HOW TO BE A LANDLORD

There are many topics to consider before being a landlord. Consider these points;-

Are you intending to be a “Buy to Let” investor or are you an “Accidental Landlord”?

It can happen for a majority of reasons, maybe you have recently inherited a property or you are finding it hard getting someone to buy your house. Or you could be looking to invest your hard earned cash and widen your financial portfolio by joining the buy to let market.

Whatever the reason, due to the current housing markets, numbers of accidental landlords are on the increase and many are investing in buy to let properties. The legislation on the private letting industry is complex and although many new landlords are successful and continue to expand portfolios, many find themselves in difficult and costly situations, fairly quickly.

In what types of property are you going to buy?

Broadly speaking there are four private rented sector markets

1. renting to people on benefits
2. renting to students
3. renting to working tenants
4. renting to professionals and higher end market.

The type of property you own and its location may determine the market you aim for. Different markets will command different rent levels and will require different standards of letting. There are advantages and disadvantages with all types and below are some issues you may wish to consider

- professionals will insist on higher standards and will expect showers and possibly en suite facilities
- housing benefit renters whilst commanding a lower rent are likely to be more stable renters – young professionals tend to be more mobile and may lead to higher voids and increased re-letting expenses
- renting to students sees higher occupancy rates which can maximise income, however they may not fully understand with it regulation to Houses in Multiple Occupation (HMOs) and licensing
- student lets may not extend for a full year
- all renters will expect a high level of customer care from landlords with expectations generally rising in line with the amount of rent paid

What finances do you need in place?

Buy-to-let mortgages allow property investors to acquire a mortgage to purchase a property to let out, with rental income covering mortgage repayments. If you are thinking about purchasing a property to let out, you should consider the benefits very carefully. Some things you may wish to consider:

- the demand for rented accommodation in the area in which you are considering investing. In many areas, including popular inner city locations, there may be an oversupply of rented accommodation and therefore it could be difficult to rent the property out
- the achievable rent and the amount you would need to charge to cover your mortgage and other outgoing costs
- the profit margins
- all costs like repairs and letting expenses – advertising and professional fees
- how much of the year you can afford to have the property vacant
- the ability to pay your mortgage if the tenant stops paying rent or you have an unexpectedly large repair bill
- the potential Return On Investment

The knowledge and skills needed to be a landlord are considerable!

Are you intending to manage the properties yourself or through an agent?

Self Managing Landlords

This option is for landlords who are confident that they know their responsibilities and best practice in managing properties. This option saves you the cost of an agent, but can require a considerable investment in time. You may require professional advice, which unfortunately comes at a high cost. Landlord Associations are a good source of advice and assistance, they can provide the majority of the information that a self-managing landlord would require.

Letting Agents
There are 3 options when it comes to letting agents managing your properties

Letting Only
This is where an agent markets the property, advises on rent levels, finds a tenant, undertakes reference checks if required and provides a tenancy agreement. Once the tenancy has started, the landlord undertakes all management of the property. The agent charges the landlord a one-off fee for this. The amount will vary but is often based on the rent (usually one months rent). They may also charge administration fees. You need to agree what deposit is to be collected, and ensure it is held in accordance with statutory tenancy deposit protection measures if it is taken after 06 April 2007.

Letting and Rent Collection
The second option is where the agent does all of the above and also collects the rent during the tenancy. Other management functions such as repairs and arranging to get possession of the property at the end of the tenancy, if needed, are still dealt with by the landlord. The agent is likely to charge a one-off fee and then a monthly fee (a percentage of the rent, perhaps 5%) for collecting the rent. This arrangement may be confusing for the tenant as it is not clear who is responsible for which areas of management.

Full Management
The thirds option is for the agent to act as a full managing agent. They deal with all management issues, repairs, rent collection, starting the tenancy and some steps towards the tenancy. For example, they may serve notice but not take court action. This is obviously more expensive (perhaps 10% to 15% of the rent), but it is worthwhile is the property owner either does not have the time to manage the property, or lacks the expertise. You need to agree with the agent what repairs they can do without asking you, and what repairs you want to get involved in. You will have to pay for the repairs, hopefully out of the proceeds of the letting.

If you enter into an agreement with an agency, you should get a written contract stating their level of service and fees etc. Landlords are bound by any agreement or contract made by their agent on their behalf with a third party. If the agent agrees to something which the landlord had not authorised, the landlord is still bound by the agent’s action, unless it is something obviously outside the authority of a normal agent in these circumstances. For example, if the agent fails to carry out an annual gas safety inspection, the landlord will be held liable for the failure as well.

In view of this you should be very careful when choosing an agent, and choose one who will carry out their responsibilities properly. You should also be very clear when giving agents any special instructions, preferably putting these in writing.

Click here to see a detailed list of membership benefits

The RLA operates a fully manned HELPDESK which can answer all these questions and it arranges training courses for landlords and agents around the country.

Alternatively, sign up for our e-newsletter to receive the latest landlord news and information.