Considering becoming an unintentional landlord

[MeanMrMustardSeed]

A family flat sale has just fallen through for the third time. However, the rental market is buoyant here and DH and I are considering taking on the flat and becoming landlords.

Agents have said they charge 11% +VAT. I’ve also thought of insurance. It’s in a purpose built block of flats. I haven’t even checked who would pay the service charge.

Is there anything else I haven’t considered?

No such thing as an "unintentional" landlord or "accidental" landlord.

Came here to say the same as @readytosell but they’ve beat me to it.

But to add to considerations

• Set aside at least 20% of the rental income for maintenance, repairs and renovations (ie carpet replacement should be every 5-7yrs)
• Look into starting a Ltd company to own and rent flat, it’s apparently much cheaper tax wise and as it’s a family’s flat, you don’t want to be personally responsible for all expenses and liabilities

Will your mortgage let you? I have to pay my mortgage company 1 month mortgage payment as permission to let as I have a residential mortgage not buy to let.

Pay someone to manage it for you - it’s a nightmare otherwise!

Do not forgot to do your tax return!

You would pay service charge
You’d need a gas cert, an EICR, a PAT cert.
I’d personally get a good agent to manage it if you’re very inexperienced in this area. The law changes every 5 minutes and it’s easy to end up in breach of new regulations and legislation.
Check the tax implications
If you did want to sell do consider how difficult this could make it in the future.

Thanks. I appreciate the replies. Flat has been empty for nearly a year now and we really need to get in a position where we sell it or make money from it to cover the bills. Will check mortgage implications.

I appreciate that it wouldn’t be completely unintentional, but equally, we don’t want this property and three times have had the sale fall through. Most recently at the 11th hour. It’s hard selling flats right now.

Tax is the major thing you haven't mentioned. Most tax loopholes/exemptions for rentals are now closed and so you should factor in paying 20% tax (40% if you/DH are higher rate taxpayers) on all the rental income. This can knock a considerable amount off your profit.

As others have said, allow 10% ish for agents fees and 20% for maintenance. I'd always make sure I have 6 -9 months of mortgage payments and service charge/bills readily available in case of void periods or tenants deciding not to pay any more.

If it's got a regular residential mortgage on it at the moment you'll need to convert that to a BTL product normally which will probably come with admin fees (although call your bank, some will let you rent it out short term without changing the mortgage). Also you say it's a 'family' flat, if this means there's a change of ownership required and the mortgage is currently in someone else's name, that sounds complicated so budget enough for proper solicitors to sort that out properly...

Thank you so much @maxelly, I’m grateful you’ve taken the time to write so fully about it. At the moment I’m a SAHP with no income. Would I still pay tax?
(I know I need to look all this up, it’s just the sale only fell through this morning so I’m exploring options and said to DH I’d ask for any thoughts as we might not consider something v important!)

However, the rental market is buoyant here and DH and I are considering taking on the flat and becoming landlords.

So not unintentional at all then, very much a conscious decision.

Ah, in that case potentially not, although it depends on (a) how much the income is, will it take you over your personal annual tax allowance and (b) who owns the flat and receives the income, if it's joint with your DH who does pay tax for instance that could still mean you have to pay something. Either way you'll likely have to do an annual tax return. It's a complicated area and the rules do change quite frequently so you may want to take proper tax advice from an accountant!

There’s never a shortage of people on Mumsnet willing to advise you on the benefits you’re “entitled” to, but dare to mention you’re a stay at home parent or retiree who might be able to earn a £10k a year by wisely investing your hard-earned cash, and you’re the scum of the earth.

but dare to mention you’re a stay at home parent or retiree who might be able to earn a £10k a year by wisely investing your hard-earned cash, and you’re the scum of the earth.

Oh, where are those posters? Are they here on this thread?

I rent my house out because it was in negative equity and I couldn’t sell it. I hope I’m a good landlord - use a good management company, all sorted ASAP, don’t increase the rent. But I do make a loss on it every month and then every year. In fact, last year I lost so much money on it my tax liability was nil (still needed to fill in a tax return though! Don’t forget).

It’s fine, but it’s not always a (short term) money maker!

There's lots of information online. A decent agent should ensure you don't fall foul of any rules.
It's not rocket science and you won't make a fortune. But it's a much better return than money in the bank. Plus if you're decent people and meet your responsibilities there's nothing wrong in being a landlord. A home for someone is better use of the property than it standing empty.
You have to think of it as a long term investment, some times it will do better than others. It will cost you money to maintain and occasionally you may have a dud tenant or periods when it's not let.

Can you afford to replace a broken down boiler with no notice? If not, don't do it. Being a landlord is taking on responsibility for someone else's home, and it's not fair to potential tenants to get into it without the means to do it properly. It's one thing to put up with unresolved maintenance issues in your own home while you save up for repairs, but it's totally different to be taking cold showers when you're handing over hundreds of pounds a month to a landlord who's ultimately making a profit out of you.

You should also be aware that while the agents take a management fee from you, everything they do is in your name and you are responsible. So for example if the agent makes a mistake in protecting a deposit, it's you who can be taken to court for 3 times its value.

If I sound huffy it's because in my renting days I gave too much of my hard earned cash to people who thought they could make an easy profit and didn't know what they were doing and I am in fact still huffy about it. Don't be like them!

Just remember even if you use an agent, you are still liable/responsible for making sure things like gas certs are done.

I think generally you need the plan for the worst - do you have an emergency fund if the boiler breaks down in the middle of winter? What if multiple white goods fail in the same month? What if your tenants turn out to be nightmares who trash the place and refuse to leave?

Essentially don't think of yourself as an accidental landlord, think of yourself as starting a business which has a good chance of success, but potentially could cost a lot if the worst happens!

Ask over on MSE. The general consensus is do not do it if it’ll cause you hardship if you got no rent for a year. Evictions at the moment are the slowest they’ve ever been and it’s always a risk. You will need to fill in a tax return, if it’s jointly owned and your DH works he will be taxed on his half even if your half keeps you under the personal allowance. You will need to get gas and electric safety checks and certs, in Wales you are also responsible for telling the water board when a tenant moves in or you’re liable for the water too. Landlord insurance, repairs, management, and just plain old hassle would put me off ever doing it again. (We rented DHs old house out for a year but found it too stressful!)

We rented our house out for several years. We used agents.
I didn't pay tax as I wasn't working and our profit was under the tax threshold.

You need to be very clear on your legal responsibilities a decent agency will assist with this.

Tenants have more rights than landlords in most cases.
Vet your tenants very carefully, it is very difficult to get bad tenants out and good tenants are worth their weight in gold.

You do need to think about funding emergency repairs because tenants need repairs done very swiftly.

I was an unintentional landlord when I had to take over the reins of dad’s two rental properties when he got dementia. I am now fully intentional, it is the only way as there are so many potential traps for a landlord ( falling foul of the many regulations and being ordered to pay compensation/ ending up with tenants who are very hard to evict being 2 big risks). You will need:
To protect the deposit with a government accredited scheme within 28 days
To inform the tenant of their rights with the appropriate government leaflet within 28 days
Gas safety certificate yearly
Complete electrical inspection every 5 years

EPC every 5 years
Required alarms ( heat/ smoke/ carbon monoxide)
Landlord insurance
Desirable:
British Gas insurance or similar in case boiler packs up ( when they do it’s usually in winter)
Membership of NRLA
Obviously do tax returns yearly. You say it’s a family flat. Is it co owned with other family members? If so rent and tax sharing will have to be negotiated. It is intense at first, there are moments of frustration ( often at the beginning of a tenancy when tenant discovers issues they are unhappy with and you have to mentally sort what is reasonable for you to action and what isn’t) but unless you’re unlucky there should also be quieter times when the tenancy just ticks over.

Thank you for all the replies, I really appreciate everyone’s input.

It’s a lot to think through, and DH and I will consider the options over the next few days. It does seem like a high risk. It could be a great way to make the flat ‘work’ after sitting empty for so long, or could be a complete nightmare!

It’s a great little flat; modern, no gas, purpose-built and low maintenance, so we feel we’d be able to maintain it to the highest standards very easily. Like most people, we rented for years in our younger days and would be committed to being good landlords.

I need to look into the tax situation more. It sounds like it might be a good idea for me to own it (it’s in my family at the moment after a sudden death of a parent, which has been awful to deal with) and get an income from it.

Speaking from personal experience (and as someone who has been a very good landlord), it’s a total pain in the arse. I’ve had enough, I’m selling and taking the loss. But your mileage may differ. Just go into it with your eyes open about the amount of work, and you’ll need cash reserves for repairs etc.

One tip I will give - it’s more important to keep good tenants than to increase the rent each year.

That's the advice I was given too. By someone who both owned and let property and was a land agent.
My previous tenant was in for 4 years and I didn't raise the rent once.

I would say that ultimately it can be rewarding to create a well maintained home for someone and be a good landlord while making it work for you financially. But you need to educate yourself relentlessly ( landlordzone forum is useful) and be prepared to be tough ( with agents/ tenants where necessary and definitely tradesmen) when the occasion demands it.

Is there anything else I haven’t considered?
Morality.

@burritofan multiple sales have fallen through and people still need to rent.