Buying property to let for the first time and becoming a landlord can be daunting. Although the market is incredibly strong (with UK rent prices set to rise 15% by 2022), there’s still much to think about. A lucrative investment carries responsibility. You need to know what you’re getting into and who can help you achieve your rental property ambitions.
That’s what we’re here for. Property Alliance Group have met plenty of first-time landlords – both abroad and in the UK. Our base in Manchester is perfect, because there’s no better place for British property investment. Therefore, we have a lot of advice to share, prepping any landlord for their ensuing role and choices.
Keep reading for our complete guide to becoming a landlord…
Stage 1: funds and profitability
Like any business decision, you’re going to be looking primarily at two things: cost versus return.
The property you choose shouldn’t be a sinkhole that takes all of your investment and barely gives any back. So it’s wise to find a workable cost/return formula. You’ll either be purchasing through a buy-to-let mortgage or buying the space outright; both options can influence the profit you’ll make over a given timeline. We suggest approaching it like this:
- Start by building a realistic budget. Leave 10% extra in case you find something worth it. Off-plan apartments, which aren’t tenant-ready quite yet, aren’t as expensive. Landlords can see huge returns on these properties; most gain a return before it’s even built.
- Mortgages will demand an upfront payment which is usually between 5 and 25% of the property value. The more you pay initially, the less you’ll pay each subsequent month. For a complete purchase, on the other hand, it’s likely the developer will ask for a reservation fee (generally a few thousand pounds) before you buy. A lender or seller will analyse your financial health and credit history before they commit to an agreement.
- Factor additional costs such as a property survey and legal fees for the paperwork. Brand-new residences will be in top condition, removing the risk of repair charges to make them habitable.
- Landlords insurance is another key expense. Without it, your furnishings and utilities won’t be protected. The number isn’t huge by any means – cover will cost somewhere in the region of £200 per annum. Tenants are responsible for their own contents insurance – as in, the items they possess.
- Finally, look at capital growth and the rent you’ll charge over a certain period. By consulting with local property experts, and doing your own digging, you can learn what similar spaces are charging in your area. Yet this also depends how long you want to keep the property… Profitable investments are often sold after several years or more. There’s no single rule, but the capital value will keep appreciating. Have a sense of when you may want to totally cash in on the property and place it back on the market.
The last point here is debatable. Everyone has their own goals and timelines. Measure ongoing costs against the rent you’ll take in, and the point at which you want to sell, and you can determine a feasible exit or when to invest again.
Stage 2: find a suitable location
For its size, the UK is immensely diverse. From region to region, few rental opportunities are the same. In order to be a successful landlord, you must be aware of the most in-demand cities for good yields. London used to be the king of the rental scene, but not anymore. The North West and Scotland have taken over as the prime spots for property, in terms of the return you’ll get back on your investment.
To assist you, we’ve compiled a list of relative house prices, yield rates and capital growth moving into the 2020s. You can see where cities like Liverpool, Birmingham and London compare. Above all of them, however, stands Manchester – the eminent location for rental success. With an average yield of 5.4%, and the largest capital forecast in the country, it is proving why the North West has become your best bet for sustained profit.
Start to learn about the local market. Which developments look attractive? How do property prices match what they’re offering? You don’t want a bad deal. Equally, a luxury apartment may justify a higher than average cost, bringing in more rent overall.
Stage 3: discuss property management
We’re guessing that you don’t want to spend undue time on managing the property, checking on tenants and making sure they’re cared for. Your daily responsibilities may include:
- Welcoming people for a viewing, before following the right processes so they can move in.
- Confirming those people are who they say they are – a background and/or credit check is vital.
- Routinely assessing gas, electrics and other utilities in case they aren’t working or put the tenant at risk.
- Sending a repair team out to fix anything that may break or suffer structural damage.
- Adhering to safety standards for furnishings, which you may replace now and then to freshen the space up for new tenants.
- Dealing with payments for rent and (potentially) their bills every month.
Many of these have strict rules to cover your legal liability. Today, for instance, you must achieve a minimum rating of E on your Energy Performance Certificate. The power output needs to be in line with the UK’s eco initiatives. Without an E-rating, you can’t lawfully rent the home.
In other respects, you should have a small list of contractors who can jump to action quickly if they’re needed. An emergency contact number is also useful. When it comes to money, you have to be registered with a Deposit Protection Scheme, and write agreed terms in the tenancy to be paid on time.
A property manager can resolve these issues for you. They’ll take charge of everything, and update you on your property as it continues to earn. This, together with further services such as a concierge and on-site leisure facility, adds more value to your property investment.
Let’s not forget marketing either. A landlord will, in almost every case, use a local estate agent to advertise their space. A high-end developer can bear that responsibility too, both building and selling your rental offer. Whatever you choose, making people aware of your property is just as tough as managing it – unless good assistance is in place.
Stage 4: set up your tax correctly
Rental income is taxed just like any other. For UK residents, nothing changes: you find the right form (SA105), fill it out and file it before the submission deadline. Personal or (for limited companies) Corporation Tax will be assessed and deducted. It’s a simple process, providing you’re logging expenses such as insurance costs, letting agent fees, service charges and paying an accountant.
For overseas investors, you’ll still be paying tax regardless – the only question is, to which country?
The law stipulates that you’ll have to work out whether you’re a UK resident. As classified by HMRC, this means you have to spend more than six months in the country every financial year, from the 6th April to the following 5th April. If a landlord only stops by for two or three months of the year, or never touches British soil, they are exempt from regular taxpayer status.
Instead (if you’re smart enough to avoid British weather), you’ll be part of the Non-resident Landlord Scheme. This is where the lettings agent takes 20% or more of your rental profits at source for the UK government. If there is no lettings agent, then tenants have to pay the tax bill themselves from their rent each month.
That being said, we should explain that a foreign landlord’s host nation (where they live for over six months at a time) might tax the income too. It depends where you are, as some countries have a preferential relationship with the UK. These are all queries for your accountant and lettings expert to resolve. Ensure you spend some time discussing your situation with them so you’re completely on point with your tax duties.
Stage 5: sit back and earn…
We absolutely want to do the best for your landlord business. Property Alliance Group have several sites in Manchester that are already paying off massively for our investors. The Axis Tower site has given 33% returns on off-plan sales, whilst our Enigma development is on the cusp of a huge urban regeneration. We advise on location, price and longevity, whilst dealing with every financial and maintenance concern that you’ll face.
Want to explore the opportunities available in the UK’s most lucrative residential market? Speak to a Property Alliance Group team member. Your key expectations will be met, and surpassed, whatever your goals may be.