Setting up as a private landlord can be fantastic source of income in a world of rock-bottom interest rates and stormy instability. There’s a lot you’ll have to do before you hand your new tenants the keys, but with this comprehensive checklist, you’ll be renting out your property before you know it!
At OpenRent, we’ve set up thousands of tenancies and have written this guide to pass on all the knowledge we’ve picked up. Here is how to set up your property and find the perfect tenants in six easy steps.
Step One: Check Your Entitlement to Let
Before you make any big plans, it’s important to make sure you are legally entitled to rent out your property. If you don’t, your project will be doomed before it has begun.
If you are not the legal owner of the property (for example, if you are leasing it yourself), you will of course need to make sure you have the owner’s permission and have satisfied any terms in your lease relating to subletting.
Likewise, even if you own the property, you will need to make sure that renting the property out is compatible with your mortgage, insurance and other commitments. This is especially true if you did not purchase the property with a buy-to-let mortgage. If you are ceasing to reside in a property and are renting it out instead, for example, it is at the lender’s discretion whether they will permit this.
Note also that other parties may need to be informed depending on the property in question. For example, some councils now run compulsory landlord licensing schemes, so it is important to check whether this is required in your area. If your property is part of a shared ownership scheme, you will also need to notify the housing association or other parties involved.
Step Two: Make Sure Your Property Meets Legal Requirements
Once you’re sure you can go ahead, you’ll need to do some preparation to show that your property is safe for tenants to dwell in.
Keeping your property well-maintained is a good idea for many reasons – not least because it will help you achieve the best possible rental sum. But there are also certain standards that you must make sure your property meets to let it legally.
This includes information about a property’s energy use and typical energy costs, as well as recommendations about how to reduce energy consumption and save money.
You will need an accredited assessor to carry out an EPC for potential tenants before you market your property. From April 2018. you will not be able rent out your home unless it has an EPC rating of E or above.
You will also need a registered Gas Safe engineer to perform an annual safety certificate. The certificate shows that all gas equipment is safely installed and maintained. Tenants must be given a copy of the gas safety check record before they move in, so this is something that needs to be organised in advance.
The guidelines here are less straightforward here than with gas safety, but there are still clear conditions that need to be met. Both the fixed wiring (including sockets and light fittings) and any portable appliances you are supplying with your property must be safe to use. It is recommended that portable appliances are tested annually and fixed wiring every five years.
Health and safety:
You must make sure a smoke alarm is fitted on each storey. A carbon monoxide alarm is also advised, and is obligatory in rooms which have a usable fireplace or woodburner. Fire escape routes must be clear and the furnishings you supply must be fire safe.
Another requirement (although less well-known) is that landlords must assess and manage the risks of Legionella and Legionnaires’ disease.
Houses in Multiple Occupation (HMOs)
If your property is an HMO, you need to meet standards such as ensuring you provide fire alarms and extinguishers.
You can also use the government’s guidance on landlord responsibilities for more information.
Step Three: Understand the Risks and Responsibilities
Passing the above assessments is a big landmark on your way to letting your property – Congratulations!
But before you dive into the rental market, it’s wise to consider some of the risks involved.
Fees and hidden costs:
As well as the costs of the certificates listed above, there are other potential costs to consider. Income tax is usually due on rental profits (and national insurance too for some landlords), but you also have to factor in unexpected repairs needed to maintain the property in an appropriate condition, and compliance with any change in laws or taxes in future.
Then, of course, there are letting agents’ fees, which can account for an eye-wateringly high proportion of rent paid (especially for managed properties; more on this below). You need to consider all these potential costs, rather than just the headline rental amount you will be charging, to make sure your figures will add up.
With OpenRent, you can advertise your first property on Rightmove, Zoopla, Gumtree and more for free! Click here to find out more.
No tenants, of course, means no rent. For every month your property is empty you risk significant financial loss, especially if you have a mortgage to pay!
Although it’s well known that rents have boomed in many parts of the country, it’s important not to be complacent: your price needs to be realistic, or tenants won’t bite.
If you’re unsure how much to charge, you may want to check out our handy valuation tool to give a general guide price. You can also do a quick search on our website, or other major property sites such as Rightmove, Zoopla and Gumtree, to see what price similar properties are being advertised for in your area.
While the vast majority of tenancies run without any major problems, over 100,000 evictions happen every year. It is good sense to consider what could happen if things go wrong.
Under the Housing Act 1988 you can’t terminate an Assured Shorthold Tenancy (the standard agreement for short lets) within the first six months of the agreement. Even after this time, you have to make sure you give the correct notice. If it does come to evicting tenants, there may be legal costs to cover.
Similarly, there is always the risk that tenants might damage or mistreat the property. The deposit helps cover (and prevent) damage, but you need to make sure you are aware of the possible risks and have suitable insurance in place.
It’s useful to conduct thorough referencing on prospective tenants. If possible, try to obtain a reference from a previous landlord to see if they have a track record of good tenancy.
Protecting the deposit:
Since April 2007, landlords have to protect their tenants’ deposit with a government-backed deposit protection scheme (DPS) within 30 days of receiving the deposit. They also need to provide certain prescribed information to the tenants. Failure to do this properly can result in legal action, fines, or difficulty evicting tenants.
Right to Rent:
Everyone who will be living at your property must provide documentation to prove they have the right to rent in the UK. Landlords are obliged to check the documents in person; again, fines of up to £3,000 apply for landlords who rent to illegal tenants and are unable to prove that they checked the tenants’ right to rent.
Step Four: Choose How Hands-on You Want to Be
Two of the biggest choices you make as a landlord will be how you advertise and manage your property. These two tasks take the most time and can also be the most expensive.
Broadly, there are three paths to choose from. Here they are in order of cost.
Use an Agent to manage & advertise your property:
This has the advantage of minimising the time and work you will have to dedicate to your tenancy. Unsurprisingly though, the costs are incredibly high, typically charged as a percentage of the rental amount (usually around 10% plus VAT).
The fee for ongoing property management takes a considerable chunk out of your monthly income, and is applied regardless of the amount of time the agency actually spends on your tenancy. In other words, four months into the tenancy you might end up feeling like your high street letting agent is taking 10% of your rental income in return for doing nothing.
Use an agent to advertise only:
This is a middle ground, leaving an agent to advertise your property, conduct viewings and take care of things like the contract and deposit, while avoiding the large ongoing management costs.
The agent will put your property on the market, vet and reference any enquiries, arrange the viewings, negotiate the rent on your behalf, sign the contract, sort out the keys and probably collect the holding deposit, security deposit and first month’s rent. With many agents, you can also request a rent collection service for an additional fee.
Though much cheaper than full property management, advertising with an agent will still see you paying a fixed fee of hundreds – if not thousands – of pounds. Your tenants will be paying considerable admin fees to the agencies, too, which can kick the tenancy off with a bitter taste in both of your mouths.
Advertise your property yourself!
In this situation, you are in control of every aspect of the tenancy creation process, meaning you can save thousands in agency fees. Although you’ll inevitably do more of the legwork, this position has some fantastic, non-financial advantages, too.
For example, if you conduct the viewings yourself, you will be able to meet prospective tenants face-to-face before asking them to sign. Not only will this allow you to better-judge whether you would like them to live in your property, it will also attract more enquiries, since tenants overwhelmingly prefer meeting the landlord to meeting an estate agent.
If you go for this DIY option, you should consider your advertising options. The overwhelming majority of tenants look for rental property online via property portals like Rightmove and Zoopla. 2.6 million people check these sites at least once a day. But you can’t just stick your property on these sites directly; they don’t deal with private landlords. They only let agents advertise.
With OpenRent, you can advertise your first property on Rightmove, Zoopla,Gumtree and more for free! It’s the best way to get your property on the market without using a high street letting agent.
Step Five: Make Your Property Look the Part
If you are using an agency, this step is usually covered within the agent’s fees. However, if you are advertising the property yourself, you need to make sure you are showing your property off to its best advantage.
Using good photos is arguably the most important factor at this point. Professional photography can be a worthwhile investment, vastly improving the appeal of your property to tenants viewing it online for a relatively small up-front cost. Alternatively, if you take the photos yourself, make sure you use a good camera, tidy up first, and get the lighting right. So many landlords fail to do these basic things!
You should also spend some time thinking about how to describe the property attractively. What are the best things about the local area? Let tenants know about the transport links, parks, schools and restaurants. You don’t want to be too wordy, but a well-written description goes a long way.
As a final step, you should consider how to make the property appealing when tenants come to view. Brewing some fresh coffee, putting flowers on the window-sill, baking bread – these are well-known cliches, but they can make a big difference to how tenants perceive and remember your property. Just as good photos are crucial in getting tenants to enquire after your property, small touches can make a big difference when they see it in person.
As a minimum, make sure your property is well-maintained, tidy and suitably decorated. Getting this done ahead of your viewings will help you convert enquiries into tenancies and prevent you having to make big promises as you show tenants around the property.
Step Six: Find Your Tenants!
If you’ve got this far, what are you waiting for? You can list your first property for free on Rightmove, Zoopla and Gumtree with OpenRent today. It only takes a few minutes and our support team is available to guide you through the whole process, from advertising the house to signing the contract.
If you have any questions about next steps, you can always contact us at firstname.lastname@example.org and we will be happy to advise.
We hope that this list has provided an outline of how to set up as a private landlord, although inevitably it isn’t an exhaustive list. Please note that regulations are sometimes different in England compared with other regions (especially Scotland and the Channel Islands, but sometimes Wales and Northern Ireland too).