With interest rates continuing at historic lows and no prospect of change anytime soon, buy to let property still offers a good rate of return on your investment.
How difficult is buy to let?
Ownership of rental property confers many obligations on the “would be landlord”. These obligations are numerous and whilst this article will endeavour to highlight some of the more important issues these should not be treated as an exhaustive list.
You should always have a written tenancy agreement. This way you have a written record of what you have agreed with your tenant.
As the tenant is responsible for maintaining and repairing the interior of the premises you should have a record about the condition the property was in at the start of the tenancy. You may prepare a “Schedule of Condition” which is a written and pictorial record of the condition or simply have some photographic evidence as to the condition. This allows you to judge whether or not the tenant has complied with the repairing obligations or not.
If you want the tenant to pay you a deposit, then you (or your Agent) must register with a Tenancy Deposit Scheme which is designed to safeguard tenancy deposits that are paid and facilitate resolution of disputes. You may not contract out of the scheme and if you fail to use the scheme, you run the risk of failing to obtain possession of the property at the end of the contractual term and your tenant may be entitled to compensation from you.
Remember that rental income is taxable. You should consult with your Accountant about the rental income you receive and how this is treated in terms of your annual tax return. The ownership of a rental property may also have taxation implications in terms of Capital Gains Tax and again you should consult with your Accountant for further advice.
Mortgages on buy to let properties are different to normal homeowner mortgages. Not all high street lenders will lend on a buy to let property. Consequently the application process can be more convoluted and the costs and administration fees associated with the mortgage application may be higher. A lender may also have specific conditions it imposes on the type of tenant you may accept.
If you act outside the lender’s conditions without their permission then the lender may ‘call in their loan’ and take steps to repossess the property.
A tenant, once in occupation, is entitled to ‘quiet enjoyment’. This means that, as landlord, you may not unreasonably bother or hassle the tenant. Even if the tenant is in arrears with the rent or has broken a term of the tenancy a landlord may not evict the tenant without a Court Order.
Even with a problem tenant, you cannot remove the tenant from the property without following the correct legal procedure.
Owning rental property is not easy. It takes time to manage the property effectively. If you find a good tenant then they are worth their weight in gold. If you are unlucky to find a bad tenant then any money that you make during the rental process may be lost in repairing damage caused to the property and reinstating it to a re-lettable standard.
You may consider employing an Agent to manage your property. Whilst this will reduce the income you receive it may take much of the management hassle out of it for you.
You must also bear in mind that there may be a lot of rental property on the market and, whilst the property remains empty, you must continue to meet the repairing insurance and mortgage costs yourself even though there is no tenant in occupation.
If you need further advice about buying or re financing investment property or preparing a tenancy agreement please contact one of the Property Team for further advice and assistance.