The first thing you should consider when deciding whether to become a landlord is choosing the location for your buy to let property. For some, this decision will already be made, for instance if you have inherited it.
However, for those looking to buy property with the intention of letting it out, you should consider how you would prefer to manage the property. Do you want to manage it yourself? If so, picking a location that is local to you could be more suitable.
If you are open to buying a property out with your local area you want to invest in, you will need to do thorough research. A few questions to consider: is there a tenant demand? Have you considered capital gain, also known as capital appreciation or growth? Which areas are known to have promising rental demands and yields?
Speaking of rental yield, it is important to know how to calculate percent yield. Calculating rental yield is useful for landlords as it allows them to monitor the value of their investment. By calculating rental yield, you can determine what you will need to charge for rent in order to make your investment worthwhile.
Working out the rental yield for a property is very simple to do. Simply divide your rental income by the property value and then multiply it by 100 to get your rental yield expressed as a percentage. You can also use online rental calculators to assist you.
Once you have decided on the property you would like to purchase, you should consider how you are going to buy the property. Would you like to purchase the property in your own name or through a special purpose vehicle (SPV) limited company?
The legislation on mortgage relief has now changed for buy to let properties. Landlords who buy in their own name can no longer deduct any of their mortgage expenses from their rental income to reduce their tax bill. Instead, they now receive a tax-credit based on 20% of their mortgage interest payments. This is less generous than the old system for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments.
This new legislation was phased in gradually starting in 2017 and has resulted in many people choosing to set up a limited company. In theory, by setting up a business that owns its rental properties, landlords will be able to continue to declare rental income after deducting the mortgage interest. However, mortgage rates for limited companies tend to be more expensive than for private landlords, which could cost more than you'd save in higher tax relief.
Finally, if you incorporate, your taxes will become more complex. Instead of paying income tax on your rental income, you'll need to file taxes for your business and pay corporation tax on your profits.
Please note that if you have inherited the property, the above won’t apply.
As per the government’s guidance, depending on the type of property you intend to let out, you may need a licence. HMO licences are different to selective licences, and different areas have different regulations, but all will require you to complete forms and show evidence that you are a fit and proper person.
The legislation surrounding landlords and properties varies hugely between county and type of let. Make sure to do thorough research for the laws and regulations that apply in your country. There are several certifications that are mandatory to ensure the safety of your tenants and protect you as the landlord. These include but are not limited to:
You will need to have an EPC. The certification is valid for 10 years but new legislation, beginning in 2025, will require any newly rented properties to have a rating of at least a C, and any existing tenancies will have until 2028 to do the same. The changes are being put in place to ensure energy-efficient homes meet the government net-zero carbon targets and failure to comply can result in fines of £5,000.
You also need an electrical safety certificate that has to be renewed every five years, known as an EICR (Electrical Installation Condition Report). The electrician will test and inspect the fixed electrical installations in the property. For example: wiring, plug sockets, light fittings, fuse boxes, electric showers and extractor fans. They can make any immediate hazards safe before they leave your home.
It is a legal requirement to arrange a gas safety inspection prior to the arrival of the new tenants. A valid Gas Safety Certificate must be given to the tenants at the beginning of the tenancy. This must be done annually by a certified ‘gas safe’ engineer.
The government mandates several fire safety checks for all landlords. For more information see the Fire Safety Order (FSO) on the government’s website.
Additionally, all landlords must conduct a Legionella Risk Assessment by a trained professional.
The initial stages of becoming a landlord can prove stressful especially finding a suitable and trustworthy tenant. Attracting tenants can be costly and time-consuming so will need to be factored into your plans. Creating a solid marketing strategy can be the difference between finding a tenant and not. Just think, no matter how beautiful your property is, it will not sell if no one knows about it. You should consider investing in professional photos to accompany your website listing(s).
As well as the marketing costs, you will need to decide who will show potential tenants around if the property is not local to you or you are unavailable.
Great news! You’ve found a suitable tenant. These are a selection of things you will need to do undertake to comply with landlord regulations:
We provide landlord insurance for a wide range of properties and tenants including multi occupancy, students, local authority placements, unoccupied and much more. See our landlord insurance page or call 0333 060 0915 for more.
We can offer cover for a range of commercial properties from our trusted network of leading insurers.
You can place just one commercial property or a whole portfolio under one policy, including standard and unoccupied residential and mixed-use buildings.
Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.
Date: October 13, 2023
Category: Commercial Property