A Property Owner’s Checklist: What to Know Before Renting Your Home
Throughout the UK, thousands of property owners make the decision to rent out their home. The choice may be due to a desire to hold on to the residence as a source of passive income, or because the prospect of selling doesn’t make financial sense. Regardless of the reason to rent out a home, there are specific steps that need to be taken before you can enjoy a rental success. Here’s what property owners need to know if they plan to rent their home.
Research the Area
It doesn’t do a property owner much good to plan to rent out their home to a potential tenant without knowing what rent amount is reasonable each month. Each neighbourhood is different from the next, so what someone may be able to charge for rent in London is different than areas outside a major city. Be sure to do the necessary research on rents where the property is located to get an idea of how much could realistically be asked of a tenant.
Understand the Cost
Having a source of passive income from renting out a residence is a smart way to build wealth over time, but only when the total cost of doing so is calculated. Property owners pay tax on rental income, either at 20% or 40% if a high-rate taxpayer. This cost needs to be added to the total rental income picture to ensure it makes financial sense to rent out a property. There are also costs associated with managing a property over time, including standard home maintenance and upkeep that tenants are not typically responsible for covering.
Let Your Mortgage Lender Know
For property owners with a mortgage, there is an extra step to take before renting to a tenant. Mortgage lenders need to be made aware of the fact that a home is intended to be let. If that information is not shared with the lender, the owner could inadvertently void a mortgage contract. This could lead to serious issues with the lender. Get a consent for lease from the mortgage provider before signing on a new tenant.
Check Insurance Options
Property owners must have the right type of insurance to be adequately covered when they act as a landlord. This likely means having current buildings and contents cover, as well as a landlord insurance policy. According to a finance expert from Money Pug, a website used to compare home insurance, property owners who plan to let their residence should review their cover with their current provider, and compare options from other insurance companies. Taking this small step to compare insurance plans can be a cost-saving endeavour for new landlords.
Prepare the Property
Another step in the landlord process is preparing the property for tenants. Some property owners offer rentals as furnished residences, while others opt to leave a home unfurnished. It is important to clear the property of personal belongings before a tenant moves in if the intention is to have an unfurnished rental. Additionally, landlords need to take time to ensure all systems and appliances are working properly. This will help tenants feel comfortable with their decision to let from the owner.
Find an Agent
While it is possible to let out a property without the help of a professional, property owners gain several benefits when using a letting agent. Qualified letting agents help with advertising the property and bringing potential tenants to the table. They can also draw up the tenancy agreement when a tenant is ready to move in, as well as directly deal with the tenant throughout his or her tenancy. Be prepared that letting agents do come at a cost, typically ranging from 10 to 15% of the rental income received, but this can be worth it for landlords who do not want to take on this extra legwork.
Renting out your property is a significant undertaking if you are ill-prepared. Take the time to think through these considerations before listing a property for let if you want a successful stream of passive income now and in the future.