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Advice for a first-time landlord(17 Posts)
Hi there. I've been offered a fab job in New Zealand and we are currently renovating our house in London to rent out for at least the first two years we are there (after this we will weigh up if we want to stay there or return home).
What advice would you give to a first time landlord? We are thinking that we will need a letting agent to handle the day to day stuff, since we won't be much use so far away in a completely different time zone. How do you go about choosing a good one? From my years of experience of renting, our best letting agent was a small independent one that always responded quickly to any problems.
What's the best way to approach switching mortgages? One of my friends who has experience of being a landlord advised me to not tell my provider and to continue on a regular mortgage. I'm not sure I'm comfortable with this - would it invalidate any landlord insurance? I understand an interest only mortgage is the usual way to go about this. Is there any value of continuing to pay off the capital of our mortgage too or letting the surplus rent accrue in a savings account? I haven't yet got my head around the tax implications.
On the topic of insurance, is it worth insuring our appliances? Some of them are reasonably new and Ao.com have been phoning me to ask if we want to take out policies on the dishwasher and washer dryer we bought from there.
I would be grateful for advice on these issues- and any others I haven't thought about! We have a bit of time before we emigrate but what with the home renovations and trying to fulfill my current work commitments, I'm looking for shortcuts to the best knowledge and figured there was a wealth of wisdom to tap into here! TIA
your friend is a complete dick. Letting out without informing the mortgage provider is a breach of conditions and could result in repossession.
with interest rates on saving negative in real terms, there's no point letting the excess (if there is any....) acrrue.
yes, you need an agent, and one who understands the overseas landlord tax rules. You'll need full management. You still remain responsible for everything.
you need insurance for buildings, contents, legal expenses, rent guarantee and malicious damage. A rogue can move in and pay nothing for the six months it takes to evict, while trashing the place.
don't bother insuring appliances. Basic ones cost around £150. Supply as few items as possible, what you supply is what you have to repair.
remove everything you value and dissociate from the house. Remember there may be CGT to pay when you sell it. Renovate for ease of maintenance - no wooden worktops that need oiling, carpet that you can replace after six years max, simple colours, everything working.
There are massive legal potholes - for instance, if you don't get evidence that a gas safe cert was provided at tenancy start you may never be able to evict, even if you want the place back. cocking up deposit protection also gets expensive. There are many others.
join a landlord association and get trained. Landlordzone is a good place to start.
Residential Landlord Association is a good organisation - belonging to it is tax deductible & worth every penny. They helped me through an eviction - telling me how to fill informs & what was required - you get phone call advice line! there is a forum & training courses & forms (forms & courses you have to pay for) plus monthly magazines - thye have up to date info essential for running the business.
DO NOT continue on with your regular mortgage. That is ridiculous advice
Do not go for the cheapest agent.
I think some small indies are great others are woeful, go with an ARLA/propertymark agent
You will be able to get a mortgage where you pay off as well as the interest, speak to knight frank finance they’ll sort you out.
You’ll need an EPC, EIRC and GSC and it’s prudent to get a PAT certificate too.
I use the agents I bought through to manage two properties that are too far away. They handle everything, though one is much better than the other. Both are large firms.
A decent agent will walk you through what you need. You have to have a certain EPC rating, gas cert, hard wired smoke detectors etc. Go around a few in the area and talk to them and get a feel if they offer what you are looking for.
It is your responsibility to deal with taxes - some agents will offer you a tax summary but it's not hard to do yourself.
You definitely need to tell your mortgage provider. they may ask you to convert to a buy to let mortgage which I believe is a higher rate. Pay off as much as you can ( generally up to 10% a year before penalties). I would do that rather than save.
In terms of smooth transition when you return, be clear with the agent/tenant on what condition you expect. Professional clean with steam clean of carpets and curtains at start of tenancy funded by you and the same by them at end? Are they permitted to put nails in walls (they'll have to be made good). Create a folder of appliance manuals and instructions. Details on current utilities suppliers in case tenant needs to continue with the same. Co2 detector if you have gas, to be placed near boiler and gas appliances. Fit doorstops to prevent handles damaging walls. Do you want to rent furnished, semi-furnished or unfurnished? Tenants generally like black out roller blinds/curtains in bedrooms. Consider locks and keys - fresh set of locks and enough keys for tenant and managing agent. I believe that you'll pay for an independent inventory report and the tenant pays for a check out report, but your agent will confirm that. If you have a garden, you might want to organise and pay for a gardener and include it in the rent.
you can 'expect' whatever condition you like but prepare to be disappointed.
tenants no longer pay for anything except rent, capped deposit and a couple of other minor items. Certainly not check in or check out. Illegal since June.
CO2 detector would just check if the tenants are breathing. CO detector is only mandatory for solid fuel appliances although good practice for gas. What is mandatory is gas safe and smoke alarms.
appliance manuals - leave copies only, don't risk the originals disappearing. Helpful to say which utility suppliers you use although anyone can find that out - tenants will have to take over accounts initially. Make sure you terminate your responsibility including council tax. Keep an eye on that - if the tenants disappear the council will come after you for the council tax regardless of whether you have access to the property.
see why you need training?
I had to ask permission from my mortgage provider which they gave. I am on a 5 year fix, if I'm still renting it out after that time I will have to remortgage onto a buy to let mortgage.
Thank you for all this valuable advice, its hugely helpful on my start to researching everything. I've started looking on the buy-to-let forums and it seems that the standard advice is to do up the property as cheaply as possible as you should expect it to get trashed by the tenants. Ours is a 4-bed house near to a popular school so we are expecting a family to rent it, and we know from our own kids that it's unlikely to stay in good condition! The dilemma we currently have is that we are renovating the bathroom and are unsure of how to prioritise spending. If we eventually move back to the house or sell, I don't think it's a good idea to put budget everything in. On the other hand if we do that it's more expensive to replace if it gets damaged by tenants. How do you approach this issue in your own properties?
The main living parts of the house aren't in pristine decorative order and we haven't got the funds to do a total overhaul before we leave. Would this be worth doing in-between tenancies as I think this is tax deductible (although please correct me if wrong).
My rental has a budget bathroom suite, the same as in my own house. Both are doing fine after six years. A bath is a bath and a bog is a bog, it is all in the installation.
what does concern me is that you can't afford a grand or so of painting. Present a smart house and you may get it back scruffy, but present a scruffy one and that signals 'don't give a toss' to your tenants.
have you got funds to replace a boiler? Cope with a void? Can you afford all those insurances? Tax deductible is tinkering round the edges.
That's a good point. Maybe we should get it repainted if we can stretch to that. The recent building work we've had done has exposed a damp problem so we're already having to find more funds to get that sorted. I'll see if I can shave some money from the bathroom work to pay for decorating.
Our boiler is 2 years old and I've done some basic sums and the likely rental income will more than cover the mortgage, plus letting agent plus a buffer for void tenancy. It's all these other costs I've got to get my head around. Plus I want decent tenants so tips on how to encourage that are most appreciated!
Recognise that being a landlord doesn't just involve receiving the rent, but involves significant costs so that you can provide the service tenants are paying for, plus it requires work and time too - some of that can be reduced by paying an agent to do some of the work, but you need to expect to still spend time on it.
So, you must expect to get the property up to standard to start with and to meet the regulations for EPC, Gas cert etc. Recognise that if you present a quality property you will get quality tenants more easily, but shabby attracts people who won't look after it.
Expect to fork out for repairs - a tenant is paying for the property to be fully maintained all the time. You can't decide not to bother with a repair or to take 3 days to call a workman as you might do if you live there yourself. They have paid for things to be repaired speedily......and doing that can cost quite a lot - you have to be willing to pay for that speedy service - it's not doing the tenant a favour and being nice or kind, it's simply what they have paid for. A good landlord is someone who meets all of their obligations quickly and and to a good standard - it's not about being friendly, but delivering what they have paid for.
Know there is no cutting corners and nipping off fast abroad. You need to fully familiarise yourself with the obligations of a LL even if you have an agent. You need to be willing to put time in from abroad and to ensure the agency do everything to a goodbye tankards suchbas inventories, regular checks etc and follow up any issues. You will have to check they do these things.
Do everything properly and by the book - get your mortgage transferred, ensure you keep records for tax, make sure all legal obligations are met, ensure all credit checks etc are done. Being a LL is a business transaction and not a hobby, so be prepared to put time and money in - it's not a quick and easy way to make money or to offload a property while you're away with no effort.
Realise that the property becomes the tenants home and they must be allowed to live in it as their home. That means, no harassing them or visiting or setting daft requirements about cleaning etc. However, do insisit the agency carry out regular early inspections so that if the tenants aren't maintaining the property and more than wear and tear is occurring, they can follow it up and if necessary serve notice. It is at the end of the tenancy that you can recover any damages carried out which go beyond wear and tear. Know that at the end of a tenancy, fair wear and tear cannot be claimed for - so carpets being rather worn, or a few scuffs on the wall are to be expected and part of the LLs maintenance costs, not to be funded from tenant deposit. More serious actual damage can be claimed but deposits are small these days - so if there are early signs of damage to property or non payment of rent, do be prepared to serve notice in accordance with the law, rather than letting tenancies drag on. Expect to have to spend money between tenants - decorating is needed more regularly in rentals and often between each tenant. Carpets might need replacing every 3-5 years and you'd expect to spend on kitchens and bathrooms every 5 years. It's no good feeling cross about these costs but you must expect them as part of the business costs and ensure you can pay them. Don't rely on an agency being able to tell you exactly what needs doing being lets.
So, top tip, realise it will involve work, there is no skipping off abroad to leave the property to rake in the cash while you ignore it. People who pay are paying for a service and it is your responsibility to provide a well maintained property and ensure any defects are sorted in a very speedy fashion, regardless of cost to yourself. And don't get into it if you aren't really prepared to do it properly - why should someone pay for a home and then receive a shoddy quality because you are abroad - quite where you are isn't their concern, but they should be able to receive the full service they have paid for regardless.
yes, give people a decent place and decent people (which most are) will be happy and treat it well. But remember wear and tear; if you haven't set eyes on a house in a couple of years it will look different!
get quotes for all those insurances and make sure they are watertight. Sounds like your expected tenants won't be those moving on to the council list, but if they are they have to wait until eviction. you pay for that, they are liable but this is never enforced.
bathroom needs shower screen not curtain and ideally panels not tiles with grout. Floor should be vinyl, extractor fan should be connected to the light and go off when it does. (if it runs on it annoys people and they disconnect it)
kitchen should also have an extractor fan, not a recirculating hood.
budget for a boiler service (not just a gas safe cert, service it). Electric checks aren't compulsory but are a good idea. Everything needs to work smoothly - no trick door locks or wobbly gates. Do not expect any gardening to be done, especially not if you've got parents with a young family.
you want non-smokers (not 'I only smoke outside', you can't enforce that), people without dogs (bark bark chew chew chew excrete) and people who have run a home before and know that if something beyond lightbulbs or cleaning goes wrong, they need to contact you. Remember you cannot charge a higher deposit for pets now.
your agent will have a book of expensive tradesmen, but if you are in NZ you've got no choice. Have a serious chat with them about costs and spending limits. Ask them about their check-in and referencing procedures; there are a raft of things that you need evidence that the tenant was given.
also be aware that both Liberal and Labour manifestos contain a promise to abolish the CGT allowance. If this happens, and you sell this place once it has been tenanted you will have a very, very big bill if it has gained any value. Letting relief is going whoever gets in.
don't forget any storage costs for your stuff - realistically it isn't worth paying for storage for more than six months as you may as well buy again if you do that.
Thank you for your considered replies. Lots to think about and I completely take the point about this being a business venture that requires time and energy. Last question is we have an outbuilding in our garden which has electrical power and we use it to store stuff and run an extra freezer. We are shipping our furniture out to NZ but I wondered whether we were obliged to give tenants access to this? If so, we need to replace the roof which has mould, which is another thing to add to the budget. There is also a smaller shed to keep garden tools and bikes in, if that makes any difference.
Really, it’s about realising that the problems in a home you own and live in, which you just accept and live with, for months or years, are not acceptable in rental which someone is paying for.
It has to be of a good standard at the start and it has to be maintained during tenancy. Lots of ‘accidental landlords’ (which tenants often say are worst landlords) think they can just move out and move on, leaving the property as they lived in it for tenants...it was good enough for us, so it is more than good enough for tenants mentality. They think they are doing the tenants a favour by letting them live in their beloved family home. They see any requests for repair or maintenance as too demanding and costly, rather than all part of the costs of the business.
Do make sure you have an agent who will provide 24/7 contact and emergency repairs and guarantee workmen in attendance for non emergencies in a quick timeframe. Accept these might cost an eye watering amount as the agent adds on commission each time, but it’s unavoidable if you’re abroad.
It may take longer and cost more than you think to get the property ready for the rental market. Research local market prices thoroughly and don’t be greedy. Be realistic about tour house compared to the competition in terms of space, quality of fittings and newness and transport links. Better to get £50-100 less per month than voids which lose a months rent just like that.
Be careful about tenants. Insist the agency tells you about prospective tenants and you have the final say. Have all the credit checks done and ask for 2 references. Speak to them yourself to gauge them. Look out for red flags like saying they can’t afford things or wanting hefty discounts. Ask them about longer term intentions to see if they are just passing through - some role perfectly reasonably just are. Insist the agent inspects at 1 month and again at 3 months if there were concerns or 6 months if not. Insist on detailed comments about state of property - you can not enforce cleaning during tenancy and you need to let tenants choose their own housekeeping pattern (which might not meet your standard) but if an inspection reveals zero cleaning is happening or damage you want to know and want agency to remind tenants that on return only fair wear and tear is acceptable or there are charges. Plus if there is zero cleaning or damage, give the appropriate legal notice right away. Expect to lose money to damage or unpaid rent sometimes.
wise words above. There are some rogue tenant tricks which your agent should know about; the nice couple who present to rent but the drug dealers or 5 un-related people that move in (creating an HMO and getting you in trouble), the six months in advance payers who may also be rogues and doubtless many others that I don't know about.
as for the shed - you can exclude parts of the property from the tenancy as long as it is made very clear at viewing. No guarantees they won't go in, of course!