rent Round allows you to search for property agents in your area, by entering your postcode.
The search will show letting agent and property manager fees. In addition ratings, location & regulatory affiliations of the agents are shown.
In the good ol’days, sticking a note up in a show window or a supermarket board may have been a good idea to get tenants.
However times have changed, tenants mostly now search on online portals such as Zoopla & RightMove.
Unfortunately these portals aren’t easily accessible for everyday landlords. The pricing structure works for those that have multiple properties to post. These portals are not viable to a landlord advertising just a handful of properties.
A solution is picking a one off fixed fee tenant find service through a letting agent.
You’ll pay a one off fixed fee for finding a tenant, the letting agent will post on the property portals for you.
With fees for this service being charged £80-£250, it’s a good option to take. Furthermore, there will be new tenancy renewal fees to pay once the tenant’s term expires.
However you may need to take on the responsibility of conducting tenant viewings yourself. This may be a problem for the busier landlords.
Don’t pay too much for a letting agent/property manager
As alluded to earlier, a letting agent/property manager helps ease life’s for landlords.
However fees can rack up quickly and eat into your rental income.
If your property has fine margins, the choice of letting agent/property manager could mean falling into losses or maintaining a profit.
Rent Round will help find you a letting agent/property manager. After entering your postcode and a few details about your property, Rent Round quickly generates a property agent comparison local to your property.
You will need to ensure you check tenants carefully.
Rental background, right to rent and credit checks should be looked into.
Not conducting references properly could increase the risk of getting tenants that are not able to keep up with rental payments or not look after your property correctly.
Picking the your property manager or letting agent based only on price
You may decide to get a letting agent or property manager to help manage your property.
It’s best not to base your chosen agent just on letting agent fees.
What regulatory bodies the agent is affiliated with should be looked at.
Being affiliated to a regulatory body indicates the agent adheres to certain standards.
Likewise, letting agent ratings should be looked into. This gives additional reassurances the agent you’re getting has a strong reputation.
Get the right tenants
Getting the right tenants is essential, especially when looking for tenants within a HMO.
You don’t want to mix students with working professionals.
One may be staying up to the early hours parting while the other is trying to get an early night.
Possibly one of your tenants has certain animal allergies. Getting a new tenant with a huge hairy dog then may not be the most suitable choice! The best letting agents will ask your criteria for tenants and target them accordingly
Decorate the property for all types of tenants
Decorating the property to your taste with signature decorations may mean you like the property. However potential tenants may not.
Veer towards neutral soft colours. This will cater to a wider choice of people.
In addition a blank canvas appeals to those tenants who may want to put their stamp on the property.
Listen to tenants
You want to ensure tenants are happy in your property. A happier tenant is more inclined to stay in your property, meaning you don’t have to spend time looking for replacements.
If issues need fixing or your tenant is requesting some changes, it’s prudent to respond quickly.
Show you care about their stay & how they are experiencing your property.
A good tenant who’s happy where they live and want to stay in the long term are extremely valuable.
Whether renting out your property for the first time or if you’re a seasoned landlord, feedback can help you improve as a landlord.
Buy the right insurance
Just like you have for your car, home and mobile, rent insurance cover gives you protection should something happen.
If the property is damaged or there is a theft, insurance can recoup some of the recovery costs.
Landlords can also opt for rent insurance. These types of policies will pay out if rent is not received.
Therefore if your property is damaged to an extent where it can’t be rented out for a period of time, or if the tenant refuses to pay, you can be covered.
Built into these policies are sometimes delays on how quickly pay-out will happen. Some policies don’t pay overdue rent until after 6 months. You need to read the small print to make sure you can live with these built in periods should the worst happen.
Get good contractor contacts
When building work or repairs are being conducted, we all fear the bill and if something goes wrong when the builders have left.
Use builder rating sites to pick a contractor with a strong reputation. Having a builder that you can trust and rely on means fixes & repairs will be conducted quickly, to a high standard and at a fair price.
Be aware of legislation
Cowboy landlords are becoming a thing of the past.
To be a landlord, you should be aware of standards your property needs to meet.
There is legislation on written notices within a property, documentation between you and the tenant, fees that can & cannot be charged and safety features in the property to name a few.
As a landlord you need to comply with existing legislation & keep up with new legislation in the industry.
For example, in 2019, a number of fees landlords can charge tenants were banned. If you weren’t aware of this change and kept on charging tenants banned fees, you could have left yourself open to fines.
It’s a difficult task to be aware of new legislation and also adapt to be compliant. This is why for busy landlords getting a property manager or letting agent may be suitable.
Property managers & letting agents, especially the established firms, usually have a team to track changes to legislation.
Length of tenancy agreements
It can be tempting (and also satisfying) getting a new tenant on a 12 month term.
However this can put you in a bad position if the tenant turns out to be a bad one.
An option is to go for a shorter term agreement first, say 6 months. This will give you time to assess the tenant and give you a sense of if you want to agree to a longer term deal.
Alternatively, after 6 months, if the tenant isn’t what you were expecting you are then in a position to get in a replacement.
Conduct property inventories
When renting out your property for the first time, you’re more likely to have spent a lot on decorating and furnishing.
A property inventory documents the state of the property, what’s in the property and the condition of those items.
If there is damage to the items when the tenant is leaving, this document is crucial in deciding disputes.
If you are opting for a letting agent or property manager, this task may be included in your fee or require further payment.
Make sure you do property inspections
Your property is likely to be worth hundreds of thousands of pounds. In addition your rental income is likely to be a nice wad of income as well.
Safeguard these by conducting regular inspections to ensure value of your property and rental income is secured.
Furthermore, conducting regular inspections could identify breaches in legislation.
Locks could become damaged, door hinges loose or fire safety equipment not up to standard. Spotting these issues not only keeps the tenant safe, but also keeps the council off your back
Gas & electric certificates
The initial property setup can be the most work intensive task.
Gas & electric certificates need to be in place to ensure the property is safe for your tenants.
Any breaches in safety can delay getting in tenants and therefore rental income.
Unfortunately a lot fires happen in residential properties. Treat the rental property safety requirements as you would with your own home & family
Harassing tenants for rent
It’s really frustrating when tenants don’t pay. You still have to pay the mortgage while receiving no income.
However there are rules on how much you can chase tenants for back paid rent.
Legislation states, Protection from Eviction Act 1977:
The landlord of a residential occupier or an agent of the landlord shall be guilty of an offence if:
(a) he does acts likely to interfere with the peace or comfort of the residential occupier or members of his household, or
(b) he persistently withdraws or withholds services reasonably required for the occupation of the premises in question as a residence, and (in either case) he knows, or has reasonable cause to believe, that that conduct is likely to cause the residential occupier to give up the occupation of the whole or part of the premises or to refrain from exercising any right or pursuing any remedy in respect of the whole or part of the premises
Therefore even if the tenant is behind on rent and you feel frustrated and financial hardship, how you pursue the rent needs to be managed carefully.
Be clear with tenants about pets
Your tenant may have a pet that they want to bring into the property.
A cute goldfish might not be an issue.
But a pet rat or a large dog might be!
Be clear in your tenancy agreement what your stance is on allowing tenants to have pets.
Landlords often include a “pet tax”. Which is an additional cost to cover a pet in the property.
How to become a landlord: Growing as a landlord
Get more properties on rent
One you have surpassed renting out your property for the first time and a few years have passed, the value of your property may have increased.
If the value has gone up, so would have your equity. The opens up doors to remortgaging and taking some funds out of your property.
The additional funds can then be used to purchase another property and reaping the rewards of an additional rental income stream.
Selling your property or reinvesting equity elsewhere.
This guide on how to become a landlord started with assessing other opportunities outside the rental market.
After a period of time, it’s always suitable to revisit your decision of becoming a landlord.
With property value growth, selling the property is a way of banking the profits. This is especially the case if you feel the property market is going to face a downturn.
You could expand your horizons in the property game. Instead of buy to let investments, you could opt to start regeneration or development projects.
Purchasing run down properties or plots of land to develop on, can lead to strong profits.
Separately, you can use the property value growth to diversify. Investing profits in the stock market could be a way to spread financial risk and explore a new income stream