Can I Rent out my first home? Before your tenants move in, have you got permission from your lender, as their refusal could lead to a repossession scenario?
In the current “boom and bust” era, many homeowners have become “accidental landlords” due to higher interest rates.
This trend continues to grow, with more and more homeowners still having difficulty selling their homes. This leaves them with two choices: leave the home vacant or rent it out.
Renting out your Property doesn’t necessarily mean you’ll make money. It is often the only solution when you can’t sell the house, but the rent may not be enough to cover your mortgage. It can also bring its own set of issues.
Many people focus on the positives of renting their property, but some negatives should also be considered.
This article will explain all this and more.
Table of Contents
What is renting?
Renting is an arrangement in which money is exchanged for the temporary use of someone else’s property. It is a mutually beneficial agreement, with both parties gaining something from the arrangement. The renter gains the use of the property, and the owner receives payment for it.
Why do people generally rent property?
People may choose to rent property instead of buying it for several reasons.
- Financial implications are often the biggest factor – it can take first-time buyers in the UK eight years to save enough for a deposit.
- Job relocation is another – some people need to move around, making it difficult to have a permanent place of residence.
- The burden of upkeep can be a deciding factor – tenants can pay smaller payments, knowing that the owner and their managing agents take care of the property.
In the UK, around one in five households are renting – so if you need to let out a property, there’s plenty of demand.
Problems with renting property?
Letting your home isn’t just about finding a tenant and making a profit. There are many factors that can affect your experience of being a landlord, so it’s essential to be prepared for any potential negative situations.
Finding A Tenant
One major challenge is finding a tenant – not just any tenant, but a reliable one with a track record of paying rent on time. It’s best to use a reputable local letting agent who can find a suitable tenant.
Tenant-finding services usually costs the first month’s rent. If you want the agent to manage the property, this will be 10% of the rent plus VAT.
There is no guarantee of finding a good tenant, however, and in the best case you could end up with someone who doesn’t pay and refuses to leave!
In the worst-case scenario, the tenant is a stooge for a criminal gang who wishes to convert your property into a cannabis factory. Often, this results in a fire, and the insurance company refuses to pay out the claim.
To minimise this risk, make sure to do thorough credit checks on all potential tenants through websites such as Experian or Credit Karma. If the tenant hasn’t rented before, ask for an employer’s reference and a guarantor who can vouch for the tenant’s financial ability to pay.
Legal Side
You must also understand the legal implications of letting out your home and follow the relevant laws. Joining a professional landlord organisation such as the Residential Landlords Association or the National Landlords Association can provide legal advice and help with documentation.
A tenancy agreement must be signed before you let any tenant through your door. Don’t forget to keep their deposit in one of the government’s approved tenancy deposit schemes, such as Deposit Protection or My Deposits.
Time Management
If you are living far away from the property, don’t forget the time management issues that come with rental properties.
If you want to manage the property yourself, ideally, you should be living within a five-mile radius. You will also need to keep a book of reliable tradespeople on hand to deal with any maintenance or repair issues. You may find it more cost-effective to hire a managing agent to run the day-to-day operations.
Awkward Tenants
Carrying out all the right checks may not necessarily mean that your tenant will be problem-free. If you encounter any issues, it’s your responsibility to address any complaints you receive, so make sure to issue a warning at the first sign of trouble.
Make sure that the property is adequately insured for its contents, especially if the property is furnished. You must maintain the furnishings. However, you can claim the costs of any damaged furniture from the tenant.
Ending Periodic Tenancy
When a tenant is due to move in, create an inventory with photographs of the property for them to review and sign.
This is important for when the tenant eventually leaves so you can refer back to the inventory and determine if the property has been left in poor condition. If it has, you can deduct the repair costs from the tenant’s deposit.
Don't Forget The Tax
Depending on your tax rate, you could be hit with a huge tax bill against your rental turnover as landlords are no longer allowed to offset mortgage payments as an expense.
So let’s say you rent your home at £1,000 and are a high-rate taxpayer. This means that your tax bill will be £12,000 x 0.4 = £4,800 per year.
In Summary
While renting a home can be a great idea, you will have additional taxation considerations – for example, paying double stamp duty on a 2nd home and income tax.
Being a landlord comes with a lot of responsibilities and risks. Unless you want to become a landlord full-time, it is best to sell your home for cash.
The process of selling to Property Saviour is seamless and here’s why:
Property Saviour Price Promise
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