Are you interested in becoming a landlord? There are many reasons why you should take the leap, but we understand it can be a challenge to know what to do and where to even start. In addition, buying, maintaining and selling buy-to-lets can not only be expensive but also involve legislation you need to keep on top of, such as Section 24.
At Gorilla Accounting, we work with many different professionals in a variety of sectors, including property, so we can help. As accountants for landlords, we handle the financial side of your business, so you don’t have to worry about a thing.
But how exactly do you become a landlord in the first place?
Should You Become a Landlord?
The first thing to consider is whether you should become a landlord. Going down this path can offer a wealth of benefits, but there is no denying that there are some downsides to the business as well.
According to the ONS, private rental prices rose by 1.5% in England, by 1.3% in Wales and by 0.6% in Scotland between January 2019 and January 2020. This growth means becoming a landlord can be a great way to earn passive income. If you have extra cash, this can also be a safe, long-term investment.
But being a landlord can be expensive, as we mentioned, especially when you take into account factors like landlord insurance, mortgage costs and letting agents’ fees. This type of business can also take up a lot of your time; if you’re just starting out, you’re likely working a full-time or part-time job, so it can be difficult to juggle everything.
This is a decision that only you can make. Measure the pros and cons and decide whether getting into property is the right thing for you before going ahead.
What Operating Structure is Best for You?
Most landlords start out as sole traders, be it because they don’t have a large portfolio yet or because they’re still employed, for instance. However, becoming the owner of a limited company can be the best option for you, as it will also give you the ability to avoid Section 24.
This legislation ensures that landlords can’t claim a reduction on their income tax payment by offsetting the mortgage interest costs. Incorporating the business can help to negate the impact of this rule. You’ll have more administrative tasks to do, which can be time-consuming, but don’t let that deter you. If you truly don’t have time (or patience) to take care of the admin that comes with being the director of a limited company, Gorilla can assist.
We’re limited company accountants and have helped countless contractors to incorporate their businesses, so you can rest assured you’re in good hands.
In addition, with our simple and affordable pricing based on the number of properties in your portfolio, you can relax knowing you’re not being charged an exorbitant fee when you’re just starting out as a landlord. For example, if you want to give the business a go, you’ll probably want to start out as a sole trader; and, if you only have one or two properties, you’ll only pay £25 + VAT per month at Gorilla Accounting!
This will make it easy for you to figure whether the property business is for you.
What to Consider Before Becoming a Landlord
Something that can help you to determine whether or not becoming a landlord is the right thing for you is being aware of what it all entails. So, if you want to get into property, there are several things to keep in mind before you even get started.
It’s important to know the property’s state of repair, for example. Before renting it out, you want to get it checked out and to fix any potential issues that may exist. It’s no good putting it on the market if it needs repairs, as this will do more harm than good to your business. Not only can your reputation suffer just when you’re trying to get the business off the ground, but it’s also unlikely you can charge much rent if the property needs a lot of care.
The property also needs to meet all legal requirements, which include obtaining an Energy Performance Certificate and a Gas Safety Certificate, ensuring each storey has smoke alarms, and so much more.
Another thing to consider is whether you want to rent your property furnished or unfurnished. Both have advantages and downsides. You can probably charge more per month if the home is furnished but this also means you will be responsible to fix or replace anything that gets damaged or broken.
You want to decide the nitty-gritty ahead of time as well. Do you want to allow pets? Are you happy to allow smokers in the property? Answering ‘yes’ to both can be a selling point and open up your options, although the disadvantages include damage to your property. Some landlords are happy to accept anyone, while others prefer to be more selective – there’s no right or wrong, as long as you’re happy with your decision. You should also decide if you want to rent to a young couple, to someone living alone or to a family.
Also, will you go through a letting agency? This can be incredibly advantageous, especially as you grow your portfolio, since agencies will manage your properties for you, including setting up appointments with potential renters and show your property around. However, you will have to pay them, which can add up over time.
Even if you rely on a letting agent to manage your portfolio, you will always have the responsibility of handling any issues that come up in your property or with your tenants. It’s not all smooth sailing when it comes to tenants either – you may end up with some that don’t pay rent on time, who damage the property, who sublet the home without your permission, etc. The law can be skewed towards tenants as well, so it can be difficult to evict people.
Laws are also constantly changing, so you will need to keep on top of them to ensure that you’re compliant – even if you become a sole trader, you don’t have to do everything yourself and go at it completely alone. As contractor accountants, you can rely on us to help out with finances and regulations.
As you can see, there are many decisions to make before becoming a landlord – as well as many responsibilities – and it’s imperative you run through all of them in order to avoid surprises down the line.
What Are the Costs of Being a Landlord?
There are many elements involved before starting to rent your property, as well as costs, which you will need to take into consideration. First of all, you will have to think about cost versus potential return. Will you be able to make a profit on your property? How much do you need to charge to achieve that? And how much will you have to invest upfront?
From repairing anything that needs fixing to decorating the home to make it presentable, think about how much money it will take to make your property ready to go on the market. If you choose to rent a furnished property, you will have to purchase all the items too, from dressers and beds to tables and chairs. Other costs include buy-to-let stamp duty, as well as running cost, such as:
- Income tax
- Mortgage repayments (mortgage tax relief is changing, as we mentioned, with all costs available as a basic rate tax allowance of 20%; mortgage interest costs will not be deducted from taxable profits anymore, so many landlords’ tax bills are likely to increase)
- Smoke and carbon monoxide alarms
- Letting agent fees
- Landlord insurance (which is not mandatory, but you should still have it in order to protect yourself from any eventualities)
- Energy Performance Certificates
- Gas Safety Certificates
Make sure that you have some money put aside for anything that may come up. Some expenses will be unforeseen, so you don’t want to be left without the means to resolve them. For example, if the boiler breaks, which can be expensive to replace, you will need to quickly pay for a new one; unless you don’t have any tenants in the property, you can’t put certain expenses off until you have more cash.
Top Tips if You’re Just Getting Started
After helping so many landlords to grow their business, it’s fair to say we know a thing or two about what it takes to get into property. So, here are some tips that may be useful if you’re just getting started:
- If your goal is to gain passive income and to be as hands-off as possible, then you may want to hire a management agency to sort out everything for you, including collecting rent, do routine checks and be on call for any emergencies that can pop up.
- Decide early on who you want to let your home to. Are you looking to attract young professionals? Do you want to rent to families? Or would you like to rent to students? If your property is near transport links, then it may be ideal for professionals, for example.
- Make sure your tenancy agreement has all key elements in it. This includes the amount of rent, the deposit, the length of stay and whether tenants can have pets. If you want to have an air-tight contract and not worry about potential mistakes, you can talk to a solicitor. Of course, this will carry fees, so take that into account as well.
- Have Tenancy Deposit Protection if you’re taking a deposit from your tenants. You have to protect it with a government-approved deposit protection scheme within 30 days of receiving the deposit.
- If you want to carry out an inspection on your property, you have to obtain your tenants’ permission. Even though you own the home, you will be trespassing if you simply enter it without warning. Give your tenants a 24- or 48-hours’ written notice, which should be plenty of time for them to get back to you. You shouldn’t go in if they don’t reply.
- Don’t advertise your property as ‘currently empty’, since this can attract squatters and even burglars.
- An empty property needs insurance as well, so don’t forget to take it out.
- If you want to develop a good relationship with your tenants, offer them your contact number if you want to be more hands-on and deal with emergencies. You can also encourage them to email or message you with any potential issues as soon as they appear, so that there are no misunderstandings.
- There are several places to advertise your property on, such as specialist forums and sites, which can include a fee. You can also market the property on social media, especially if you’re looking to target specific tenants. Once you start building your portfolio, you can even create your own website with a list of your properties to let.
How Gorilla Accounting Can Help
Being a landlord comes with many obligations, but it can also be a very rewarding business. The financial side of being a landlord can be daunting as well, especially because it involves learning about legislation that is constantly updating and changing.
But don’t let this hold you back. Gorilla Accounting clients know that we’re always on hand to help with anything, including answering all of your most pressing questions – as a client, you can contact us before 3pm and receive a reply on the same day. This is invaluable for business owners who are busy running their day-to-day and don’t have time to wait around for an answer!
In addition, our fees won’t break the bank – or make you go over your budget. Even if you have over seven properties and are a limited company, we only charge £80 + VAT per month.
We work with individuals who are just starting out in the property world as well as well-established business owners who have been in the game for years, so don’t hesitate to contact us to learn more about our services and how we can help you. A friendly member of the Gorilla Accounting team will be happy to talk to you.
