New Landlord? The beginner’s guide to renting out your home
Whether you’re dipping your toes in the buy-to-let market or you’ve bought a second home, renting out your home privately for the first time can be a daunting experience. As well as taking responsibility for the safety and welfare of tenants, it would help if you also worried about the various legal obligations involved.
Renting a property successfully usually involves a business-like approach. You’re dealing with an income and expenditure. When one exceeds the other, you either make a profit or a loss. Get your business decisions right, however, and your property could earn you a generous income.
To get started, here is a quick renting out a house checklist.
Understand your legal obligations as a landlord
As a landlord, you have specific legal, moral and practical responsibilities when renting out your property. After all, you’re providing someone with a home, a great thing to do for another person or family, but it shouldn’t be taken lightly.
Your priority should be your legal responsibilities as a landlord. These laws are in place to protect you and your tenant. Abide by them all, and there’s a perfect chance that the home you provide for your tenant will be safe and comfortable.
Any home connected to the gas mains must be inspected by a Gas Safe engineer at least once a year. Pipework, appliances, flues and meters checked as part of the inspection. The tenant has to receive a copy of the report.
This is a non-negotiable requirement of being a landlord, but it’s usually a landlord insurance requirement. If you don’t perform this check and service your central heating system once a year, there’s a good chance your insurance will be declared invalid in the event of a claim.
All of the electrical installations and fixings in your property must be checked regularly by a qualified electrical engineer. You must also arrange portable appliance testing (PAT) for all of the electrical appliances you provide to your tenant, including washing machines, toasters and kettles.
General health and safety
Landlords have to provide safe and sanitary conditions for tenants, including safe drinking water, hot water and adequate ventilation. You’re also responsible for making sure there is no pollution in your property — caused by substances such as carbon dioxide and mould. You must comply with your obligations as laid out in the Housing Health and Safety Rating System.
Relatively new regulations surrounding the energy efficiency of homes now apply to landlords. In short, you must ensure that your home achieves at least an ‘E’ rating under the Minimum Energy Efficiency Standards. A rating of ‘F’ or ‘G’ could result in a prohibition or improvement notice. A tenant has the right to request energy efficiency improvements to a home, including the fitting of new windows and insulation.
You have a legal responsibility to ensure that tenants have a clear and established route of escape in the event of a fire. Depending on the size of the property and how many people live there, you may also be required to provide alarms and fire extinguishers. If you’re providing soft furnishings as part of the lease agreement, you must ensure they comply with The Furniture and Furnishings Regulations.
This is a lot to take in at first, but there are no shortcuts. If you’re renting out your home, all of these requirements are your responsibility – and ignorance is not a defence if something goes badly wrong. You can get an overview of your health and safety responsibilities from the UK Government’s own website.
Research the local market
Take a look at the local property listings to get an idea of the rents being achieved for homes like yours. If the property is finished to a high level, there’s a chance you can charge a premium for it.
Visit local estate agents, and enquire about homes in your area. This should give you an idea of what you’re competing with. While you obviously want to get the highest possible rental income for your property, you don’t want to price yourself out of the market — particularly if you have a mortgage to pay.
If you’re still unsure how much rent to charge, ask a local estate agent with specific knowledge and experience in your local market to view your property. They will tell you the minimum and maximum you can expect on the open rental market — as well as the figure you should advertise.
Advertising your property for rent
You could have the best property for rent in the area, but unless the right people know about it, you’re not going to leverage its full potential. Here are a few words of advice on advertising a property for rent.
Identify your ideal tenant.
Who is likely to want to live in your home? Who is likely to pay you the highest monthly rent? Whether you’re targeting local students or wealthy professionals, identify your ideal tenant, and market your home accordingly.
Liaise with your local authority
You might be able to find a tenant for your home a little faster if you sign up for an empty property initiative. You can also insist on having welfare payments paid directly to you — providing you with a degree of certainty.
Sign up with a local landlord association
Search for landlord associations in your area. These groups provide beginners with a lot of crucial information and practical advice for finding honest and trustworthy tenants as opposed to getting caught with nightmare tenants from hell.
Use a letting agency.
If you’re struggling to find the time to manage the advertising and letting of your property, the best course of action may be to hire a lettings agency. In return for a monthly fee (taken from the rent they collect), the agency will manage all of the issues associated with renting out a home — including maintenance, rent payments and arrears management.
Use online resources
Use online resources to spread the word about the property you have for rent. You can use social media or online forums to reach a particular group of people. Most of these resources are free, and they allow you to reach a large number of people in a short space of time.
Create your own website
Particularly if you’re renting out more than one property, it might be a good idea to create your own website. Include photos and descriptions on the site, as well as an enquiry/application form to speed things along.
How much can I rent my house without paying tax?
Renting out your home has tax implications. If being a landlord is your career, you’re renting out more than one property, or you’re buying new properties to rent, you have to pay Class 2 National Insurance if your profits exceed £5,965 per year.
The first £1,000 of the money you make from renting out your home is tax-free. If you earn more than this, contact HMRC for advice. You’ll usually have to register for Self-Assessment if you’re making more than a certain amount per year after expenses.
A few words of warning when advertising your rental property
Advertising a rental property is a minefield at the best of times — and even more so if you’re a first-time landlord. There are a few potential missteps you should be aware of going into the process. For example, never advertise a vacant property, as this can be an invitation to burglars, vandals and squatters. And just in case your vacant rental property attracts unwanted attention, make sure your landlord’s insurance is valid at all times.
Once you know exactly what you’re going to do with your property, you can take the necessary steps. For instance, if you’re renting to students, you should have an insurance policy covering student tenants. And if you originally bought the property to live in, you probably need to inform your lender that you’re renting it out. The chances are the terms of your current mortgage may prohibit or limit rentals.
Research tenancy agreements
The most common type of rental agreement in England and Wales is the assured shorthold tenancy (AST). If the rent you’re charging is between £250 and £100,000 per year, and the home is being provided as a main and permanent residence, you’ll probably need to draw up an AST agreement. However, there are other agreements available, including assured tenancies, regulated tenancies and excluded tenancies.
If you’re in doubt, consult with a property solicitor, your local authority or a lettings agency. But the easiest way to rent a property is usually with an assured shorthold tenancy. If you ever want to take back possession of your home, the process is simpler than it used to be — but you must follow the correct procedure.
If the fixed term of the agreement has lapsed, you can take back your home if the following conditions are met:
- The deposit/bond you took was placed in a verified deposit protection scheme.
- The date the tenants must vacate the property is at least six months after the tenancy began.
- You’ve given the tenants at least two months’ notice in writing with a “notice to quit.”
If the tenancy agreement is still within the fixed term, you can still remove your tenants under certain circumstances:
- They’re in rent arrears.
- The property is being misused (damaged or used for illegal activities)
Top tips for new landlords
Once you have gotten your head around your legal and financial responsibilities, it’s time to tackle the practical elements of being a landlord. Unfortunately, nothing can prepare you for what lies ahead — other than experience. Renting out a home is a complex — and potentially stressful — process. But by taking advice from other landlords in your area, you can get as organised as possible.
Decide what you want from your property.
If you need your home to make money now, you may need to take charge of the day-to-day running of the property yourself — particularly if you’re already paying a mortgage. However, if your goal is to grow your asset’s value with as little effort as possible, placing the daily running of your rental property in the hands of an agent may be the best course of action.
Prepare yourself and your finances for a loss.
Being a landlord can be very unpredictable at times. One month you might make enough to cover your mortgage and have a little leftover. However, if a boiler needs an emergency repair or your roof needs replacing, you might be left with a huge bill — which may not be covered by the rent you receive.
Whenever there is money left over after rent is paid (the difference between the month’s rent and the month’s mortgage payment), put it away in a savings account. Then, when things need fixing or replacing, you have a pot of cash available.
Particularly during the first few months of letting your home, you might find that the expenses come thick and fast. It’s always a good idea to have a financial contingency plan in place when renting for the first time.
Insure your property immediately
As soon as you decide to buy a property to let or make your home available for rent, it would help secure the landlord’s insurance. But make sure your policy is designed for the type of rental you’re offering. If you’re in any doubt, ask to speak to an insurance adviser directly — don’t simply sign up online. Your existing contents insurance may not cover damage and theft if the property is standing empty.
Note: If your home stands empty for more than 45 days, you will need a policy covering an unoccupied property.
Screen your potential tenants before offering a tenancy agreement
You need to know that the person you’re entrusting your property to is honest and trustworthy. So, before you discuss the ins and outs of a rental agreement, you should perform some background checks. Get it wrong and your property could get damaged by the tenant, very quickly putting you in negative equity having to spend money on expensive repairs. If you have handed over management of your property to an agency, lettings agents will take care of this process on your behalf.
Ask for consent to perform credit checks, and always insist on at least two references (which you should chase up personally). As a minimum, request a bond of at least one month’s rent, as well as a month’s rent in advance. But remember: deposits and bonds must be placed in a government-backed tenancy deposit scheme.
Renting out a property for the first time involves a huge responsibility and a steep learning curve, taking both your time and your money. But with a structured and considered approach, you should be able to make your property deliver an impressive return — both in the long and short term.