Becoming a Landlord for the First Time

Mon, February 4th, 2019

Thinking of becoming a landlord for the first time? Read on!

Being a first time landlord can seem both daunting and exciting in equal measure. It feels great to manage your own investment and provide a roof over someone’s head who can’t afford to buy. But, at the same time, there’s a lot to think about.

It’s not just the whole maintenance of the flat and ensuring the rent arrives in your bank account every month. No, there’s also the question of sorting it all out with the tax man, working out ongoing costs, finding tenants and even how to fund your investment in the first place. And for that reason, we’re going to give you a quick rundown of what you need to think about:

This whole subject has become a little more complicated in recent years. That’s because the government is in the process of cutting landlords’ mortgage interest relief. It’s happening now on a sliding scale. What this means is that it’s better to put down as big a deposit as possible so that you pay as little mortgage interest as possible, or you consider becoming a limited company (then you’ll pay corporation tax which works out less expensive).

It’s definitely worth chatting to an accountant about this as the tax relief varies depending on which bracket you currently pay tax in. Without the help of a good accountant it’s also possible for the changes in landlord income to push you into a higher tax bracket if you’re not careful.

You’ll be looking to have a return each month of 125% or 140% on your mortgage payment. In fact, if you’re looking to take out a Buy to Let mortgage then you’ll have to prove that this is the case.

You’ll also have ongoing maintenance costs (budget for around £250 a year), to furnish the flat (around £1500 to £2000 depending on the spec) and, if you don’t want to do the managing yourself there’ll be costs for a letting agent (from 10% to 14% of the monthly rental). It’s also an idea to budget for a couple of months rent in case of possible void periods between tenants.

If you don’t want to take out a Buy to Let mortgage then you could pay off the cost of the flat using a different form of funding. This is where a Peer to Peer Loan could prove invaluable. Or perhaps a wealthy friend or family member could help you fund it?

If you own a company and have money in shares and dividends, then it might be worth going to see a specialist mortgage lender. He or she will take the additional finance into account rather than simply looking at your income (as a high street Buy to Let mortgage lender would).

Finding your property
As well as buying the right kind of property for the segment of the market you aim to target, you’ll also have to think carefully about location. An older property with plenty of bedrooms (at least three to four) and within walking distance of a university would be good for a HMO. Young, single, professional types meanwhile, would probably prefer a city centre apartment with plenty of amenities nearby such as pubs and restaurants.

Finding your tenants
If you’re planning on getting a letting agent to manage the property, then they’ll find tenants for you. Alternatively, you could advertise in the local paper, at the university or large offices (for young professionals). There’s also online on Gumtree or local town’s Facebook pages. Lots of free sources to find tenants, in fact.

Get more information on starting up your first buy to let by giving us a call on 0333 123 1330.

Adam Vickers
Sourced Reading Director

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