Tips for first time landlords8-09-2021 | Other
Starting your career as a landlord is exciting, but it can be daunting too. If you’ve ever been a tenant, you know all the things about your landlords that you appreciated and all the little things that drove you crazy - but owning investment property has slightly higher stakes than just risking annoying your tenant. If you do things wrong, you could end up in serious financial or legal hot water, so it’s vital to start off on the right note.
Getting off on the right foot can help you establish habits that will save you time, money and frustration for years down the line. These tips will help you get it right from the get-go!
1. Get everything in writing
This may sound basic but the importance of it can’t be overstated! The lease itself is vital, obviously, and should clearly detail your policies around late rent, subletting, pets, damage, changes to the lease… everything. Your lease needs to clearly state your terms, and what happens when the terms are violated. You can use a boilerplate lease from online to help get you started, but make sure you read the fine print and adapt it all to fit your property and your tenants. Having it looked over by a legal professional can help, as can working with an estate agent to ensure everything is above board.
However, it’s not just the lease that is important to have in writing. To cover yourself legally, every communication you have with your tenants about the property should be in writing too. This includes things like planned inspections, maintenance visits, and giving notice. If you speak to your tenants about these things over the phone, drop them an email afterwards that includes everything you agreed on.
This way, if there are ever any disputes, you can rely on these written records to prove you’re in the right.
2. Get a handle on landlord legislation
Understanding the laws around landlord responsibilities is non-negotiable. If you don’t know what you need to do with regards to providing smoke alarms, or fixing furniture, or safekeeping deposits, you could end up on the wrong side of the law very quickly.
If you’re worried about not getting things right, working with an estate agent is a great way to make sure you’ve got it all covered. Estate agents will take on as much or as little responsibility as you like - they can just help you with the paperwork, or they can fully take over the day-to-day running of the property.
3. Don’t expect to turn a profit right away
If the property you’re renting still has a mortgage on it, it’s likely that most of the rent you collect from that property will go towards that, and any extra cash will be eaten up by maintenance and upkeep costs. You also may have insurance or estate agent costs, which will likely take up any leftover pennies.
There’s also tax to take into account. If you only own one property that isn’t yet turning a profit for you, it’s easy to forget that you’re actually technically running a business. But you are, and you’ll be taxed accordingly. Rent payments are classed as income, so you’ll be taxed on them. The good news is that what you need to spend on maintenance is considered an expense. If the numbers and figures get you sweating with nerves, never fear - an accountant will be able to help you get things in order and run your business efficiently. They’ll also help you out with any property tax exemptions that might help ease the load.
Until the mortgage is paid off, not making a loss is an achievement… and at least the mortgage payments aren’t up to you anymore! But even without a lot of profit, your rental property is still valuable. All those rental payments help you build equity, which pays off over time.
4. Prepare for vacancies
Ah, vacancies...a welcome break or a landlord’s worst nightmare?
Vacancies happen to every landlord. Sure, you might be very lucky and end up with a tenant who wants to stay for years and years and make your life extra easy, but this won’t always be the case. You might go for years without a vacancy, but most of the time, you’ll have to prepare for periods - sometimes multiple months long - where you’ll have no rental income. If you’re turning a comfortable profit, planning to live without that profit at any given time is vital. If the rent is paying off your mortgage, you’ll have to be prepared to foot the bill for that yourself. It’s best to develop a contingency plan - like short term letting (Airbnb, for instance) - or rely on your savings fund to cover yourself in these lean periods.
However, vacancy periods don’t have to be all doom and gloom. If your property needs some refreshing or you feel like you could get more value out of it by making some changes, look at vacancies as the perfect time to undertake this work.
5. Get the right insurance
You can’t drive without car insurance. Because it’s illegal. You can’t be a landlord without landlord insurance. Not because it’s illegal, but because that would be silly. Protecting your investment property can help protect you from huge costs down the line. Landlord insurance helps to protect you from multiple things - lost rental income, damage to the property’s structure and other structures like sheds and fences and malicious damage. Much like car insurance, you hope you never have to use it, but if you ever need it, you’re grateful it’s there. To take the best first step possible in your landlord-ing journey, get a quote for landlord insurance today.
For more top tips and advice about the tricky business of renting out property, take a look through our Advice Centre, to get started right.