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1 in 5 UK households privately rent
Private renting has hit a peak of four million in England; outstripping social housing rentals for the first time.
According to the government’s English Housing Survey, 18% of properties are privately rented compared to 17% of social housing. Meanwhile, the proportion of owner-occupied households has slipped to 65%.
The number of inhabited private rental properties has almost doubled since the survey began in the 1980s. But with the news that the average UK house price has now hit £250,000, should it even surprise us that more people are choosing to rent their home rather than buy it?
Good news for landlords
Given the popularity of renting, it seems as though now’s a good time to be a landlord. There’s a lot of responsibility involved, of course, but it can also be a profitable business. And with the number of private tenants increasing and interest rates low (the Bank of England base rate remains at 0.5% but is predicted to rise in 2015), now could be the time to really consider securing a buy-to-let mortgage.
If you can afford to raise the money you need for a deposit on a property and secure a buy-to-let mortgage, becoming a landlord can be a smart investment. Each month the amount you receive in rent should cover your mortgage repayment and leave you with a profit, and further down the line when your loan is paid off you still have the property to sell.
However, as with any investment, becoming a landlord is a risk. You may struggle to find tenants and if you’re unable to keep up with your mortgage repayments, this means the property could be at risk. If you’re still unsure of whether becoming a landlord is the right option for you, read our tips to help you decide:
Can you afford it?
Sounds simple but this is the most important question to ask yourself. Interest rates are attractive now but they will rise again, and you’ll need to make sure you can still afford the repayments on your buy-to-let mortgage when they do.
You also need to carefully consider what you’ll do when your property is unoccupied and you’re not receiving a rental income. As many tenants are drawn to short-term leases of six months, there could be several weeks in the year when you’re not receiving rent because you’re waiting for new tenants to move in. There are insurance products available to cover tenants missing payments, but you should still ask yourself how you’d cope with no rental income.
Know the area
It sounds obvious but you should really only consider investing in an area you’re familiar with – and that you live close to. This means that not only do you have a clearer idea of the rental potential of the area, but also that if you need to visit your property on short notice, you can do.
However, it’s probably not the best idea to buy real estate in the middle of a place where you know rental yield is high, as it follows that it will also cost a lot to buy property here. Instead, look for investment opportunities nearby, or do research to try and predict which areas could soon increase in popularity. Are first-time buyers looking there (which will help push up demand)? Are there universities close by? Is it on a commuter belt? Does it have good travel links? Is its high street bustling? All of this will help you determine if it has the potential to become a popular postcode and therefore provide you with a profit.
Who’d you want to attract?
Different properties appeal to different renters. If you have your eye on a three-bedroom house, the most likely tenants are probably young families – so if the property isn’t located close to any schools it might not be the best investment. Similarly, a large five-bedroom home with two or three bathrooms could be perfect for students, but it’s not much use to them if it’s not close to the local college or university.
If there’s a particular type of tenant you want to attract, make sure the property caters to them. This means taking into consideration any legislation relating to the way you’re using the property, such as the HMO regulations governing households inhabited by three or more tenants. Abiding by these rules is a must, but can prove costly.
A spot of hard graft
A popular way of enjoying a healthy return on a buy-to-let investment is to purchase a property in need of modernisation or a bit of a makeover, bring it up to date and then rent it out. If it wasn’t in a great state to begin with, you might secure it for a bargain price and then be able to recoup what you spent renovating it with the rental income you receive.
If the work that needs doing is purely cosmetic, you could give your tenants the option of decorating the property themselves. People often like putting their own stamp on their home, and might jump at the chance of getting creative – plus it could mean they’ll stay longer.
As a landlord, you have to be sure the home you’re providing to tenants is safe and inhabitable. This means carrying out regular safety checks, like having the gas appliances inspected by a qualified engineer who’s on the Gas Safe Register. If your tenants call you to say the heating has stopped working, the oven’s broken or they have no hot water, you need to act fast to ensure that their needs are met, which means always being on call.
If you really don’t want to be a full-time landlord with all the responsibility that role comes with, you could work with an agent who will handle all communication with the tenant and management of the property for you – but this comes at a price.
Being a landlord is not always the easy job it may first seem. Yes, you could end up with long-term tenants who pay the bills on time, never complain and are never complained about – but if you do you’ll be lucky. If you’re thinking of becoming a landlord you should make sure you have a plan in place for dealing with a nightmare tenant in case the worst does happen.
Before you start advertising for tenants, make sure you know your rights as a landlord AND your tenants’ rights too.
Consider all of these points, and you should be closer to deciding whether becoming a landlord is the right move for you.