- Location, Location, Location
Properties will rent (eventually) in all areas; however, it is essential to choose the correct location to minimise voids, maximise desirability and to ensure a steady income for many years. Some areas may be popular but attract difficult tenants so, do your research. If you are still unsure, please feel free to call us and we can help you make informed decisions on areas, demand and prices.
- Mortgage
If you are moving out and are able to keep hold of your old home, ensure your lender knows that you intend to rent your old home out – this is a simple process. If you are buying as an investment, ensure you use a broker to get the most appropriate mortgage for yourself – you may wish to have the stability of a five year fixed term, or look for high cash flow initially on a low two-year tracker. Always ‘stress test’ your purchase against a 6% APR mortgage and 125% of expected rental. If your property fails this test, you are potentially storing up problems for the eventual rate rises (interest rates will not stay this low for ever).
- Tax implications
I am not a financial advisor nor an accountant and you should seek independent financial advice. The questions you may wish to ask include:
- What are the tax implications on having an interest only versus a capital repayment mortgage – or even buying for cash?
- What costs can I offset against my yearly tax bill and what costs could be used to mitigate Capital Gains Tax, if I choose to sell in the future.
- Should I buy in my name only or have my partner’s name too – will this affect Income tax, CGT and my/our ability to access mortgages in the future?
- With the Chancellor’s reduced mortgage interest relief bombshell, we will be addressing this directly in a blog soon. Watch this space.
If your accountant cannot answer these questions, you should perhaps find one that does!
- Insurance
As the landlord, you will be responsible for the insurance of the building and this is often a pre-requisite of mortgage monies being released.
- Making your property attractive to tenants.
Many landlords, unfortunately, let sub-standard housing as the market is buoyant at the moment. Don’t be one of these people. Spend time and money on ensuring that your rental property looks good and is well-maintained and will pay so many dividends (low or no voids, higher rents, respect for the property etc) so, please, make sure you are proud of the home you are supplying someone.
- Your legal obligations
The main legal obligations for landlords are:
- Register with your local council as landlord – you can do this at www.landlordregistrationscotland.gov.uk
- Ensure that gas and electrical equipment you supply is safe. You will need to get a Gas Safety Certificate done yearly – the electrical tests will depend on your property and the electrical equipment.
- Ensure compliance with the current fire prevention regulations.
- Allow tenants access to a current Energy Performance Certificate (this last 10 years and you may be able to use the one from when you purchased the property)
- You (or your letting agent) will need to protect your tenant(s)’ deposit in a Government registered scheme – these are free and both the tenant and you will receive a code from the scheme. The scheme will arbitrate any dispute regarding deposit at the end of the scheme.
There are many other things we would recommend but this covers your basic legal requirements.
- Finding the right tenants and being prepared to move on rent!
The right tenants are worth their weight in gold. They will not only pay on time and look after your property as their own, they will stay (often for many years) removing your anxiety of void periods. Many landlords, bizarrely, will hold out for the ‘Top rent’ whilst having unoccupied properties. Reducing your rent from £850 to £825 may help fill your property sooner and the tenants are more likely to stay. £300 lost income over the year against potentially 2 months at £850 sitting empty!
- Referencing, Inventories and regular checks.
Property is a people business and we pride ourselves on being a good judge of character; however, this does not mean you should skimp on carrying out responsible checks on prospective tenants. As part of the service, free to both you and the tenants, we will collect references of all tenants from previous landlords and employers. We will also check wage slips for affordability and bank statements for responsible spending. This helps ensure that we have tenants who can actually afford to live in the property and will not fall in to rent arrears. Furthermore, we search Social Media to get a handle on the person behind the veil; if they cannot control their social media presence, and show signs of anti-social behaviour, we look for other tenants.
An inventory, with photographs, is essential nowadays – we can do this (at a cost) but we recommend that a professional, independent company is used as this can reduce any dispute at the end of tenancy. It is also important to perform regular checks on each property – ensuring you give the correct notice. We check within the first 6 weeks, then after 3 months and then 6 monthly.
- Recording costs and income.
It is important for you to have a record of all of your purchase costs (including legal fees, refurbishment and decoration) and that these are kept safe. Keep a note of all receipts too. Speak to an accountant about how these can be used in the future. Likewise, ensure you have a running record of all of your rental income against expenses (including interest on mortgage, letting fees and maintenance issues). We always provide a monthly statement with a breakdown of all costs and scanned copies of any contractor fees. These can also be obtained via your own landlord log in.
- Leveraging
This is slightly advanced and if you wish to know more about it, do please get in touch.
Basically put, leveraging – by way of mortgages, letting agents, other people’s knowledge and refinancing to extract capital, it is still perfectly possible to own a property with a healthy monthly cash flow with none of your own money left in after one year giving you and your family an income for ever!
I hope that you found these tips interesting and useful – they are many more I could share and will do later! If you would like to find out how Evergreen Property can help maximise your investment income, please do get in touch and we can meet for an informal coffee.
Finally, if there are any tips that you have picked up on whilst being a landlord, please comment below so we can share your expertise and experience.
