Tips / checklists for becoming a landlord

[NoPlanYet]

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

[Qwebec]

Be carful, I know quite a few LL's nd none would accept to rent to friends. The risk of things turning sour are too high. It's fine is you choose to do it, but keep in mind this is a buisiness transaction and protect yourself in the same way you would if you did not know the tenants. I know someone who had the same tenant for 25y. He always payed on time, was friendly and clean, the perfect tenant. After a messy divorce, he lost custody of his DD and it spiraled from there. He lost his job, started drinking, being theree for so long the LL left him some slack. After 3 months with our rent being paid she went to visit. To make a long story short, he starved himself to death. The flat was totally trashed, drains blocked and all. Costed 25 000$ to repair. This is unlikely to happen to you, but it's just to say that you never know what can happen to people (MH issues, loss) and your relasionship with them.

Silly things can ruin a friendship. I would be v wary of renting to friend. If I did it I would make the agreement as simple as possible to minimise risks of friction. So no we save you save, no splitting of bills. I would also agree in advance the % of rent increase, what happens if the rent is not payed on time and all that.

[bialystockandbloom]

special I'm sure that's the case, particularly for contents insurance. And as I said, with me it may be because the (buildings) insurance policy is for the freehold company, rather than my individual property.

[bialystockandbloom]

OP also to add, wrt deposit scheme - make sure you use govt approved scheme. There are generally two types -those that insure the deposit for you but don't keep it (so you need to insure you have the amount to refund at the end of the tenancy), and the type that insures and also keeps the funds on your behalf (a safer bet if you worry you may not have funds to refund at short notice if eg they end tenancy earlier than planned).

[StealthPolarBear]

Thank you for the suggestions

[specialsubject]

ok, perhaps there are flexible policies. But every home insurance policy I have EVER had for where I live asks who lives there.

never lived in a flat and not in London, though.

[HelenF35]

Landlord zone is a good website. Lots of knowledgable people in the forums.

[bialystockandbloom]

specialsubject you don't always necessarily need LL insurance. I'm a LL and have existing buildings/contents insurance which covers everything other than loss of rent ( fwiw, in 8 years I've never had this, though it's in central London so easy to let). The property is freehold though, so the insurance is the main freeholder policy - perhaps that's why.

But anyway just pointing out its not always the case that an existing policy doesn't cover you. Just need to check with your insurer.

[StealthPolarBear]

Bump for any other suggestions

[StealthPolarBear]

Ok poor choice of wording. I suppose the problem is I don't know what I don't know. I'd like a list of "have you considered. ..?"
I can then go and read up on the details but I won't know to do it unless I happen to stumble across a mention of it, or someome mentions it to me during the process.

[specialsubject]

no, there isn't an idiots guide, same as there isn't when you start any business.

plenty of reading material around both online and in the good 'ol library. Keep up with legislation changes.

[specialsubject]

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.

[StealthPolarBear]

Lurking on this thread as we might be doing this soon. Is there a comprehensive checklist or idiots guide?

[HelenF35]

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.

[99percentchocolate]

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.
Get cover.

[AwakeCantSleep]

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.

[toofarfromcivilisation]

RLA are good. I use them even though I own a letting agency. Free legal advice on 'technicalities'.

[NoPlanYet]

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?

[NoPlanYet]

Avoid what forever?

[snowspider]

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.

[foreverandalways]

Avoid at all costs!!!

[AwakeCantSleep]

Sorry, no idea why first unedited version got posted. I'm on the app and it's having problems.

[AwakeCantSleep]

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.

[AwakeCantSleep]

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)

[AwakeCantSleep]

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.

[HereIAm20]

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?