Becoming a Property Investor
There’s a strong chance you may have pondered investing in property before. Perhaps a lack of capital held you back.
Now you have sold your own home that may no longer be a stumbling block, but not knowing what to expect might be.
Take a look at Whitegates’ guide to becoming a landlord, which answers many key questions about how you can turn a property investment into a solid income.
How do I make money from property?
Well, if you’ve just sold you home the chances are you have made money on it. Over the past decade, house prices have grown steadily and this may mean you now have the capital from that sale to invest in a rental property.
And there we have the two ways to make money from property: Rent and capital growth.
By renting out an investment property, you may benefit from both of these. While your tenant’s rent should provide you with an income, in a strong market your rental property will also go up in value. A win-win situation!
But surely there are risks?
Of course. Any kind of investment carries a degree of risk and property is no different in that respect.
Since the crash of 2008, we have experienced solid growth in the property market. But 2008 proved that prices can drop as well as rise. With a rental property, however, as long as the tenant demand is there, there’s a good chance you can ride out any dip in house prices as your investment would be long-term.
However, a rise in interest rates could see your mortgage costing more each month than the rent you have coming in, so it’s worth bearing this possibility in mind before you invest.
How much would a rental property cost me?
As well as the purchase price, the majority of your other costs would be similar to those of buying a dwelling.
Estate agents, solicitors and stamp duty will all need to be paid. The main difference is those buying a second home or buy-to-let property are charged a further 3% on each stamp duty band, so that is one additional cost you will need to factor in to your budget.
Furthermore, with the phased change in legislation regarding mortgage interest deductions from landlords’ tax bills in full swing between now and 2020, you may be looking at a larger income tax payment than you would have two or three years ago.
What about day-to-day costs
Calculating your rental yield will be crucial to working out if a particular property is a sound investment. To do this accurately, you will need to include all the running costs associated with buy-to-let investments.
Here are some:
- Interest on your mortgage
- Fees for a managing agent
- Renovation. / decoration costs
- Landlord insurance
- Utility safety checks
- Ongoing maintenance
What are my responsibilities legally?
As a landlord, you are obligated to ensure your tenant or tenants have a safe property to live in.
So, among other things, you must:
- Ensure smoke alarms are installed on all floors
- Make sure carbon monoxide detectors are present in rooms with coal fires or wood burning stoves
- Provide a safety certificate, available inside the property, for each gas appliance
- Get electrical devices PAT tested for compliance
- Furnish the property with fire safe items and ensure all labels are on display
- Make sure the water supply is safe to protect tenants from Legionella bacteria
Landlords must also supply a valid Energy Performance Certificate (EPC) in order to let out an investment property.
Since April 2018, only properties with at least an E rating can be legally rented out.
Are there any other obligations I must meet?
All landlords must place their tenant’s deposit into a government-backed deposit protection scheme and refund it in full at the end of the agreement – as long as there is no dispute regarding damage or rent arrears.
You are also responsible for the outside of your buy-to-let property, so problems with the roof, guttering or external walls and structure fall on your shoulders.
As well as the outside, you must ensure water, gas and electric supplies are maintained and safe.
Can I visit the property to check it over?
As the owner of the property, you absolutely have the right to visit. However, your tenant has a right to ‘quiet enjoyment’ of the home, so you can’t just turn up unannounced.
Make sure you give plenty of notice and arrange a time that suits both you and your tenant.
I've heard HMOs are a good investment
They can be. The benefit of Houses in Multiple Occupation (HMO) is the separate streams of income they provide through individual tenants.
An HMO is defined as such if there are three separate tenants or more living in the property, renting a room each and using shared bathroom, toilet and kitchen facilities.
HMO landlords benefit from the safety net of separate rent payments from each tenant, so if one leaves, they can replaced while still collecting rent from the other tenants.
Are there tighter rules for renting out HMOs?
In the case of a large HMO, a property of at least three storeys, with five or more tenants renting individual rooms, a licence is required.
Landlords must also make sure their HMOs are not overcrowded and that all tenants have communal facilities of a good standard.
You must also ensure the electrics in an HMO property are checked every five years.
If you have any questions on buying a property as an investment, or about letting out a property, speak to your local Whitegates branch.
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