1 September 2017 by

So you want to be a Property Tycoon?

Don’t we all?

Well, before you start thinking of immediately quitting your 9-5 to live the dream, you should look at the following checklist and consider the risks involved and often not considered by those wishing to gain an extra income stream from letting property.

1. Finding and Funding

Despite the agent trying to convince you to buy, be careful not to fall into the trap of buying your ‘dream rental’ without first doing your homework in terms of ascertaining the potential full costs of buying, fixing and ensuring the property is legally capable of being rented out in the first instance. Not only is there the additional 3% stamp duty that is now required to be paid on Buy to Lets, but be aware there are also less tax reliefs available than was historically the case.

Before you commit to purchasing the property you should obtain a couple of quotes from builders to confirm any likely additional costs required to bring the property up to an acceptable standard. This will ensure you know how much you need to spend before you buy and when your property will be in a condition that will allow you to earn rental income. These costs can quickly accelerate.

It is also important to have contingencies in place should you not be able to find a tenant or if the current tenant leaves unexpectedly. This is especially important if you have monthly mortgage payments to pay which are funded from the rent you receive. Also remember receiving rent is an income so pay your taxes!

2. Maintenance and insurance

Your tenant is likely to contact you at any opportunity with their complaints. These could range from changing a light bulb to needing to repair a broken boiler. Be smart and obtain landlord insurance cover (which is different to normal building Insurance cover) before the tenancy commences which could potentially save you considerable costs down the line. You must ensure the policy also covers the usual insured risks. Be aware, it is not only costs that you need to consider but also the drain on your time in dealing with the tenant’s demands.

3. Legal requirements

(a) Gas

You must ensure the property is legally compliant to be a rental property. This includes obtaining a Gas Safety certificate. This needs renewal every year and it is evidence that an inspection of the gas supply and gas appliances has been undertaken. Failure to obtain this is a criminal offence and could result in imprisonment and/or fines of up to £25,000.

(b) Electrics

An electrical safety check must be undertaken before the tenancy starts and then every 5 years. This confirms the electricity supply and all appliances are legally compliant and safe. Failure to comply may lead to a penalty of £5,000 fine and/or six months imprisonment.

(c) E.P.C.

You must have a current Energy Performance Certificate before renting. As from the 1st April 2018 there will be a requirement for any properties rented out in the private rented sector to have a minimum energy performance rating of E. Failure to conform could lead to a fine of up to £4,000.00.

(d) Deposits

All deposits obtained from the Tenant must be held in a Government backed scheme or an insurance scheme where you hold the deposit but are required to pay a premium as ‘insurance’ to pay back the deposit. Get this wrong and your tenant can claim compensation from you.

(e) Furniture

All furnishings (for example beds, sofas, chairs etc) must comply with the latest fire regulations. If they do not then this may be a criminal offence, which carries a maximum penalty of a £5,000 fine and/or six months imprisonment.

4. Know your Tenant

There is nothing worse than your tenant not paying or complying with their obligations within the agreement. You should vet any new tenant by seeking references and undertaking credit checks. You may need the assistance of an agent to ensure proper checks are done. Such checks can ascertain whether the tenant has:

  • any County Court Judgments
  • adequate income to rent ratio (they are paid more from their employment than the rent demanded by you)
  • no significant breaks in employment
  • previous landlord references
  • a poor credit score

If after these checks you have doubts about the tenant, ask for a guarantor to underwrite the performance of the tenant. If the tenant does not pay the guarantor will!

In conclusion although being a landlord can be lucrative and should be considered a long term business venture, it is not without pitfalls and risk. Thinking about these in advance and, where possible, putting contingencies in place will reduce the risks and increase your chances of a better return on your investment.

Good luck and happy letting!

If you require advice on this matter or any property law issues please contact one of our  solicitors in the Residential Conveyancing team here.

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