Top 10 tips for landlords letting their property
Read more great advice from The Residential Landlords association
Frequently asked questions concerning being a property landlord and running a buy to let portfolio.
What is the PRS (private rented sector)?
The private rented sector (prs) is that part of the country’s housing that is privately owned, and is let for residential purposes on short lets (leases are normally for fixed terms of less than seven years, and are typically for just six months or a year, but on a renewable basis).
Can I borrow money to invest in residential property?
Many lenders offer special mortgages to purchase property to let. The loan will usually take account of the projected rental income that will be generated. Typical loan to value ratio is 80%.
What sort of property should I buy?
There are a number of different markets, e.g. luxury flats and houses, standard family accommodation, small flats and houses for young working couples and singles, bedsits, student accommodation, etc. Let to the type of tenant you will be most comfortable dealing with. In general, the lower end of the market shows a better rental return on capital, but may show less capital growth, and have higher management costs. The upper end of the market may appear to show a lesser rental income on the investment, but is likely to see more capital growth, and proportionally lower management costs.
The safest and most trouble free lets tend to be one- or two-bedroom purpose-built flats, in a convenient location.
Where should I buy a property?
Location is all-important. Take into account the requirements of your potential tenants, not what you would like personally. Consider easy access to shops, public transport and, for students, their college. Very cheap property may be in areas where people do not want to live. If you are planning to manage the property yourself, it needs to be near where you live. If you are using an agent, the property could be some way from where you live. Back to Top
Is it best to let furnished or unfurnished?
Most smaller properties are let furnished, but there is a significant demand for unfurnished flats and houses. Best to get advice locally before spending a lot of money on furniture. The cost of making good the wear and tear on furnishings is a tax allowable expense.
Will I end up with a sitting tenant?
All new lettings in England and Wales come under the Housing Act 1988, and allow the landlord to recover possession at the end of the tenancy (whether the property is furnished or unfurnished), unless there is an express agreement to the contrary. This may not apply if you buy a property that is already let.
What is the tax situation?
At present, income from let property is treated as investment income. Certain expenses, such as management and maintenance costs, can be offset against income for tax purposes. The interest on any loan associated with the property is also normally allowable. Capital gains tax, less allowances, is normally payable on the sale of the property.
Is it a good idea to let to Housing Benefit claimants?
Unless you have a number of lettings and can spread the risks, it is best not to let to housing benefit claimants. Housing Benefit Regulations are very complicated, and can result in the landlord being responsible for very large financial liabilities incurred by the tenant.
What kind of return can I expect?
Returns across the country vary. According to agents FPDSavills, in June 2002 average net rental returns were about 6% on the capital value. In Central London, yields were about half the national average. Percentage yields tend to be lowest for highest value properties. This income is, of course, normally taxable as investment income. (These figures do not include the cost of finance.)
The total return on the investment will also include the capital gain on the property, which has, historically, usually exceeded inflation. However, rents do not, in general, keep in step with changes in interest rates.
For most people, property should be regarded as a medium to long-term investment, perhaps alongside other short term investments.
What is the government attitude?
You had better ask them. On balance it seems unlikely we will go back to the days of rigid rent control and indefinite security of tenure. The present government has stated that it recognises the important part the private sector has to play in the provision of housing, but wants to see more government regulation. Further legislation is likely.
Are there any special laws I need to be aware of?
Most lettings in England and Wales are very straight-forward, and come under the Housing Act 1988 (as amended). Special regulations cover the safety of the gas and the electrical installation, and appliances supplied. The landlord must also ensure that furniture and furnishings comply with regulatory standards for fire safety (all furniture sold new or second-hand through normal retail outlets must now comply).
What else is the landlord responsible for?
The landlord is normally responsible for the structure and exterior of the property. You must, normally, also ensure that all hot and cold water supplies, and the drains, are properly maintained. The landlord must allow the tenant peaceful and quiet enjoyment (i.e. possession) of the property.
What about the tenant’s responsibilities?
Aside from the rent, the tenant is usually responsible for all bills associated with the property, including Council Tax.
The tenant must also observe the terms of the tenancy agreement, and look after the property in a ‘tenant-like manner’ – that includes doing the little jobs about the place that might reasonably be expected of a tenant.
What happens if the tenant does not pay the rent, or is in breach of other terms in the tenancy agreement?
The landlord may not, normally, immediately repossess the property because of non-payment of rent, or other breaches of the tenancy agreement. Proper legal procedures must be followed. The landlord in England and Wales may seek possession because of the tenant’s breach, or monies owed may be recovered by an action under the Small Claims procedure. These actions will probably take some months.
How does the landlord normally recover possession of the property?
Usually by simple mutual agreement with the tenant. More formally by serving at least two months’ notice on the tenant that possession is required. No reason need be given. Strict rules must be followed to ensure the Notice Requiring Possession is served in the right way. Most tenancies are ended at the request of the tenant.
What happens if the tenant does not move out on the date requested?
If the proper notice has been given, the landlord in England and Wales may apply to the County Court for an order for possession. The court will not normally order the tenant to vacate the property on a date which is sooner than six months after the tenant moved in. The court processes may take some months. The landlord cannot personally evict a tenant; if necessary an application must be made to the court bailiffs to evict a recalcitrant tenant.
Do I need special insurance?
Yes. Your insurers will charge more for a let property than for an owner occupied property. If you are an owner occupier planning to let your own home, your policy may be invalidated if you let without informing your insurers.
For qualifying tenancies, insurance may also be taken out for non-payment of rent and for legal costs.
The NLA (see below) has a special scheme for members.
Who should I inform that I am letting a property?
What is an HMO?
A house in multiple occupation (HMO) is a property, originally built or designed for one household, that now contains more than one household. This includes self-contained conversion flats (but not purpose-built flats), as well as bedsits etc with shared facilities. The local authority may impose expensive fire safety and amenity requirements on an HMO. Find out what the rules are locally before you invest.
What fire precautions are mandatory?
Aside from local requirements relating to HMOs, there are no special rules for let property as opposed to owner occupied property (apart from the regulations on furniture and furnishings). It is sensible, as a minimum, to provide smoke detectors in halls and landings, and a fire blanket in the kitchen. These must be regularly checked.
Do I need a letting agent?
A letting agent may be used just to find a tenant and let the property, or to manage the let as well. For your first let it is probably a good idea to use an agent. For larger properties, tenants tend to only contact agents. Many landlords invariably use an agent, and this frees them from the worries and constraints of managing the property themselves. If not using an agent, you will have to devote the necessary time to the management of the property, and cope with the stress of dealing with tenancy problems. For further advice on using an agent, see the relevant NLA Information Sheet.
What about a lawyer?
If you are using a lawyer, choose one who is active in landlord/tenant residential law and litigation. For further advice on this, see the relevant NLA Information Sheet.
I hear some horror stories about tenants, are they true?
95% of tenants are respectable people, who will pay the rent and look after your property. Inevitably there are occasional bad ones – you must take care in choosing your tenant. Like many investments, there are some risks in letting property. Taking voids into account as well, it is sensible to plan on only getting about 85% of the maximum potential rent in any one year.
Where do I get more help?
The National Landlords’ Association (NLA)
Tel: 0870 241 0471 (national rate)
What is the NLA?
The National Landlords’ Association has a nationwide membership of landlords who, for the most part, just have one letting, or a small handful of lettings. It is a non-profit organisation, founded in 1973.
What does the NLA do?
The NLA is similar to a trade association or trade union. It acts in two spheres of activity.
Firstly, it makes representations to government and local authorities on matters that affect the prs; it is also active in ensuring the landlord is fairly represented in the media. Your joining the NLA will give added strength to these representations, that help protect your investment.
Secondly, it offers direct membership benefits and services.
Find out more from the National Landlord Association
