The property market has been the best type of investment for the last 20 years! It is estimated that landlords receive £14.2 billion in income per annum.
If you have recently entered the Buy to let market for the first time, there are a few things that you need to know about the investment and how to make it a success.
They are as follows: –
1) It is an investment not your home.
We often find with landlords that when they come to purchasing property they get emotionally involved. Or, perhaps they have had the property for a very long time, and they wish to rent it out. You need to understand it’s an investment from now on and so needs to be treated differently from your own home. For instance, you will be renting it out long term to a tenant and you must accept that you have certain responsibilities in respect of the internal state of it.
Understand that it will not be treated the same by a tenant. Especially as they may only be staying for six months to a year. You need to ensure that you get the right tenant. But you also need to know that you have got to maintain it over a period even redecorating and refurbishing over the years. Many landlords don’t consider any future works that may be needed.
2) Mortgage interest tax relief changes
The Government has been phasing out over a period mortgage tax relief on the income that you will receive. This is the proportion that you can deduct slowly from each year has now been reduced. This will come to an end in April 2021 tax year. It is so important that you understand that you will no longer get this as a taxable deduction.
3) Does it financially give you a return?
We often find that landlords don’t understand that there are only certain items that they are entitled to deduct from their tax bill such as repairs. Rather than say improvements. If you are a 40% taxpayer then the return you may be getting on your property might not be as high as you believe it is. You need to understand whether it is a short term or long-term investment. The property market goes up as well as down so don’t expect that the value of the property will always go up over a period. This isn’t always the case. You need to decide if it’s short or long term and then speak to your tax advisor. This is to ensure the best way of mitigating your income to ensure the best possible return.
4) Do I go big or start small?
We would always suggest that you start small as many buys to let landlords don’t understand what their responsibilities in future will be. There can be a problem with tenants, evictions and even legal documentation. Did you know that the Government has over the last five years provided over 127 new laws for lettings? When taking property over from landlords who have been doing it themselves, they often don’t realise the legal responsibilities. We will touch on this later.
If you start on a small scale at least you don’t have to worry about any more than one property at a time.
5) Local Licencing
Landlords operating Houses in Multiple occupation are likely to be up to speed with licencing rules that were adopted in 2018. But there is a lot of confusion that remains around other local licencing schemes.
The local authority may have brought in their own rules on properties within your area and it is so important to check. For instance, in Brighton and Hove there are local rules on properties with three bedrooms or more. You will need a minimum of a licence for the whole of Brighton and Hove from now on.
More councils throughout England are starting to operate more or selective schemes and you need to check these. The local licence schemes have faced significant criticisms with some councils failing to make landlords aware of the requirements. Don’t hesitate to contact us to discuss it. You will be surprised what landlords aren’t aware of.
6) Energy efficient Rules
These are being phased in over the next few years. From April 2020 landlords will need to meet the new minimum energy efficient standard (means) regulations. These require homes to have a minimum energy performance rating of E.
Landlords that don’t have properties who meet these regulations must carry out Energy efficient measures up to a cap of a certain amount. It is important that you check when purchasing a property exactly what the EPC rating is. The rules were introduced in 2018 and will be changed over the next few years.
Electrical checks. These are now becoming law from the 1st July and all new tenancies entered must have an electrical installation condition report. These will need to be carried out every five years. Which can add large cost to landlords where the electrical installations are old.
You will also need to carry out any PAT test which is a portable appliance testing for any of your equipment that you have supplied. These must be carried out every year for students and every two years for residential.
If you wish to gather more information on this, please refer to our previous article on Maintenance Responsibilities Explained (click here).
7) Right to Rent
The Governments right to rent initiative was brought in from 2016 and these are an important check. The right to rent requires the landlord to check whether tenants have the right to live in the UK. There is a criminal sanction for those that fail to adhere to it.
8) Know the law
There are a huge number of rules as discussed above in relation to law and requirements for landlords. Especially when it comes to providing documentation to tenants. Did you know that you must serve a gas safety on the tenant within 30 days of it being carried out? But most landlords don’t understand it is not a question of providing a copy. They must have the tenants sign it and then have it returned to yourself. The law can be a mine field and not serving one initial document could lead you to not being able to remove the tenant if you had a problem in future. It is so important that you are aware of what you need to do.
9) Research the market in your area
If you are new to buy to let and don’t know anything about it, you need to research your market. It is best to understand that purchasing a property is not a short-term solution to an income. You need to buy the right property in the right area to get the best possible return for you.
We have an acquisitions department that offer a one-hour free advice service on what type of investment you could buy.
10) There is risk and return
You must consider that there are risks with property as well as having a return. The amount of rent you can charge varies according to many factors including market trends and we can tell you in this regard.
11) What happens if you can’t find tenants and your property is empty for a period. Can you afford to pay the mortgage? What happens if prices fall and your property is worth less than you thought it would be? Would you have to sell it and make a loss or could you hold it and wait for prices to increase.
12) What happens if major repairs are required?
Would you have the money to carry out the repairs in relation to the property? This could also be unexpected.
13) If I needed instant income would I be able to sell the property easily?
Unlikely so you need to take this into account.
14) Do I need different insurance?
You will need landlord’s insurance rather than the normal insurance you might get with your building Society. There are certain requirements in relation to a buy to let that you will need to have cover for that most insurances don’t always provide. We have a sister company iInsure365.co.uk that will be able to help you in this regard and please do not hesitate to contact them on (012730 827090.
15) What sort of property should I buy?
Finding the right property in the right location is important when searching for your own home. But it is even more important when dealing with a buy to let.
Get the location and type of property wrong and rents will be lower and tenants harder to come by.
Keep in mind that some properties are more difficult to get a mortgage on such as council houses, new developments of flats above commercial shops. Do your market research.
16) What are my responsibilities as a landlord?
There are always different responsibilities, but they can be summarised as follows: –
- a) Making the property safe for the tenants to live in
- b) Dealing with the repairs to the property structural exterior
- c) Maintaining the heating and water systems
- d) Ensuring that any furniture meets safety regulations
- e) Make sure that the electrical checks are done
- f) Obtaining an EPC
- g) Putting the deposit in the correct Government scheme
- h) Serving a How to rent check list on the tenant
- i) Serving a gas safety on the tenant
You can see from the above that there are huge amounts of regulation, don’t hesitate to talk to us in this regard.
17) Will I need a buy to let mortgage?
You may need a mortgage to buy the property. It is important to check interest rates before you invest. Low interest rates could mean it will be easier for you to borrow money but there could be charges later that you need to investigate. You should ensure that your income from your letting will cover the mortgage and what happens if the property is empty? Can you afford to pay the mortgage? Most lenders will need you to prove the rent that you are receiving is going to cover the mortgage and in fact they often need it to cover a lot more. You will often find that some mortgages will need cover of the rental amount to be more than 125% of the mortgage payment if not more. Make sure you speak to your financial advisor before you even start.
If you have any thoughts about wanting to buy a property, then don’t hesitate to contact our valuations expert who will be able to help you in this regard.
It is so important to ensure that the money you are going to spend on one of the biggest investments of your life is done correctly. Don’t hesitate to contact us on (01273) 724000.