Renting out a property - what do I need to know?

[LocatingLocatingLocating]

Planning on buying a new house and renting out our current house.
Any tips or things I should know about?

[Bearbehind]

It really isn't something to enter into lightly.

Asking on an Internet forum 'what you should know about' doesn't bode well.

There's a whole heap of legislation you need to adhere to plus the general PITA of day to day landlord issues.

If you really don't have the first clue what to expect it might not be the best decision.

[LocatingLocatingLocating]

I have read quite a bit about it, but was interested in what others saw as key.
So for example I am familiar with the taxation of rental, and what income can be excluded. I have read up in the capital gains issues. We would want to go down the route of using a letting agent.
I understand that interest rates will be higher than for a standard residential property. We fully own our current property but will be remortgaging to raise a deposit on the new property. This will still leave us with more than 50% of house value as equity.
We don't actually need the rental income in order to be able to afford our (two lots of) mortgage payments, but obviously we will need to consider costs for times when the property may not have tenants, when we will have to cover costs such as CT/ bills.

[LocatingLocatingLocating]

Some questions include:
Will tenants normally cover all bills (will they be in their names?) Or does the landlord 'recharge' the tenant? (Can't remember from my renting days many moons away).
What is score re insurance and can you exclude any parts if property (e.g. external garage)?

[SauvignonPlonker]

Tenants are responsible for council tax, utilities (except during void periods, when it's the LL's responsibility). LL pays building management fees, if there are any, plus repairs, gas safety certificate, agency fees, etc.

You'll need LL insurance covering contents, malicious damage, legal protection. Your insurance company & mortgage lender will likely restrict who you can/can't let to eg no HMO, no students, no housing benefit.

Will your agent offer a rent guarantee? What are their charges (mine is 10% of monthly rent) for you & potential tenants?

If in Scotland, you'll need to join the LL accreditation scheme, also agencies cannot charge tenants in Scotland so you must bear the cost of tenant checks, inventories etc.

Assuming you have checked your mortgage lender will grant permission to let? Or maybe swap you to a higher interest rate? Or interest only product?

I would think very carefully about BTL. It's not the "easy money" it's made out to be. Most LL's break even, often with a lot of hassle along the way.

It's not for the faint-hearted.

[wowfudge]

In addition to the above, please ensure the letting agent you use 1) actually knows the law; 2) acts within it and treats your tenants properly; and 3) actually works for the money they charge you.

[LocatingLocatingLocating]

Sauvignon - thanks.
We are not really in it for the money and are happy to break even (although preferably including maintenance). We are not in Scotland.
Our current mortgage lender doesn't do btl, so we will need to move to another provider. We will possibly stay with current mortgage provider for new house mortgage.
Our likely rental charge is c£600-700, and an interest only mortgage would be just less than £300 (repayment would be just over 400). We have quite a few maintenance things to sort out out. Nothing urgent, but e.g. roof repair at some point in next 12-24months. We are considering holding off on these until we start renting.

[LocatingLocatingLocating]

Wowfudge - we are considering using an estate agent we have used previously who also do lettings. Not sure if this is wise or not!

[mousmous]

the house needs to be in tip top shape to be rented out.
a wonky tap you might overlook in your own house is not suitable in a rental property.
fix the roof before you get tenants in, or a failed roof might be expensive (relocation of tennants!)

[LocatingLocatingLocating]

Thanks mousmous. Roof isn't leaking. It's a flat roof which could do with being replaced. Roofers gave advised there is no problem, but that it may be worth considering in next few years. Maybe we will consider sorting now though.

[Bearbehind]

You can't really consider replacing a roof on a property if there's tenants in there- the tenants can't be expected to facilitate such repairs or put up with the associated disruption.

It's bad enough if it is something you couldn't have foreseen but if it's a known issue it needs sorting before you let it out as you won't know when it might next be empty to get the work done.

As someone else said, the house needs to be in good condition, tenants often won't put up with things that don't work properly (even things that aren't broken but don't quite work as they should and which you'd put up with if it were your own house like a door that has a special knack to open etc).

[PettsWoodParadise]

We rent out a few properties and do it ourselves as we are local to the properties. I've heard too many horror stories to trust it to an LA. But appreciate self-management isn't for all. I like to vet my own tenants too. Openrent advertise on Zoolpla, Rightmove etc. Key things are a good Assured Shorthold Tenancy agreement, registering the deposit and issuing to the tenant the prescribed information and after the initial term re-issuing this information. New legislation is coming into effect that if a tenant asks for something and you don't do it and you then choose to serve notice they might claim a retaliatory eviction and it will be hard to get them out. So document absolutely everything and have good reasons for any response. If you have couples and they split up it can be a nightmare for re-protecting deposits, reissuing a tenancy agreement etc. If one looses a job I've been a considerate landlord (much to our coat) and waited for Housing Benefit application but had to pay mortgage on credit card and then the tenant decided to use their HB for a holiday so we had to evict with five months of arrears and little likelihood of seeing a penny of it. So it isn't for the faint hearted. Have some reserves for void periods and tenants who fail to pay. However saying that this is our pension pot and seeing how stocks are going down today I am very glad we are in property and not relying on a stock market related pension!

[wowfudge]

Ask to see copies of the Estate agent's AST, any other Ts and Cs they make tenants to sign up to and find out what charges they levy on the tenant.

Make sure you know the property well. We had lived in the house we subsequently let out so were able to resist unnecessary suggested work the letting agent advised, but knew where everything was, how everything worked and who to contact in the area when we had to sack the agent for leaving our tenant with an open, unlockable ground floor window in December.

[specialsubject]

fix the roof now. Fixing things while tenants are in involves finding a convenient time for access and arranging that with tenants, trades and you.

also you may not know when the roof fails. Happened to me, tenants didn't notice, agents weren't inspecting and it was only observant neighbours that alerted me!

you need to go over the whole place, fix everything, get it looking really good. Doesn't guarantee it won't get trashed but at least you start from a known good state. Everything must work properly and easily.

a new law coming in soon also means you can't evict tenants if there is an unfixed problem with the property.

If Osborne has any sense (although it looks like he doesn't) tax relief for BTL mortgages may go soon.

otherwise; go read some books on the subject, take lots of advice, consider a short course in the business.

you need to oversee it all yourself. For instance, if the agent 'forgets' to protect the deposit and issue the prescribed information then YOU are responsible. You need to check that the tenants have the right to be in the UK. You need to provide smoke alarms (mandatory soon) and a CO detector. You need insurance for malicious damage, rent guarantee, legal expenses. You need to be on permanent call or at least have home emergency cover.

you can exclude some of the property from the let, tenants need to know this when they view.

expect a 3-4% gross return max before fixes.

oh, and all of mumsnet will hate you because it is an immoral business here. You'd be far better selling useless gadgets to the stupid, that is apparently ok.

[wowfudge]

As long as you are not peddling aloe vera products for Forever Living eh Special?

[specialsubject]

or overpriced baby food makers!

I sometimes think it is the 1950s on mumsnet, with the pride so many seem to take in being ignorant fools. Perhaps they think it helps to catch husbands.

time to investigate a pistonheads account!

[steppemum]

if it is your current house, you need to completely let go of the 'my house' view of it, and see it as 'the business house'. Don't leave anything in it that you aren't happy to see trashed. Look at decor etc through the eyes of a stranger. You will get better tenants if it is high spec, neutral and looks good.

[hereandtherex]

Personally, I would start by checking what the LHA rates are for an area.
Even if you are not planning on letting to DSS, the local housing rates do influence local rates.

LHA give you a better idea of what rent you'll achieve than some stupid letting agent. Personally, I would price low to make sure you get a good pool of potential tenants to chose from.

Fix the roof before you let out the property. I cannot believe it will be possible with sitting tenants.

[hereandtherex]

Oh, and you will be very lucky to get a BTL mortgage if you do not have another fully-paid for property for the BTL loan to lend against.

Despite the poof pieces, mots banks have dropped BTL. Those remaining are only willing when there is other equity to lend against.

[SauvignonPlonker]

And BTL mortgages insist that rental income is at least 125% of mortgage. You might be better going for permission to let from current lender?

Also to add that most lenders will not allow rental to housing benefit tenants.

In your shoes OP, I'd get a few rental market appraisals from various agents.

I would not consider self-managing as a 1st time LL. The pitfalls are huge & complying with the legislation is imperative.

[specialsubject]

even more good advice for you, OP!

[Cretaceous]

specialistsubject "a new law coming in soon also means you can't evict tenants if there is an unfixed problem with the property."
"You need to provide smoke alarms (mandatory soon)"

Do you have a link for this new legislation please? Thank you. (I'd also have assumed smoke alarms were already mandatory.)

[specialsubject]

smoke alarms become mandatory in all properties from October, although as they come under the heading of 'bleeding obvious' (and very cheap) you'd be nuts not to provide them regardless. I understand that if the property was built after 1992 they need to be mains powered with battery backup. Under building regs they should be there anyway for these new properties. You test the alarms at the start of the tenancy and it is then up to the tenant to test and report fault/fit new batteries as appropriate.

A CO alarm is also a very good idea.

re the 'revenge evictions' thing: here is the link to the relevant part of the deregulation bill, supposed to simplify (!!) legislation:

www.publications.parliament.uk/pa/bills/lbill/2014-2015/0095/lbill_2014-20150095_en_5.htm

the idea is that if a property is a dump and the tenant raises a complaint to the council, the landlord is forced to repair it rather than simply evicting the tenant and then renting to someone else. An eviction notice cannot be valid while the complaint is in force. Excellent idea in principle, although it is beyond me why someone would want to continue to rent a dump from a landlord who has to be forced to make repairs.

in practice; remains to be seen. I suspect that the (small number of) dodgy landlords will simply continue to ignore, and this also leaves decent landlords open to endless complaints being raised by (the small number of) dodgy tenants who don't want to go.

[specialsubject]

ps sorry, can't at present find a .gov link to the smoke alarms thing, but it has been flagged up in many places. Not an issue for me as my rental has had new smoke and CO alarms from day 1, as does my own house.

[Cretaceous]

Thank you for such a full answer. That's really interesting and helpful. Amazing the smoke alarms weren't already law really!

I guess at the end of the day, whatever legislation you have doesn't stop dodgy people - landlords or tenants.

[lastnightiwenttomanderley]

OP... our lender (fd) doesn't do BTL but does do consent to let if you've had the mortgage for a bit. They normally grant it for up to two years but then fsa rules (i think) mean you need to switch to BTL.

We manage ours ourselves but are reasonably savvy and don't live too far away so accept that we have to pop down there. Don't forget you'll still need buildings insurance, normally specialist landlord cover. We also have boiler/electric/water cover too for any emergencies. Boiler broke last Friday and was fixed on the Monday. As PP have said, you need to stop thinking of it as your 'home'.