Tips / checklists for becoming a landlord(35 Posts)
After months of uncertainty and buyers pulling out we've finally decided we're renting our flat out, withdrawing equity etc to fund onwards purchase.
We'll prob just do this for a couple of years then sell, but may end up keeping it longer term.
We have tenants lined up - our next door neighbours who are lovely, responsible, trustworthy people.
My question is what are the million and one things we need to do/know about being a landlord. Specific questions include:
Do we need to get landlords insurance?
Do we need any paperwork beyond gas and electricity safety certificates?
Is there a deposit protection scheme which is better than the rest for individuals who own one property to rent? And if our tenants pay us the deposit a bit late (they've asked if we mind waiting until they get their current place deposit back, we don't ) is it a problem if we only pay the deposit in say 2 weeks after they move in?
I read you can reduce your tax liability by including council tax and water plus utilities in the rent, then they're tax deductible expenses. I'd like to do this then split the saving with our tenants. For council tax and water it is easy, we're both (only just) 40% tax payers so I'd add 80% of the bill cost onto the rent and charge that each month - we effectively share the 40% saving. For gas/electric this is harder. I don't want to pre-guess their usage then be on their backs about them using more heating than we estimated so could we pay the bills each month and separately charge them 80% of the total, or is this over the line in terms of breaking rules? Their bills are high so a 20% saving for them would be really good and worth trying to make.
There are various minor bits of painting they'd like to do, they have a decorator friend (who I know - he's very trustworthy too) who they'd pay to do this. Is it worth waiting until they move in and then I pay for the work and they pay me back 60% of the cost because again it's tax deductible? Would I need to wait until they move in to do it this way?
Ditto dishwasher- it's ok but I'd rather replace it for them as I don't want them cursing the one cycle in 5 it doesn't wash properly. Should I wait until they move in to do this as it'll be tax deductible? DP can pop round and do the install...
I really don't want to be too close to any legal lines here, but given they're our good friends and we trust them fully I'm happy to do whatever we can to reduce costs for all of us within the law.
I will be getting a tenancy agreement signed with them, is it an assured shorthand I need?
Any advice gratefully received
though please no advice about not mixing friendship with landlord business, we're fully aware of the risks and are happy to take them as we'd trust these people with our lives
Your first question is terrifying . please go speak to at least one reputable agent.
Why is it terrifying? We already have buildings insurance, we'll discuss contents insurance with our tenants, we will get all the necessary certs re safety etc. We are comfortable with them being able to pay rent every week.
Why do we need landlords insurance? I gather it us not a legal requirement so what are the pros and cons of getting it?
We are doing this without an estate agent, it's not happening for 3 months, so I have plenty if time to read and understand and plan. Hence why I'm here asking questions.
I'd rather pass the EA management fees saving onto some good friends instead of paying a company to do this for me and then only being able to afford richer strangers.
Helpful advice on what ducks we need to get lined up to do this properly please- I'd appreciate your view on why ll insurance is presumably so important so I can work out the best way to ensure we're all safe and covered on those points
Yes to landlord insurance. Ensure that it covers periods when tenant defaults on paying the rent. It might even cover rent between old and new tenants? You can get lots of useful information on MSE on this.
As for the deposit, I don't think there is much difference between the 3 bodies. I believe that you have to have put their deposit in one of the schemes within a certain period (I think 21 days but not sure) for it be valid.
I know you said not to say anything with regards to this but at least have a plan of action in place if the problem arose. How would you handle the case if they defaulted on the rent? Do you need their rent money to pay the mortgage? This could have a big impact on how you handle things if say one of them lost their job; and you, being a good friend, might cut them some slack at the detriment of you struggling to pay the mortgage. And how about when you serve them the S21? Will they move out when you need them to?
As for the dishwasher, our last landlord just left the old one in for us. It worked most of the time. I was just pleased to have one in the first place. The fridge broke down and landlord replaced it within 1 week. What I am trying to say is that whatever appliance you provide, you are expected to replace if it's faulty as they would have accepted the tenancy with it.
As for the contract, check out this website for more information on which type of contract.
your current buildings and contents insurance is COMPLETELY INVALID if you are not living there. There have been cases (including one on here) where the tenant burnt the house down (accidentally, like it matters) and because the owner had not changed the insurance, she was uninsured. Goodbye house, or in your case, goodbye entire building. You will also not be covered for anything else. Bath left running and ceiling down? Too bad. Burglary? Too bad.
you need landlords contents insurance for carpets, curtains and anything you leave there. They get contents insurance for their possessions.
NOW do you get why I find your lack of knowledge terrifying?
your landlord insurances need to include; malicious damage (yes, I know these are your good friends but who else might come in?), legal expenses (yes, I know these are your good friends but what if they decide not to leave at the end), home emergency cover (you being on holiday is no reason not to fix their boiler) and rent guarantee if you cannot cover the mortgage if they stop paying.
you need a full independent inventory.
if you have a mortgage you also need to get permission to let from the mortgage company. If you don't, you are committing mortgage fraud and could be repossesed. The mortgage may have to be converted to a buy to let. You may also need permission from the freeholder as it is a flat.
there are several other things you need to do to ensure that you can evict these people if they choose not to leave. Fail on any of them and your eviction will be thrown out. Yes, you hope it would never happen (and mostly it doesn't) but if it does YOU will suffer financially.
do not fart around at the edges by including the bills and council tax in the rent. The saving is trivial and the liability enormous. Your tax liability for these is really the least of your concerns.
protect the deposit (if you get it...) immediately you have it. Remember the PI must be supplied and signed for.
special thanks for all the extra info - I will discuss each of your points with DP tonight and will look into each one to see what we need to do.
Mortgage is not an issue - as I said in OP we're withdrawing equity to fund onward purchase and it will convert to a BTL (LTB?) mortgage, all that is sorted.
I will again repeat that this is happening in 3 months time and I don't know everything yet which is why I am on MN asking for advice. I'm not about to do this tomorrow.
I am not trying to become a landlord unprepared, I am drawing up a sensible list of things I don't know and taking active steps to find out about them in plenty of time, therefore I don't think it is terrifying I don't know all the answers yet: surely it's sensible that I'm finding out with plenty of time to make all necessary arrangements.
To answer specific questions (good for me to make a note of them here, not trying to 'justify' myself, just notemaking):
I am not remotely fussed about the carpet etc - if they trash it (which they won't - we've lived next door and visited each others houses for 6 years, they look after theirs very well and actually borrow a carpet washer off another friend every year and cleaned my carpets for me recently) we will just buy another one. It's only a couple of hundred pounds.
We won't leave much furniture behind, nothing we care about getting broken. And malicious damage really not necessary. They don't socialise much and all their friends are known to me and are decent people. I'm happy to take that risk on myself. But thanks for flagging it.
Really good to know my buildings insurance is not valid with tenants - I didn't know that, I do now, so I'll look into making the necessary changes.
Legal fee insurance. Interesting. I'll look into this - how much it would reasonably be expected to cost if we had to evict through legal processes vs how much we'd be paying every month to insure against this.
Home emergency cover - again we'll think about this, but I'm tempted to agree with them that any real emergencies they sort themselves and we'll pay them back. We've already discussed them putting some money per month to one side to pay for small repairs (i.e. we ask for £50pm less rent and they save this up and use it then keep whatever they don't need to spend / we cover any big expenses beyond this). Our boiler is within guarantee, might look into emergency plumbing cover though.
I can cover the mortgage indefinitely (2 years isn't a problem, probably more) if they stop paying so no need to insure against that. I'll just evict and sell the flat.
Freeholder permissions I'm aware of and will get onto ASAP. Thankfully freeholder is a fairly decent human, not a company.
Independent inventory - do we need this? Why not just a bunch of photos and a written statement detailing issues which we both sign? I'm genuinely interested why we need to pay a company to do exactly this.
I see no reason not to do the bill thing for CT/water. Every fart around saves a few quid so why not?! I'm interested in the legality of the utilities though so grateful for any info if anyone knows about this aspect. I know they haven't switched supplier for about 6 years so are clearly on a much-too-high tariff, so if I just added 80% of last yr's fuel cost onto the rent and switched supplier for them then I'm sure the actual bills would be significantly lower than I'm charging and I could refund them the difference. I just don't want to do anything illegal.
You don't need an independent inventory. I'm a letting agent.
You cannot claim tax relief on utility bills if you get the money back from the tenants. Speak to a qualified accountant. (Their bill can be offset against your rental profit for tax purposes.)
Treat it as a business. Join a landlord association. Remember that letting agents (if you choose to use one) don't have to have any qualifications to set up business, legal or otherwise.
Helpful forums to join are the MSE Housing board and the landlordzone forum.
Letting Agents have to be affiliated to a recognised body now & so have to be 'qualified'.
My landlady joined Residential landlords association. Small fee. Provided lots of templates and advice etc.
As a landlord of 2 flats myself I fail to see why you would pay the council tax and utilities and then pass some on to the tenants. They should be liable for the council tax and utilities whilst they are tenants. You don't remain liable for the periods they are in occupation so let them sort that out.
Why would you pay someone else's utility bills?
toofar that's interesting. Does this apply to existing businesses as well as new entrants? It still sets the minimum level of expertise required at a painfully low threshold IMO, but better than nothing at all.
Here I think she is trying to save on income tax by declaring the utilities as expenses incurred for the purpose of letting, while still getting the money back from the tenants. I think it's a terrible idea because:
a) the tenants won't have any incentive to keep their bills low
b) the tenants may want to choose their own providers
c) the tenants remain liable for council tax even if you say you'll pay it
d) HMRC aren't that stupid (I hope)
Here I think she is trying to save on income tax by declaring the utilities as expenses incurred for the purpose of letting, while still getting the money back from the tenants. Terrible idea. As a tenant I wouldn't agree to this.
Sorry, no idea why first unedited version got posted. I'm on the app and it's having problems.
I let my house to two tenants (unrelated) with all bills included/fully furnished. It is set up like a holiday let so they have everything including broadband. It means they pay more for this level of service as I charge to cover their bills plus a contingency if they use a lot. It does mean they use more but I read the meters every time I go there, so can't get too out of hand.
I recruited them from spareroom so no costs and no agency costs. They were both new to the country and i gave them time to open bank accounts etc at the start and settling in tips. They are both very nice and have very good jobs, both male and now really get on well together. So far it has worked out well. Initially I was using one of the rooms and so got to know my first tenant, when I decided to let out the other room I picked someone who looked as though they would get on with first tenant and my matching worked!
I go there about every 3/4 weeks and weed the garden and used to do a clean then too but they are so clean there isn't really anything for me to do. We usually have coffee and a chat when I come (though they are usually at work when I go and then I call back in the evening to say hi)
So this type of arrangement can work, though in my case they don't have any sight of the bills they just pay all inclusive. I think some of op suggestions for sharing bills and repair funds sound rather complicated but then I have gone for a very straighforward rent all in arrangement.
Thanks also to notyetthere, toofar, awake, hereiam, snowspider for views. I really appreciate the time to post replies.
I'll look into joining the RLA - might be worth it to have an association on my side just in case of the worst case scenario.
Awake I'm interested why you wouldn't agree to a legal structure which saved both of us money. I can see why some posters think this isn't wise as I'd be liable etc etc. This is something DP and I will think about, but I don't have any concerns from the trust point of view. However why wouldn't a tenant want to save a couple of hundred pounds a year from someone they trust?
RLA are good. I use them even though I own a letting agency. Free legal advice on 'technicalities'.
NoPlan I wouldn't agree to it because I wouldn't be convinced it saves me money. As a LL you can only offset against profit if you do an all inclusive let, independent of the tenants' actual usage, like snowspider does. Hence you would have to factor in a contingency. As a tenant I'd feel I'm better off choosing the cheapest supplier myself, being in control of my own bills and usage.
I'd only agree to it if the inclusive rent was quite low, or if the property is poorly insulated and I want to be insured against high heating costs (but only if the contract prevented the landlord from unilaterally increasing charges related to utilities).
A landlord who doesn't want the council tax bill put in the tenants' name always makes me think they have something to hide (from HMRC for example). Quite apart from the fact that many places require customers to show council tax or utility bills as proof of address (mobile phone providers etc.).
As a tenant, I wouldn't like it, but I also think it's madness to do this as a landlord. Let your tenants sort out their own utility bills.
Home emergency cover - again we'll think about this, but I'm tempted to agree with them that any real emergencies they sort themselves and we'll pay them back. We've already discussed them putting some money per month to one side to pay for small repairs (i.e. we ask for £50pm less rent and they save this up and use it then keep whatever they don't need to spend / we cover any big expenses beyond this).
Don't do this. I know somebody that let from a friend and this was part of the agreement. They havent saved a penny.
There is nothing wrong with claiming utilities paid as part of your tax relief, perfectly legal. However it won't save you any money as you need to declare both the income and the expense. I do this for my tenants as it was part of our agreement but as I don't make any profit on it the net effect is zero. You are proposing making a loss on it which will lower your tax bill but only because it will lower your net income! You are only taxed on profit so say for example you have an expense of £100 but charge your tenant £80. So the tax on your income would be £40 at 40% less the tax on your expense £32 giving £8 total tax to be offset against the rest of your bill but you have already lost £20 (the saving passed on to your tenant) So you are £12 out of pocket overall.
Lurking on this thread as we might be doing this soon. Is there a comprehensive checklist or idiots guide?
wow, this got busy while I was shopping...
OP, very glad you have taken on board the biggest risk, not having landlords insurance, and that you are also going to convert to a BTL mortgage (what will that cost? Are you ready for the new tax rules) But I still have major concerns.
you are putting yourself at the mercy of these people. I'm sure they are lovely - but that can change. What if they split up and the brains of the operation moves out? (Happened with my tenants; the mess when the second one left was something else...) What if one of them gets ill or develops an addiction? What if one of them dies and the other cannot pay? You would hope for none of these things; but if they happen YOU get the hit.
'just evicting' can take months and cost thousands; they can move in and not pay a penny and you can do NOTHING for six months. I've been quoted £2k for a straightforward version of the process, given that you need the court, orders and bailiffs. Get anything wrong and you go back to the beginning. That includes not being able to prove that you gave the tenant all the right docs; EPC, gas safe, signed tenancy, how to rent document etc etc.
legal fee cover varies with rent, and your tenants will need to be credit checked and referenced for it. Oh, and don't forget to do the 'right to rent' check; £3k fine for you if you don't.
If you have to worry about 'a few quid' you can't afford to be a landlord.
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