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Could you become a landlord?

Could you become a landlord?

Category: Buy To Let

Updated: 04/09/2017
First Published: 24/11/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Demand for rented accommodation has never been higher. The barriers to getting on the housing ladder mean more people are being forced to rent, but that opens up huge opportunities for landlords – or those thinking of taking the plunge. It has the potential to be a highly lucrative business providing a great additional income, and it could even be your sole means of earning a living if your portfolio's big enough. But, is it for you?

Growing demand = better returns

If you're looking at it from a purely financial reason – and if you have the funds to purchase a buy-to-let (BTL) property – then arguably, there's no reason not to consider it as a viable possibility. Latest figures from Your Move and Reeds Rains show that average rents have hit a record £770 per month, while tenant finances have improved to such an extent that the number of those in arrears is approaching the lowest level ever recorded.

That's a great combination, particularly when you add increased demand (and therefore a reduced chance of being without a tenant for too long) into the mix, as it means landlords can rely on having a secure income to cover their outgoings. Add to that the potential annual return, and you really can't go wrong – the figures show that total annual returns on a typical rental property stood at 13.3% in the year to October, the joint-highest on record.

In monetary terms, this means the average landlord in England and Wales has seen a return (before costs such as mortgage payments and maintenance have been taken into account) of £22,434 in the last 12 months, comprised of rental income (£8,404) and capital gains from their property (£14,030).

That's a fantastic amount of money, and even the rental income could be enough to provide a valuable revenue stream.

A new perception

However, one thing that could put a lot of would-be landlords off is the traditional idea of what it means to be a landlord. There are often fears that tenants won't pay up and properties will be ruined, while the thought that landlords themselves are greedy, unethical and do everything on the cheap could be enough to disengage some.

But, research from Saga Home Insurance has revealed that – on the whole – the assumptions of the typical tenant/landlord relationship are largely outdated. In a recent survey, 77% of tenants rated their current landlord as "good" or "excellent" while just 8% gave a "poor" rating, and only 21% complained about them using poor-quality tradesmen to carry out repairs – a figure that could well come as a surprise.

Landlords are pretty pleased with their tenants, too. Late rent payments are still the biggest issue for landlords with 37% citing this as a complaint, followed by damage to the property (32%) and tenants who left with little or no notice (20%), but these are still relatively low figures – and a lot lower than some would expect.

Of course, there are still improvements that could be made – 56% of tenants said that their landlord could do more to help them, for example – but on the whole, the relationship seems to be a happy one.

The BTL boom?

It's no wonder that BTL is growing in popularity, and there are thoughts that there could be an even bigger surge in activity when the new pension freedoms come into play. From next April, retirees will have greater freedom in how they can access their pension savings, giving them the chance to withdraw their full pot (should they wish) without the prohibitive tax charge of the current system.

It's thought that this will lead many people to do just that, allowing them to spend or invest the money as they see fit – and it's anticipated that many will look to the BTL sector to provide the investment potential they're after.

Be prepared

Whether you're approaching retirement or already have the funds available to consider investing in BTL, it's time to consider your options. Not only do you need to carefully think about every aspect of the property itself, from the type of let you're after (do you want a student house, a flat for professionals or a family home, for example) to the location it's in, but you need to start considering the more practical financial implications, too.

Sourcing a suitable buy-to-let mortgage should be at the top of your list of priorities, but bear in mind that not all lenders will offer these mortgages to first-time landlords, and you'll usually need a decent deposit as well. That's why you need to do plenty of research and make sure you've got a suitable deposit fund, and hopefully you'll have been preparing by keeping your cash in a tax-free ISA to maximise its return-generating potential.

Then you'll need to consider the amount of tax you'll pay – the tax implications for BTL properties are varied and there's more to it than when you buy your own home – as well as the various kinds of insurance you'll need, such as suitable home insurance and even specialist landlords insurance, ensuring you're totally covered.

Being suitably prepared will be good for your tenants as well as yourself, and if you go about things the right way, you could reap the rewards of landlordship.

What next?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.