If you're looking at becoming a landlord, it's important for you to understand your new role. From deciding what type of landlord you'll be to the types of property you'll own and the tax and legal implications, there's a lot to consider if you're to make it a lucrative source of income.
Why do people choose to become a landlord?
For many, becoming a landlord seems like a relatively easy way to gain a passive income. And with just over 4.4 million households living in the private rented sector in England, there are plenty of opportunities. However, becoming a successful landlord and owning a property that delivers a decent ROI takes hard work, determination and a little bit of luck (and a good agent!).
Of course, the pros must outweigh the cons, otherwise who would become a landlord?
Yes, there's a potential steady stream of income and there are tax-deductible expenses, including painting, building repairs and other professional services. Owning property also comes with a sense of long-term security and, of course, there's the flexibility that comes with being a landlord and managing your investment.
But before you take the plunge, you should also consider that becoming a landlord comes with some negatives too. You'll pay tax on all rental income and not have access to your money because it's tied up in the property. Furthermore, you'll be responsible should anything break, have to ensure the dwelling is legal, and then there's the time and admin required for dealing with tenants.
The different types of landlords – which one are you?
On paper, a landlord is someone who owns a property and rents it out under a lease that is shorter than seven years. However, there are distinct landlord categories and understanding which one you are or want to become could help you decide on a few things. This could determine the type of property you want to own, the types of tenants you want to attract, whether you want to manage the property yourself or have a company (like us) manage them for you, and whether you should register yourself as a business or not.
Professional landlords: Professional landlords account for around 14% of the private rented sector. They earn a living from their rental portfolio, and it is their job to self-manage the properties. Most professional landlords will have Houses in Multiple Occupation (HMO) as part of their portfolio. Because of various tax implications, their property portfolio could be listed under a Limited Company or Partnership.
Buy-to-let landlords: Around 42% of the private rented sector are buy-to-let landlords. This is what most people think of when they are thinking of becoming a landlord. Buy-to-let landlords tend to only have one or two properties and are using property to gain a passive income that can be put towards a pension fund or help pay off a mortgage on another property.
Accidental landlords: Just over a quarter (28%) of the private rented sector is made up of accidental landlords. These are people who didn't intend on becoming a landlord, but either couldn't sell their property and decided to rent it out or because a change in circumstance led to them renting out a property they owned.
Short-term landlords: Only around 8% of the private rented sector are short-term landlords. Short-term landlords are people who rent out their own homes for brief instances, like while they're on holiday or working away for a few weeks or months. Typically, a very short-term let (one week to six months) is classed as a 'holiday let'.
Inherited landlords: It's estimated that 8% of the private rented sector is made up of inherited landlords. These are individuals who have inherited a property and instead of selling it, they decide to rent it out.
Let-to-buy landlords: Only accounting for 2% of the private rented sector, let-to-buy landlords are people who rent out their current home to tenants and purchase a new home to live in.
Figures courtesy of HomeLet.
Tenancy agreements – which one to choose?
When looking at how to become a landlord in the UK, choosing a tenancy agreement can be confusing. Here are some of the most common types of tenancy agreements.
Assured shorthold tenancy: Most tenancies are ASTs and have an initial fixed term of six or 12 months. ASTs can be used on whole properties or individual rooms, for example within an HMO. During an AST, you cannot raise the rent unless the tenant agrees or there is a rent review clause within the agreement. Tenant deposits must be protected in a government-approved deposit protection scheme.
Non-assured shorthold tenancy: Only used in specific circumstances, non-assured shorthold tenancy agreements are used when an AST can't be. This could be because the annual rent is less than £250 or the property isn't the tenant's main residence, or you live in the same property as your tenant (but don't share any facilities).
Excluded tenancy: This is for lodgers, i.e. people who live in your property with you and you share facilities. Excluded tenancies don't give the same amount of protection and rights to the tenant as an AST.
Assured tenancy: Housing associations will often rent out properties under an assured tenancy. These provide a lifelong tenancy agreement that only ends if the tenant leaves or is evicted.
When you choose Hunters, we'll draw up the tenancy agreements so you don't have to. We have a wealth of knowledge and expertise and can offer our professional advice to help you become a successful landlord.
The steps you need to become a landlord
Here are the key steps you need to take to become a landlord:
1. Understand the responsibilities that becoming a landlord brings
· Deposits: Landlords are required to hold deposits in government-approved schemes
· Finances: You must keep a detailed record of your finances, as they are essential for completing self-assessment tax returns
2. Ensure the property is safe and adheres to the law and regulations, including energy performance standards
· Property: It is your responsibility to ensure any repairs are carried out and that the property is safe
· Safety: Gas safety checks must be carried out by a registered Gas Safe engineer, fire safety regulations must be followed and a clear escape route must be identified, carbon monoxide alarms must be installed, and there must be a valid EPC certificate on file
3. Check landlord requirements including registrations and licences
· The registrations and licences you need to comply with will depend on where your property is located
· England: Regulations are determined by local councils
· Wales, Scotland and Northern Ireland: The local parliament or assembly governs the requirements
4. Get landlord insurance
· Protect yourself, your property and your tenants
5. Work out your costs and rent
· Costs: Figure out how much your expenses will total, factoring in periods when the property is empty or when emergency repairs might be required
· Rent: Once you've got a 'cost' figure, you can figure out a base rental amount. But be sure to compare your property to similar ones in your local area
· Tax: Speak with a financial advisor as you may be required to pay tax on any profit you make from your property
6. Decide whether you will self-manage or employ a management company
· One of the most important decisions you'll need to make when becoming a landlord is deciding whether to self-manage or use a letting agency (like us) to manage the property on your behalf
7. Find tenants and check they are legally allowed to rent
· Once you and your property are ready to launch, you need to find the tenants that will fit your property
· Before agreeing a let, you must ensure each tenant has a right to rent
Don't worry if you're feeling overwhelmed, we know there's a lot more to becoming a landlord than owning a property, which is why we have a load of resources specifically for landlords that cover everything from tax obligations to landlord and tenants' rights and responsibilities.
And if you have any questions or are unsure of the next steps to becoming a landlord, you can visit your local Hunters branch and speak to one of our friendly lettings experts.
How can Hunters help you become a landlord?
You can rest assured that when you choose Hunters, your property is in good hands. Whether you choose us to just find you tenants or you're looking for a letting agent to fully manage your property, we have a whole host of landlord services just for you.
With letting experts throughout the country and a wealth of expertise and experience, when you pick Hunters we'll help you become the best landlord you can be.
Ready to start your journey towards becoming a landlord? Contact your nearest Hunters branch today.