What First Time Landlords Need to Know

For many people, real estate remains a promising avenue for financial growth and a valuable addition to their investment portfolio. Whether it’s residential or commercial, there are numerous ways to invest in property. However, becoming a landlord often stands out as a faster and more lucrative path to financial success than other real estate options.

And if you have found yourself in the enviable position of being able to afford to take on a buy-to-let mortgage or purchase property outright for the purpose of renting out, it’s important that you don’t go into this venture with your eyes shut. Because this can and will lead you into issues, the last thing you want is to be out of pocket due to your naivety. 

Let’s take a look at some things you need to know about becoming a landlord for the first time. 

Legal Responsibilities

Before you embark on your journey as a landlord, it’s crucial to acquaint yourself with the laws and regulations governing landlords in the UK. This understanding will not only keep you on the right side of the law but also ensure you’re well-prepared for any situation that may arise.

You cannot simply buy a house and rent it out; there are laws and regulations in place to protect both landlords and tenants.

• Right to rent – You need to check whether each prospective tenant has the right to rent in the UK.
• Energy performance – The property must have a valid Energy Performance Certificate rated E or above. 
• Deposit Protection—If you take a deposit from a tenant, you need to make sure it is placed in a registered, government-approved scheme (e.g., TDS, DPS, or MyDeposits).
• Electrical Safety – You need a full Electrical Installation Condition Report prior to renting out any property.
• Gas Safety—The property needs to have a gas safety check every 12 months by a registered Gas Safe engineer, and tenants need the certificates. 

All tenants must also have a copy of the government’s “How to Rent” guide.

Teenacy Agreements

You need to determine the type of tenancy you will be offering. In the UK, the most common type of tenancy is the Assured Shorthold Tenancy (AST), and most new tenancies are set up to this.

However, this isn’t applicable to all tenancies or tenants, and you might decide that another type of tenancy is more suitable for the property, i.e., company lets or licenses for lodgers, for example.

The AST is preferable as it offers protection for both the landlord and the tenant. For example, the landlord can reclaim possession after 6 months with proper notice, but you need to abide by fair rent practices, notice periods, and protection of tenancy rights during the tenancy.

Setting The Right Rent 

You need to crunch the numbers before purchasing your rental property to ensure that you can set an appropriate rent rate. There are factors such as how much other properties in the area rent for, demand, and the average income of the area. Pricing too high can result in the property being empty for too long, losing you money, while pricing it too low might not cover your costs.

RightMove and Zoopla can be great places to reference, as can checking the LHA (local housing allowance) for your area of interest to be accepting tenancy on housing benefit or universal credit, for example.

Landlord Insurance

While not a legal requirement, it’s important to understand the benefits of landlord insurance and what it can offer you. Landlord insurance can cover you for a range of incidents you 

might encounter, including

• Repairing or rebuilding the property if the structure is damaged or destroyed.
• Contents coverage if taken out and you supply a furnished property (not including the tenant’s personal belongings).
• Legal liabilities.
• Accidental damage by the tenant.
• Options, including rent guarantee assurance and carpet coverage, can be added to the policy specifically.

Unexpected Costs

As a landlord, you are responsible for ensuring that your property remains habitable (the government has guidelines for what constitutes a habitable rental property). And your tenancy has the right that requires you to maintain the property to these standards.

On top of this, you also need to have money to cover unexpected issues that both you and the tenant were unaware of or not expecting, like damage from extreme weather. This means you need to action repairs, and cover costs as they crop up. While insurance can cover some repairs and expenses, it won’t cover everything, and you still need money to pay out of pocket for them.

Some unexpected costs you might encounter include

• Non-payment of rent
• General maintenance
• Letting or management fees
• Tax on rental income
• Periods of vacancy 

Letting Agents

As a new landlord, you need to understand if you can or want to handle all of the aspects of managing a rental property yourself. You need to understand what is required and expected of you concerning contracts, collecting rent payments, handling repairs, and more.

Some landlords find it more cost-effective to have a letting agent handle all of this for a fee. While there are more outgoings to consider, the value gained for using a letting agent can be worth more than what you pay, especially if they guarantee you get your rent each month or have a successful track record in gaining high-quality tenants for their properties.

They can also handle all areas of compliance for you, communicate directly with the tenant on your behalf, and handle tenant referencing, too.

Boundaries

A common pitfall many landlords fall into is that they can become too close to their tenants, especially for first-time landlords or those who know their tenant, e.g., family, friends or colleagues. This can lead to you making business decisions you might not otherwise make. If you’re confident that you can treat this as a business, not a personal mission, you can avoid many mistakes, like the wrong type of tenants pulling on your heartstrings and getting away with things like missing rent payments, etc.