How to become a Landlord
While purchasing a rental property is a sound investment, it by no means comes without any risk involved. If you think you can decide between buying a house or apartment overnight, you cannot be more wrong. There are so many things and aspects to consider, and you should have them all covered before making the first move.
By letting out a property, you become a landlord, which comes with many responsibilities you should be aware of. We have listed few important and frequently asked questions that are important for anyone interested in the real estate business.
1. Do I have what it takes to be a landlord?
Being a landlord is not for everyone. Unless you want to spend a lot of money on contractors, cleaners, or other handypersons, it is beneficial to handle some of the work yourself. Nevertheless, be realistic about how much time you have available in your existing schedule to manage any future tenancies and consider early on whether you will require a lettings agent to help you manage these. Here are some of the duties that come from renting a property:
- Making sure the property safe to live in
- Handling all the necessary repairs to the property’s structure and exterior
- Maintaining heating and water systems
- Ensuring the furniture meets fire safety regulations
- Checking that the gas and electrics are safe
- Being compliant with your tenants
See our landlord services here.
2. What is your current financial state?
Just like buying a property to live in, you will need to ensure your finances are all in check before looking to purchase property to rent out. Do not buy properties if you already have debts. It is always good to have savings that will cover any unexpected expenses.
3. Location, location, and location
Choosing the right kind of location for your property is a game-changer. For example, would you like to stay at an apartment located miles away from the beach or the city centre? Therefore, it is essential to purchasing a property in a growing city. Other things to consider are the proximity of movie theatres, parks, restaurants, malls, school districts, and other amenities. Also, you do not want to buy a property in a neighbourhood with a high crime rate.
As a local letting agent, ask us for advice on what properties are in demand and how much they rent.
4. What are the current interest rates?
Most of us do not have the initial capital to invest in purchasing a house, and therefore, most first-time investors turn to banks and ask them for help. It would be best if you were more than careful when it comes to interest rates. The rates on an investment property are generally higher than the rates for a traditional mortgage. At the moment, the government has launched different schemes that enable people to buy their first house with a smaller deposit and therefore, getting the right kind of interest rate for your mortgage is crucial.
5. Know your costs
You thus want to consider all possible costs to calculate your margins and see where you would stand at the end of the year profit-wise. Maintenance will usually take 1% of the property value off you in one year. Then you have the costs of property taxes, homeowners’ association fees and insurance, landscaping, repairs, pest control, etc. If you are happy with the estimated profit after all these expenses, you are good to go!
The first thing you want to do with your recently acquired property is to protect it. If you want to know more in detail what kind of options you have for insurance, talk to us!
7. Additional costs
You must accept that you will by no means have 100% of your rental income. Besides regular maintenance and upkeep expenses, you need to factor in the unexpected costs.
If you are new in the business, you will undoubtedly be tempted to purchase a property you believe is cheaper than the others. In theory, it is great to run into such. However, the reality is somewhat different as you will usually need to spend too much money on renovating this fixer upper. It is a different story if you have a deal with a high-quality contractor ready to give you a hand and help you transform the house into a rental property.
9. Return of your investment
Yes, we have learned that it is a challenging task with all the unexpected expenses, but you can still have a rough estimation of what you can expect from your new rental investment. As a buy-to-let investor, you will either be relying on capital growth (increase in the value of the property over the medium to long term) or rental yield (income generated from the property expressed as a percentage of the property value). Let’s say a 6% return in a year is considered a decent deal.
If you are interested in investing in property, do not hesitate to contact us. We have a selection of guides and reports to help our landlords stay up-to-date about their property investment portfolios. See our resources here.