Lots of people dream of becoming a landlord, as it’s a profitable way of getting onto the property ladder and making a stable, long term investment – after all, the rental market is only going to grow with the rise of Generation Rent.
But while many people intentionally set out to become landlords, there are also a lot of people that end up renting out properties entirely by accident. Sometimes this is a conscious decision – for example, you’ve moved in with someone else but couldn’t bring yourself to sell your old home, or you’re going travelling and want to rent out your property for the duration of your trip. Sometimes it’s simply a case that they’ve been unable to sell their property in a particularly difficult market and have decided to buy some time by renting the property out for a few months.
Whatever the reason you’re thinking of becoming a landlord, there’s a lot to consider to ensure it’s the right decision for you. To help you, we’ve pulled together a five step guide on how to become a buy-to-let landlord:
1. Understand the buy-to-let market
Before embarking on your landlord journey, take the time to understand the impact of your decision. Consider all of the financial factors, as well as what exactly would be expected of you as a landlord, such as being able to keep up to date with, and adhere to, current legislation. Consider whether you’re the type of person that would make a good landlord – there’s a lot to letting properties outside of general property maintenance, so if you’re not sure you would want to go out of your way to build strong relationships with your tenants, letting properties might not be the lifestyle for you.
2. Calculate a budget
Create a budget to better understand the potential cost of purchasing a rental property. Consider the following:
• Would you furnish the property? How much would you be willing to spend on maintenance and furnishings to make the property homely?
• How much rent could you potentially earn from the property? Investigate the local area, and scope out similar properties as a comparison point.
• What insurance might you need? Rental properties require landlord insurance as opposed to standard home insurance to protect against the risk of being let to tenants, so investigate what cover you might need as a landlord. Do you need rent guarantee or home emergency cover?
3. Learn about compliance and tax regulations
With an increasing amount of legislation imposed upon the private rental sector in recent years, it can be difficult to keep up with all of the changes, especially if you’re a new landlord. A financial advisor may be able to help you understand the full financial impact of your decision when it comes to compliance and tax regulations. There are also a lots of rules around tenants’ rights, such as the right to ‘quiet enjoyment of the property’ (basically, you can’t just drop in whenever you want!) – so take the time to understand the landlord regulations, what maintenance you could be responsible for in the property and what you need to provide to your tenants at the start of the tenancy.
4. Set out an investment plan
As a buy-to-let landlord, you need to think through all aspects of your investment plan for your rental property portfolio. This includes rental demand in your area, target demographics, property types, budgets and potential rental yields.
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5. Decide how the property will be managed
Will you hire a letting agent to market and manage the property? There are lots of different options of how a property can be managed – marketing and tenant find only, fully managed, self-managed – and it’s important to choose the option that’s right for you and your finances.
It might be worth finding an agent to manage your property for you, as this will help you with overseeing your finances, guide you through the tax regulations and help you create long term investment plans. They will also help ensure you’re meeting any relevant landlord legislation, as lettings agents work in the best interest of the tenants, as well as the landlord.
Find out how much you would have to pay in fees if you did use a letting agent, and weigh these costs up against the time and hassle they could potentially save you throughout the tenancy period – just watch out for additional administration fees at the end of a tenancy or renewal, as these can ramp up.
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This post was contributed by Daniel Cobb, a leading independent estate agents in London. They are a family-run estate agent with 20 years' experience in the London property industry.