Moving in with partner - I want to rent out my house out

[Zeebs27]

A bit of background info - I live in Scotland, will be moving in with my partner soon, we are both home owners. An idea is to rent out my house, live in his house for 2-3 years together and then purchase a place together (potentially also keeping both of our properties to rent out if we can afford it). I have approx £45k equity in my house and an outstanding mortgage of approx £100k.

Does anyone have any advice for being a first time landlord in Scotland? Is there anything I should know? Would you recommend using a letting agent to manage the property (rough idea of costs involved).

Is renting out my house the best option or would I be best selling and keeping hold of the equity until me and my OH purchase together?

Would your house require much work to get it into a rentable condition, eg would it need new carpets, any big repairs, damp areas fixing etc as you’ll need to factor that hassle / expense in.

Need to pay for gas / electric safety certificates and landlords insurance - not a huge outlay but a cost to consider.

I sold my house rather than renting out because it had a lot of little issues that I put up with when living there, but ones i’d be expected to rectify and fix if I was the landlord. I didn’t want the hassle. It was a very old house that needed regular upkeep.

I have subsequently got a buy to let. I’d recommend an agent - they take out a lot of the hassle of vetting tenants, dealing with any issues etc. They will be able to advise on local contractors for any jobs that need doing. You can expect to pay between 7-10% of the income to them, but I think worth it. If anything goes wrong with the tenants you need someone on your side with an understanding of the law etc, and if your tenants leave they have all the advertising powers behind them to get new ones in quickly.

Do your sums in terms of how much income you’ll make vs your costs, and factor in that you will have to change your mortgage from a standard one to a buy-to-let mortgage I think, and pay tax on the income. It can be quite a bit of work being a landlord and not everyone wants that responsibility. If you are lucky enough to get some good stable tenants who settle in the house and pay on time, the income can be very helpful.

Thanks so much for your response.

The house is only a few years old and was painted last year. I could probably do with getting new carpets though.

I’ll need to look in to a buy to let mortgage, I’m hoping the rates etc aren’t much more than my normal mortgage.

I think I’ll contact some local letting agents to discuss rental income opportunity and their fees. That’ll allow me to work out how much money I may make after tax, fees, insurance etc etc. Thanks!

Definitely use a letting agent if you are new to letting. Scotland has lots of legislation about renting & there are also criteria for lending (eg rental income should be 125% of mortgage payment, must have at least 20-25% deposit etc).

Where is Scotland are you?

How much time do you have to manage it?
If you work full time I would use an agent, but they do take a big chunk, so it makes it less of a good investment.
You can get an agent to do the sourcing tenant, and move in Paperwork, and then do yourself from there, but you will need to research what is required (I am in England).
I wouldn't replace the carpets now, unless they are damaged as there is a good chance they will need replacing after 1st tenant. You could hire a carpet cleaning machine and clean them though.
Generally letting housing is a good investment.

You will need to ask your lender's permission to rent it out.

You will need landlords insurance, gas and electric certificates.

Please also research the tax implications before you take the plunge. You will be taxed on the rent you charge (less agents's fees, expenses mentioned above and any maintenance) but not mortgage payments. So this means even though you are not gaining any money (as it goes into the mortgage), you will be paying more tax. This means it will cost you disposable income.

I am in South Lanarkshire.

The carpets are about 6 years old however are generally good condition so I will consider just hiring a carpet cleaner. The rental income would definitely be over 125% of the mortgage payment and my LTV is higher than 20-25% so I’m fine there.

I work full time but my work is very flexible and only 5 mins away from the property so I will consider potentially managing it myself if I can get a letting agent to source a tenant. This is something I’ll look in to

ItsReallyOnlyMe, is there anywhere you’d recommend that I look up the tax implications please? From what you’re saying, if for example I was to charge say £800 rent, my mortgage payment is £350, and say my fees, maintenance, insurance etc come to a total of £200 a month (total guess!!) I’d need to pay tax on the £600 per month, is that correct?

I really am so new to this, I’ve always been salaried through a company so definitely need to learn a lot about the tax side of things. I’m not planning on making a final decision on this for at least another 6 months so I’ve got plenty of time to learn!

@Zeebs27

www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

Yes - in the scenario you mention you would pay tax on £600 at your marginal rate. So this would be £7200 per year so you need to check if this pushes you into a higher tax bracket.

You need permission from your lender, they may require you to change your mortgage (it varies) so ask them first. You need a gas safety certificate (annual cost) and an electrical safety certificate (check frequency I think it's 5 yearly). I would not recommend changing carpets unless they are a particular state, just steam them. Furniture if being provided may need to meet certain safety standards so less than 10 years old for sofas and beds however this may not apply for single let (I've only dealt with an hmo for work).

You will need landlords insurance, use of a deposit scheme (in England, check Scottish rules) and a decent handyman for when things go wrong, alternatively use an agent

If you're a higher rate taxpayer or if the rental income will push you into the higher rate then it's hard to make a lot of money out of renting it out. But, providing you have no big unexpected expenses, it's still money coming in every month and you may also make a profit when you sell (don't forget to account for capital gains tax though).

I rent a house out and make approx £400 a month after tax which I put straight into savings so it's money we put away for a rainy day/the future/building up savings for the kids.

I would definitely recommend paying the letting agent to manage it, for me that money is well worth it. My tenants said there was an issue a few things a few months after they moved in. They'd been perfectly functional when I lived there, although a getting a bit old, so I hadn't replaced them at that point. The landlord organised quotes, liaised with the tenants about dates to get things sorted, and sourced me a refurbished oven which was much cheaper than buying new, which saved me lots of time and hassle and money.

I’m a landlord in England and have had much useful advice from 1) Landlordzone forum and 2) the NRLA ( I’m a member and they have an advice line which can be really useful). The later is quite England/ Wales focused but there is a similar Scottish organisation scottishlandlords.com/
Sometimes things tick over quite nicely and don’t require much input , at others you need to be hands on eg after a long term tenancy ends and you need to refurbish, or if a tenant is taking the mick and you need to set boundaries. But if you are an organised person and not averse to some hard work once in a while it is doable and can be rewarding financially and mentally, knowing you are providing good quality housing for someone.

@LargeProsecco

Definitely use a letting agent if you are new to letting. Scotland has lots of legislation about renting & there are also criteria for lending (eg rental income should be 125% of mortgage payment, must have at least 20-25% deposit etc).

Where is Scotland are you?

This. There’s a lot of work involved and a fair element of risk.

Making your house compliant alone in involves gas safety checks annually, EICR and Pat tests, legionella risk assessment, landlords insurance.

You will need to finance your mortgage. You will be on a higher interest rate and a lower LTV. I’d probably fix for 5 years because interest rates are going up.

You won’t get a high LTV because you are an inexperienced landlord and because rates are going up. Also if there is a fall in property prices then you will be over leveraged.

You might need a minimum salaried income - often it’s about £25k. A broker will be able to advise you.

Managing your property - Remember that tenants will not put up with all the small things that you ignore in your own home. If a door handle is stiff or a radiator needs bled, they will want that fixed asap.

Do you have a team of tradespeople willing to attend at a day or twos notice ( including weekends and holidays ) to deal with this? What will you do if their central heating breaks down when you are abroad on holiday or at a relatives funeral in England ?

If not then use an agency. You will pay about 10% +VAT for one property, plus extra for advertising / new tenant check etc. They will also keep you right legally - remember ignorance of the law is no defence.

You will have seen in the press that all grounds for eviction ( including non payment of rent ) will soon be discretionary. You could get a tenant who never pays rent beyond the first month and it will take you 6-12 months to get them out.

Do you have the spare cash to pay the mortgage for that year and then refurbish the property after they have trashed it?

I assume you know that you can’t evict the tenants if you wish to sell it - you need to sell ( at a reduced price ) to another landlord.

If you are planning to let to tenants on benefits then you need to be aware of the local housing allowances, which are lower in S Lan than some other parts of Scotland.

Also if they claim benefits fraudulently, the local authority will come after you for the rent that was paid. That’s why so many mortgage lenders won’t allow you to rent to tenants on benefits.

Sorry to be all doom and gloom but you need to know all the possible down sides before you start.

The SAL (Scottish ass'n for landlords) costs about £100-yr & is worth joining.

Although have a look at the Landlordzone forum (Scottish section) on renting - it might change your mind about self-managing!

Here’s the LHA for S Lan

www.southlanarkshire.gov.uk/info/200261/housing_benefit_and_council_tax_reduction/772/local_housing_allowance_lha/2

So if you have, for example, a 2 bed property, the max allowance ( from next month ) is £474pcm. Most tenants on benefits won’t be able ( or willing ) to pay much more than that.

We have a rental property, oh's old house, we have an agency run the rental with a guareteed rent agreement, it costs about £250 a month in fees but we can still cover the mortgage with a bit left over, it takes away the stress of finding tenants plus we had a tenant do a flit owing several 1000's in unpaid rent which didn't affect us as the agency still paid us.
I'd recommend it

Thanks so much everyone for your helpful advice. I’m really wondering whether it will be worth it. Another negative is if I keep the house as a rental and purchase another property with my partner, I’ll need to pay a hefty LBBT fee, as far as I’m aware my new home would be classed as an additional dwelling (unless I’m mistaken?)

@M0RVEN, I was aware that I can’t evict the tenants should I come to sell the property however do you have a link to any guidance/info re selling the property at a reduced price to another landlord please?

Thanks

Just to clarify, I mean purchase another property with my partner for us both to live in in a couple years time

@M0RVEN, I was aware that I can’t evict the tenants should I come to sell the property however do you have a link to any guidance/info re selling the property at a reduced price to another landlord please?

If the tenant is still in the property you don’t have vacant possession so you can’t sell it in the open market - you can only sell to another a landlord. So that’s a very small part of the whole market.

Also you will have a sitting tenant which many landlords don’t like , as they have no idea who they are , did you do checks, do they have a history of rent arrears or anytime social behaviour, are they paying a market rent etc.

If you are managing it yourself, any potential purchaser has no proof of any claims you make in this regard. Whereas if you are using a reputable letting agent they will have verifiable records.

Plus it’s hard to do viewings when the property is tenanted.

So your market is a subset of landlords. I’m sure you can see how that will affect the price you could achieve compared to the open market.

Have you thought what you would do if living together doesn't work out and you have a tenant?