If you are thinking about becoming a landlord it is crucial that you do your research first. Using our years of experience within the property market we have put together a simple guide on how to make the most of your Buy To Let investment opportunities..
Deciding where to buy is the first decision. If it is your first Buy to Let investment then purchasing a property near your own home can be sensible as you already know the local area well and you are close by just in case there are any problems. However, if you are planning to use a letting agent for the ongoing management of the property then the locality is not such an issue. You could then focus your search on areas with higher letting potential such as larger towns or cities identifying where the best rental income can be achieved.
Once you have decided on the area, you need to do your research to look into other factors that could be important for potential tenants such as:
Proximity to transport links such as the train station or buses
Local school catchment areas
Distance to nearest amenities such as shops, bars and restaurants
Off street parking
The type of tenant you want to attract plays a big part in not only where the property is located, but also the type of property you buy, so it is important to have a clear idea of who you will be targeting. The type of tenant will also determine the other factors including:
The level of rent you can charge
The frequency of tenant turnover
The most suitable décor & furnishings
The amount of ongoing maintenance that will be required
For example, if you were looking for a property to appeal to a professional couple or flat share then you would be looking for a smaller 1-2 bedroom flat with décor and furnishings at a good level of quality that is close to good transport links and nightlife. This type of tenant would typically be quite low maintenance and be able to afford an above average rent. However, renting to a larger family would need proximity to school catchment areas and a larger garden.
When deciding on the best type of property to go for, there are so many factors that impact on your ongoing investment, here are few considerations:
Leasehold or Freehold? If you purchase a freehold property, this means that you own the land it sits on, and this applies to most houses. The benefits of freehold is that you won’t have worry about the lease running out, as you own the property outright and there is no ground rent or services charges to pay.
However, if your new property is leasehold, then you only own the property and its land for the length of the lease agreement with the freeholder, or the landlord. On purchasing the property, you take over the lease from the previous owner. Most flats and maisonettes are owned leasehold. With property like this, it is important to understand how many years are left on the lease as this can affect not only getting a mortgage but also the property resale value. You will also need to budget for service charges, ground rent and other additional costs that you will be responsible for.
Communal Areas: When considering a property with a communal hallway, the condition of these areas can give you an indication of the other people living in the building. Remember the communal hallway will be what a potential tenant bases their first impression on so factor this in when deciding on the type of tenant and how much you want to invest in the property.
New or old property?: When deciding between an older period place, a new-build or an ex-council or local authority property you need to think about whether you’re investing for income or capital growth. Older properties with period features do keep their value and are very appealing to tenants so you may be able to charge higher rent. However, they often require modernizing and can be costly to maintain therefore reducing your rental yield. Newer properties appeal to young, professional tenants and will require less maintenance, but the property value may not increase very quickly, and might even lose value in the first year or two. Ex-council or local authority properties can be bought relatively cheaply and are often a good size so you can achieve solid yields, but on the negative side, they may not appreciate in value as fast as the other two types.
It is just as important to undertake a survey on a Buy to Let property, as you would if buying your own home. A professional surveyor will be able to provide a detailed analysis of the property, highlighting any problems or issues that could affect its rentability. Commissioning a HomeBuyer Report or a Building Condition Survey can provide you with a rough idea of cost for any repairs or renovations needed to bring it up to the required standard.
Even when purchasing a new build property, especially if buying outside your local area, a survey will highlight if you are buying into an area with subsidence, flooding or other issues.
Again, before you enter into any kind of property purchase you will need to plan out and budget for how you plan to rent out the property.
The décor: When decorating the property ready for renting, keep it minimal and in neutral tones to give an impression of space - mirrors and good lighting can help with this. Use hardwearing materials that are easy to clean so they last from one tenant to the next. If adding furnishings keep them of average quality without spending too much money as your tenants might not take as much care over your items as you would.
Our tips for the kitchen and bathroom would be:
To prevent walls getting dirty use tiled splash backs
Roller blinds are easier to clean than slatted which can get greasy
Install an efficient extractor fan to prevent condensation
Avoid wall paper as it peels easily
Gloss paint is easier to clean than emulsion
You should consider re-grouting tiles after long tenancies to keep them sealed and prevent leaks
It is worth investing in a quality power shower. Water pressure is something tenants regularly check.
Furnished or unfurnished? In our experience, the most popular rentals are unfurnished. Tenants tend to have their own furniture and any furniture you choose may not be practical for the tenant or to their taste. However it is generally expected that the landlord provides the white goods such as cookers, washing machines and fridges within the property. As the landlord, you will have to maintain and insure any appliances provided. Providing curtain poles and neutral curtains can also help to enhance the appeal of your property to prospective tenants.
Externally: Tenants’ will quite often drive past the outside of a property before arranging a viewing so you want to ensure your property looks inviting with a well tended outdoor space. Low maintenance gardens are advised as they tend to suit tenants and reduce the need for your ongoing involvement.
When you become a landlord, there are many legal rules and compliance regulations that you have to adhere to.
Gas Safety : All gas appliances, fittings and flues in a rental property must be safe in coordination with The Gas Safety (Installation and Use) Regulations 1998. A Gas Safe Registered Installer must carry out annual safety checks on each gas appliance/ flue. All installation and maintenance must also be carried out by a Gas Safe Registered Installer. The engineer will provide you with a Gas Safety Certificate, providing everything is ok after your annual inspection. You should always keep a copy for yourself. At the start of each new tenancy you must provide the tenants with a copy of an in date Gas Safety Certificate and each year after that following the annual gas safety check. It is strongly recommended that a carbon monoxide detector be installed.
At Kings Estates we can arrange for a Gas Safe Registered Installer to carry out these checks for you. We will also remind you each year when your current gas safety certificate is about to run out and again can reorganise a new one for you.
Electrical: Although there is no legal requirement to have annual checks on electrical equipment, you must note that it is a criminal offence to “fail to ensure that the electrical system and appliances are safe.” (Electrical Equipment Safety Regulations 1994).
We can help arrange to have any of your electrical systems and appliances tested by a qualified electrician.
Soft Furnishings : If you are providing soft furnishings in your rental property you must comply with the Furniture and Furnishings (Fire) (Safety) Regulations 1988. The items must be fire safety compliant. Keep an eye out for fire safety labels stating it meets the requirements of the 1988 Safety Regulations.
Tenant Deposits : When letting out your property you are entitled to request a deposit from your tenant before they move in – this can be held against damage to the property, owed rent and unpaid bills. The government requires that the landlord places this money into a tenancy deposit protection scheme within 30 days of receipt. If you do not protect your tenants deposit in an approved tenancy deposit scheme, any no-fault eviction notice you attempt to serve on your tenant will be deemed invalid. This means that you will only be able to reclaim your property using a much lengthier procedure.
Tenancy Agreements and Contracts : It is imperative that use a tenancy agreement or contract for all tenants. These can be purchased online, provided by letting agents when using their services or drawn up by a solicitor. These usually cover items such as length of tenancy term, notice periods, rental and deposit amounts, an inventory, wear and tear expectations and an end of rental agreement. Both you and the tenant should sign and retain a copy.
HMO’s, Houses in Multiple Occupation : An HMO is where three or more people (not related) live in a single property but do not form a single household. An HMO still applies even if there is just one tenancy agreement between them all. It also applies if there are multiple tenancy agreements within the property. If the HMO is over three or more floors and there are five or more tenants then the landlord would be required to get a HMO license (applicable in England and Wales).
HMO License: An HMO License comes with strict standards. The property would need to comply with fire and electrical safety standards. They also ensure that the property is not occupied by too many people. If your property qualifies for a HMO license then every 5 years since the license was granted the property would need to be inspected for health and safety hazards under the Housing Health and Safety Rating System (HHSRS). If local authorities think that it is needed they can increase licensing of HMO’s to properties with fewer than three floors or five tenants.
Disabilities: If asked, landlords are required to make “reasonable adjustments” to their property unless they have ‘reasonable grounds’ to refuse. If you refuse without having reasonable grounds it can lead to court proceedings. If the property has an HMO license this could also be lost.