Becoming a landlord

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Being a landlord is one of the most challenging and rewarding jobs a person can have. It requires a lot of research, planning and forethought, but the rewards are immense. Plus it can offer you a great degree of independence.

In this article, we’ll explore the benefits of becoming a landlord, as well as the first steps you need to take before letting a property.

And if you are interested in being a landlord, don’t forget to take a look at Quantum’s managed service here. You’ll get all the benefits of being a landlord and have an experienced property partner by your side.

Why should I become a landlord?

There are several reasons why being a landlord is a popular option nowadays. We’ve listed a few of the most common reasons that people choose to enter the rental market.

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This suggests a golden opportunity for new private landlords to jump in and start letting properties of their own.

 

The monetary perks

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Another key reason is the source of income that good tenants provide. Since tenants pay rent on a monthly (or even weekly) basis, this ensures you will have money coming in on a highly regular basis, over an extended period of time.

This income can be used to save or add to a pension, or as a rainy-day fund.

 

The entrepreneurship

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Being a landlord also offers a high level of self-satisfaction.

Letting a property is a lot like running your own business; you get to make all the decisions surrounding it, meaning you can act- effectively- as your own boss!

 

The future of housing?

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Finally, the rise in renting isn’t all that unusual in a wider context. In countries such as Germany, the rate of home ownership is extremely low, yet the overall satisfaction with the housing situation is at 93% as according to the OECD better Housing Index.

It’s clear that the way we live is changing in the UK and a future trend may well be having the majority of the population renting for most if not all of their lives.

 

First Steps

Before deciding to become a landlord, think about how you want to let.

You may want to let a single room in your house or buy a house that you let to tenants.

excluded and assured shorthold tenancy

If an Assured Shorthold Tenancy sounds like the best option, you’ll want to get some financial advice from a mortgage expert and start researching the right estate agent partner for you. You’ll need to be sure that you’re financially secure enough to take on a second property.

We’ve put together a useful guide about the different tenancy contracts there are, which you can read in full here.

 

Buy to Let Mortgages

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Landlords need to take out a special kind of mortgage on a property if they plan to let it out. This is the buy-to-let mortgage.

The interest rate on buy-to-let mortgages is usually higher. The deposit is usually bigger as well. You can expect to pay a minimum deposit of anywhere from 25% to 40%.

You can increase your chances of being eligible for a buy-to-let mortgage if you own your home outright, have a good credit record and earn £25,000 a year.

Landlords can get a buy-to-let mortgage from many major banks and some specialist lenders. Whoever supplies your mortgage will need to see that the rental income you hope to receive will cover your mortgage payments. Typically this income needs to be 125% or more of your mortgage payments.

calculator iconWhen calculating the amount of money you make on rent, you must factor in additional costs like interest, maintenance, emergency repairs and annual safety checks.

You need to remember your property may be unoccupied for some time and have some savings to cushion you in times like these. Assume your property will be empty for at least one month per year, and plan accordingly.

You also need to remember that you can’t necessarily sell the property to repay the mortgage, as house prices fluctuate.

Many buy-to-let mortgages are interest-only. This means you only pay the interest on the mortgage each month. You clear the capital debt when you sell the property, but remember you will have to make up the difference if sale of the property doesn’t clear the debt on its own.

 

Taxes and Costs

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You’ll only be paying taxes on the overall profit of your property.

Profit from renting out a property is defined as the income you receive from rent minus any allowable expenses you’ve claimed for.

Do note that your rental income includes the rent tenants pay you and any charges tenants paid for specialist cleaning or repairs.

You can only claim for an expense if it was incurred solely for renting the property out. For example, you could claim for general maintenance work on the property, cleaning services and advertising the property.

The amount of tax you pay on rental income is determined by your total yearly income.

landlord taxes help

 

Are you ready to be a landlord?

There’s a lot of information out there for landlords.  Have a look at our checklist before you begin.

landlord checklist

Quantum’s team are specialists when it comes to letting management and we can advise you on all things property.

Interested in discussing letting management in York? Give Quantum a call today.

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