A Checklist to Use Before Renting Your Property
Renting from a private owner is the most realistic and cost-effective way to live for millions of UK residents. With the rising cost of property ownership, particularly in large cities, many feel as though renting is a smarter choice than trying to join the property ladder. According to recent studies, the number of renters throughout the UK is expected to continue a steady rise over the next several years. This offers an opportunity to property owners who are considering letting their home to a tenant. However, there are several things to consider before going down a path of renting as a property owner, including the checklist items below.
Know the Costs and Benefits
Letting out a property as a private owner comes with a slew of advantages with the most prominent being the potential for steady, passive income. As tenants pay their monthly rent, those funds are used to cover the mortgage payment on the property, if any balance remains, or to provide income without working too hard for it. This passive income can be a sound way to build wealth over time, but there are costs involved with letting out a property.
The most significant cost is the tax levied on rental income. Property owners pay tax on any monies received from a tenant as a private landlord and depending on the tax rate they fall into, this can be up to 40%. Not calculating in the cost of taxes can dilute earnings from rental income quickly, so be sure to consider this expense before signing on a new tenant. Property owners also need to ensure the home they let out is properly maintained, from general upkeep to ongoing maintenance and improvements.
Be Legally Prepared
Before agreeing to let out a property, there are certain legal steps property owners must take to protect themselves and their future tenants. First, if a mortgage is still owed on the property, owners need to let their lender know they intend to let out the home to a tenant. A consent to let is required from nearly all mortgage lenders before a property owner can become a private landlord. If consent is not received, this could void the mortgage contract, causing financial and legal headaches.
Additionally, having the right insurance cover is necessary as a private landlord. According to a finance expert at Money Pug, a website used to find cheap home insurance, property owners likely need buildings cover and contents cover in addition to landlord cover when they let out their home. Each of these insurance policies come at a cost, but they are necessary to remain in good standing with tenants and the law. This insurance cover helps protect against disasters and accidents that could take a significant financial toll on the property owner. It is helpful to review options for these policies, as current insurance prices could change as the result of becoming a landlord.
Secure an Agent
Although some property owners decide to go it alone when renting out their home, many employ the help of a letting agent. An experienced letting agent can help with several different tasks, including drawing up tenancy agreements that are in line with the law, finding prospective tenants, and advertising the property through multiple channels. Once a tenant is in place, a letting agent also deals directly with the tenant so that the property owner does not have to take on this responsibility.
The typical cost of a letting agent ranges from 10 to 15% of the rental income received. This extra expense may chip away at profits, but it may provide peace of mind for property owners who do not want to manage every aspect of being a landlord.
Find the Right Tenant
Finally, property owners, either through a letting agent or on their own, need to take time to vet their prospective tenants before signing a tenancy agreement. In ideal situations, property owners have an opportunity to meet with a tenant before he or she moves into their home. This offers the chance to get to know the person or family, their specific reasons for renting, and how they may treat the home while they let it out. Whether meeting a prospective tenant is a possibility, ask for references and run a credit check to ensure they are a responsible choice.
Letting out a property requires some up-front work, including breaking down the costs and benefits, following the legal guidelines for becoming a landlord, and getting help with finding the right tenant. Following these simple but important steps will lead to a more fruitful path as a landlord, and a better experience for your tenants.