Helping you decide whether to be an investor or a landlord
When investing in a buy-to-let property, you should understand the long-term implications of becoming a landlord and letting properties. It is not as easy as ‘buy a property, advertise it, get a tenant, get paid the rental’. Landlords have responsibilities and legal obligations. There is cost to consider and taxes to pay.
In this article, we’ll examine some of the elements of letting properties that you should consider before investing. This will help you decide why you are purchasing buy-to-let property – to be an investor or to be a landlord.
Your rights and responsibilities
There are more than 170 laws that apply to landlords in the UK. Let’s look at the main responsibilities that these place on you:
- Most repairs and maintenance issues are yours to sort out.
- You must ensure that the property meets standards in safety and habitation. This includes Gas Safe Certification, Energy Performance Certificates, supplying smoke alarms, and maintaining the property in line with the Homes (Fitness for Human Habitation) Act 2018.
- Ensure that your tenants can rent under the Right to Rent regulations.
- Insuring your property against accidental damage, such as fire and flood – though it is not your responsibility to insure your tenant’s belongings, it is your tenant’s.
- Keeping your tenant’s deposit in a Tenancy Deposit Protection Scheme.
- Make sure that all your paperwork is in order (including the tenancy agreement).
Your rights as a landlord include having the rent paid in accordance with the terms of the tenancy agreement and the right to bring legal action against a tenant who doesn’t pay or act in line with the terms of the tenancy agreement.
You should also remember that you do not have the right to enter the property when you wish. You must provide 24 hours’ notice to your tenant. You may own the property, but it is your tenant’s home. Without their permission to enter, you can’t simply walk in.
There is paperwork to complete when letting properties. A lot of paperwork. Here is a list of documentation you need before letting:
· An Energy Performance Certificate
An accredited Domestic Energy Assessor must carry out a survey of your property for its energy rating. They will provide you with an Energy Performance Certificate (EPC). You cannot rent out a property with a rating lower than E, and if you do, you could receive a fine and a ban. You must provide a copy of the EPC to your tenants.
· Gas Safe Certificate
If your property has any gas appliances, you must have it certified as Gas Safe each year. Like the EPC, you must provide the certificate to your tenants.
· Right to Rent
You must check that all tenants aged over the age of 18 are legally allowed to live in the UK. You cannot assume they are British, and you must keep copies of all documents that prove they have the right to rent.
· How to Rent guide
In England, you must provide tenants with a copy of the government’s ‘How to Rent’ guide. This explains the rights and responsibilities of both the tenant and the landlord. If you haven’t supplied this, you cannot serve a Section 21 notice to evict the tenant at the end of a tenancy.
· Tenancy agreement
This is the most important document. It sets out the terms of the rental agreement, the conditions you expect the tenant to follow, rent payment schedules, the length of the tenancy, etc. Don’t leave this to chance. You may be tempted to use an ‘off-the-shelf’ agreement, but these are often out of date. You may also wish to personalise some clauses. Make sure that this document protects you by always taking legal advice.
· Property inventory
You should provide a property inventory to the tenant when they move in, and check against it at every property inspection. Include photographic and video evidence, and ensure that you check through it with the tenant in attendance. The tenant should sign it to confirm. This will help you work out if any items have been stolen or damaged at the end of the tenancy – crucial to back up any claim against the tenant’s deposit.
While you are not legally obliged to take landlord insurance, it is strongly recommended (I wouldn’t let property without it). You can customise landlord insurance to your needs, to include items such as:
- Public liability – if your tenant is injured on your property, this could cover any damages claimed against you
- Alternative accommodation – to cover your legal responsibility of providing accommodation to your tenants while essential repairs are being carried out
- Accidental damage – to cover accidents that damage the property (it won’t cover malicious damage)
- Loss of rental income – to cover when tenants refuse to pay or if you lose income because of fire or flood
- Contents cover – to cover your contents if you let the property furnished
You are responsible for declaring your earnings from your buy-to-let properties to HMRC. You do this through the Self Assessment system, though you may get an accountant to do this for you. You should make sure that you deduct all allowable expenses (such as property management fees, legal fees, repair and maintenance charges, etc.).
The costs of letting properties
Understanding the costs of letting properties is critical. This will help you to carry out a proper cash flow projection and assess the viability of a property as an investment opportunity. We covered these costs in a previous article (“An introduction to buy-to-let costs”), but it is worth noting them again here:
- Mortgage interest
- Tenant acquisition
- Void periods
- Property management fees
- Landlord insurance
- Repair and maintenance
- EPC and Gas Safe certifications
- ICO registration
- Furniture (if supplied)
- Legal and accountancy fees
As you can see, as a landlord you have a lot of rights and responsibilities when letting properties to tenants.
Most buy-to-let investors prefer to invest and hire a property manager to do all the daily activities (what we call ‘Set and Forget’. They will help you to keep on top of essential paperwork, assume many of your landlord duties and responsibilities for you, and allow you to get on with your life. Your investment property becomes a box that makes you money, with very little need for your time. Effortless property management that lets you enjoy your passive income.
In our next article, you’ll learn more about the nuts and bolts of being a landlord as we discuss “8 essential elements of letting properties”. In the meantime, please feel free to contact the team at Gladfish at +44 207 923 6100 for more information about investing in property.
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