How to become a landlord
Becoming a landlord is quite a straight forward process. You will have quite a few obligations, ie ensuring the safety of your tenants by regularly maintaining the property and having contractors on hand to carry out emergency repairs when required. Your property and all your paperwork will need to be in order before you let your property.
Following these steps will ensure that you get everything covered.
1. Ensure you are legally entitled to let the property
- Depending on what type of mortgage you have, you need to notify your mortgage lender that you intend to let the property.
- If the property is a leasehold property, you need to check your lease to see if you can sub-let it to a tenant (you may need to obtain permission from the freeholder).
- You should check with your local council to see whether you have a local licensing scheme.
- If the property will likely have a multiple occupation, you will need an MHO licence.
2. Can you afford the Finances/Insurances
Can afford it?
- You will need to obtain buildings insurance (and give a copy to your tenant).
- You may need to purchase Landlords Insurance (optional) for your protection.
- Any referencing or Estate Agent fees.
- You would need to get the property up to scratch. See point 4 below for details.
3. Get an Estate Agent to value your property
- Contact at least three Estate Agents and arrange for them to view your property. Each Estate Agent will give you an estimate of its rental value.
You have a few options here
- If you only want the agent to find a tenant, obtains a finders fee from each Estate Agent (usually one months rent plus VAT).
- If you want the agent to manage the property for you, obtain a managing fee from each Estate Agent (usually for a monthly fee).
4. Get the property up to scratch and work out the costs
If everything so far is affordable, you should look at the costs of getting your property up to scratch and tenant ready.
- If you have a leaky tap, damp or exposed wiring, get a contractor in to put it right. If you wouldn’t live with it, you shouldn’t expect your prospective tenant to.
- Ensure your safety responsibilities are in order.
- Arrange for a gas safe registered engineer to complete gas work and get a gas safety certificate in place and have these carried out yearly and/or at the start of each tenancy.
- Ensure that the electrical installation and all appliances are safe when the tenancy commences and stay in proper working order throughout the term of the tenancy.
- Ensure a periodic inspection is carried out by a registered electrician every five years (if the property is a house in multiple occupation. All appliances should have the CE marking.
- Fixtures and fittings you supply should be fire safe.
- Ensure all your windows and doors open freely so that tenants have access to an escape route at all times.
- Obtain an Energy Performance Certificate. New government guidelines state that properties with a rating of F and G must be improved to an E or above before they can be placed on the market to a new tenant. Improvements can cost on average £1,200. You can be fined if you don’t get an EPC when you need one.
- PAT test appliances.
- Provide smoke alarm(s) for each floor of the property. If battery-operated, batteries need to be checked before each new tenant moves in. You should also email the new tenant to advise him or her that the smoke alarms should be checked over 3 months to ensure they are working for the duration of the tenancy.
- Provide carbon monoxide detector(s).
- You must adhere to The Smoke and Carbon Monoxide Alarm (England) Regulations 2015.
- Provide fire extinguisher(s) (if your property is a house with multiple occupation).
5. Decide whether to go for it
Okay, you’ve worked out the costs, now you need to decide how you want to proceed.
You have three options:
1. Engage the services of an Estate Agent to find you a tenant for a finders fee (usually one months rent plus VAT) and you manage the property yourself.
2. Engage the services of an Estate Agent to find you a tenant and manage your property for a monthly fee for the duration of the tenancy.
3. Find a tenant yourself by locally advertising your property on social media.
Estate Agent Finders Fee-only:
If you choose the finders fee option, you need to decide whether you want a 6 or 12-month tenancy agreement. If you choose a six-month tenancy, it can become quite costly having to pay the Estate Agent a finders fee every six months instead of every 12 months.
Estate Agent Management Fee:
If you choose this, you need to check what the management fee covers and the cost. Property management can cost between 10% to 25% of the total rent. Again you should at this point work out whether it would be more cost-effective to have a 6 or 12-month tenancy agreement.
For either of these options you should ask to see the following:
- Ask to see the Estate Agent(s) standard tenancy agreement. You have the right to make additions of your own within reason.
- Confirm that someone from the Estate Agent will be with the potential tenants during the viewing.
- Once you have decided which Estate Agent to market your property, you need to haggle the cost of their services. If they want 3% you can offer 1.5% and you don’t have to stick with just one Estate Agent to advertise your property, you can have as many as you want.
Finding a tenant without an estate agent:
This can be tricky and we would not normally recommend this but if this is the best course of action for you, read on.
- You would need to hire a professional referring company to carry this out for you.
- The referring company will conduct checks of the tenant’s credit history, current employment and previous landlord.
- You would then have this information to decide whether this tenant would be suitable for your property.
- You would need to supply your own tenancy agreement.
6. How to find the right tenant
When you become a landlord you are effectively running a business. When you meet a prospective tenant, never let your emotions take over. You could end up making a very bad business decision. A prospective tenant can have good verbal face to face communication but when you probe deeper, you may find a very unreliable future tenant on your hands.
Here are some good tips to use to help you make a decision:
- Is the tenant presentable and speaks well?
- Advise the tenant that you expect the property to be returned in the same condition – see how they react to that.
- Ask to see bank statements for the past three months, check income and expenses to see if they can afford the rent.
- Ask for their last three months payslips.
- Ask for photo ID to ensure they are who they say they are.
- Get a reference from their current employer and previous employer.
- Get a reference from their previous and current landlords.
- Ask for a guarantor – a parent will be fine.
- Consider rental insurance cover – it should payout if your tenants don’t.
- Never be lured by “I can pay you two months upfront”, if the facts don’t stack up, don’t do it.
7. When you have found a tenant both parties will need to sign a tenancy agreement.
Should I have a yearly tenancy or six-month tenancy?
If you choose a six months tenancy, you could be paying an estate agent a finders fee twice a year if the tenants move on after the tenancy ends. You could, however, have a break clause in a yearly tenancy that at six months either party can end the tenancy, but again unless there is an urgency to end the tenancy, who wants to keep looking for a tenant every six months?
You can add clauses to your tenancy agreement if you so wish but these must be agreed by the estate agent first and that may take some persuading especially if they are the ones drafting the tenancy agreement.
- Once the tenancy agreement is signed, print two copies of the tenancy agreement.
- The Landlord and Tenant should sign both copies of each signature page and as an added precaution, initial the bottom right-hand corner of each page.
- The document should then be scanned and emailed to the tenant so both parties have an electronic copy and a paper copy.
Now it is time to protect the deposit and send the tenant certain information.
8. How to prepare for the tenant to move into the property
- Ensure you have a written itinerary of all the fixtures and fittings in the property. You can ask the estate agent to do this for you.
- Ensure you have taken photographs of all the meters in the property so you are not held liable for any electricity or gas used and submit your readings to your provider.
- Take photographs of each room including walls/floors/appliances etc in close detail at the start and end of each tenancy. You may need these if you end up in a dispute at the end of the tenancy.
- You should also consider videoing the property before as you leave it for the last time before the tenant moves in.
9. How to protect a Deposit received from a Tenant
When the tenant moves in, you need to protect their deposit.
When you rent your property to a tenant, you will need to protect the deposit on an assured shorthold tenancy that started after 6 April 2007. Currently, you must do this within 14 days of taking the deposit. You can protect the deposit by way of a custodial scheme or an insurance-based scheme. The custodial scheme holds the funds for you, the insurance-based scheme allows you to hold onto the deposit but register it for a fee with a company.
- Once you have decided which scheme to use, each scheme’s website/documentation will have guidance on exactly what you need to send to the tenant.
- Print off two copies of the Deposit Protection Certificate, sign both copies and initial at the bottom right-hand corner of each page.
- Ensure you send a copy of the deposit protection certificate and other information (click here to find out what information you MUST give to your tenant) by post and email within the time frame stipulated.
The schemes in England and Wales are:
If you receive a valuable item as a deposit instead of money (e.g. a car or watch), you don’t have to put it in a TDP Scheme.
For in-depth guidance here is the government website that gives you all the information you need to do this.
- You don’t have to protect a holding deposit before an agreement is signed.
- Once the tenant enters into a tenancy agreement, you must then protect it.
Deposits made by a third party
What happens if I don’t protect my tenant’s deposit?
Firstly, click here for Gov.UK’s guidance on this.
Your tenants can apply to a county court if you don’t use a tenancy deposit protection (TDP) scheme when you have to. They can do this at any time during the tenancy.
If the court finds you haven’t protected the deposit, it can order you to either:
- Repay it to your tenants.
- Pay it into a custodial TDP scheme’s bank account within 14 days.
- The court may also order you to repay your tenants up to 3 times their original deposit within 14 days of making the order.
Click here to find out what information you MUST give to your tenant in writing as soon as they have signed the tenancy agreement.
What happens if the tenant wants to leave early?
If you have a good tenancy agreement, you should have a clause that covers this situation. In any event, the tenant is responsible for paying the rent for the term of the tenancy unless you have a break clause in the agreement. If no break clause is in place, they will need to pay their way out of the agreement – the cost of that is up to you.
What happens at the end of the tenancy?
- Check the property carefully, make notes of any damages etc.
- Liaise with the tenant, talk with them about any issues.
- Once both parties are in agreement, you need to return the deposit to your tenant within 10 days.
- If you are in a dispute with your tenant, you both need to agree on what amount is to be returned.
- The deposit is protected in the TDP scheme until the issue is settled.
- In a normal tenancy with no issues, the deposit must be returned within 10 days.
What can be deducted from deposit at end of tenancy?
Deductions can only be taken when there is physical damage to property (not wear and tear).
What is wear and tear?
Light marks on the carpet would be classed as wear and tear, however, nail varnish, iron burns or damage caused through negligence would not. If the carpet was cheap and flimsy, you cannot expect it to last the distance if you have let the property to a large family. Consideration must be taken on whether the item was originally of good quality when making a judgement.
Cleaning/repair at end of tenancy:
In considering whether cleaning/repair is necessary or complete replacement at the end of the tenancy, check your photographs to decide what condition everything was in.
How much can I deduct from a deposit?
Here is a great website to give you further advice and guidance on this.
Use your tenancy deposit protection (TDP) scheme’s dispute resolution service if both parties cannot agree how much deposit is to be returned.
Contact your TDP scheme regarding their dispute resolution service. The schemes are:
Help and advice
You can get more help and advice from:
There is currently no legal requirement (as of Feb 2016) that you must have Landlords insurance.
A Landlords’ insurance policy would cover you for non-payment of rent, loss of earnings, damages to your property and re-housing costs. You could be covered for the building and/or contents that belong to the Landlord and if the tenant suffers an injury in the property, it covers liability for that too.
Some people opt to have just normal buildings insurance on the property and have the tenant take out their own contents insurance but to be sure, you should discuss exactly what you need with your insurer to make sure you get the cover you need.
How to evict a Tenant (Landlord Help)
Here is the government’s website that gives you all the information you need and what steps to take.
If you want to do this yourself, you may want to try Landlord Action.
Landlord Action’s three-step service: step one (serving notice), step two (instigating court proceedings) and step three (eviction).