What is it actually like to be a landlord in the UK? What does the job really involve on a day-to-day basis? From the outside, it may look like landlords have an easy ride, not having to do much to earn their money every month. But are there any downsides that we just don’t hear about? Indeed, the reality is not so simple: buying to let is more than just a sound investment, it’s also a long-term commitment that requires hard work and financial prudence.
So in order to decide whether or not to buy property to let, you should give the ins-and-outs of the business a little more consideration. In this post, we ditch all the common misconceptions and take a look at the objective pros and cons of living that landlord lifestyle. Any prospective landlords should weigh up these considerations before making any big decisions!
Quite often a major incentive for becoming a landlord is the potential to earn a large income. Every month, landlords receive enough money in rental payments to cover any outstanding mortgage repayments on their properties. This means that the bigger a landlord’s property portfolio, the larger their overall income. A landlord’s profits will be even more substantial when they have paid off all of their outstanding mortgages on these properties.
Of course, your income from rental properties largely depends on choosing reliable tenants who are able to pay their rent on time. When relying on somebody else to pay off your mortgage repayments, a missed payment could temporarily cause you some financial trouble! Additionally, rent payments must be substantial enough to cover the general expense of owning and maintaining a property, with enough left over for your own spending. As such, you should always get a valuation on the property and project your rental income before committing to a purchase.
Professional landlords benefit from being their own bosses and not answering to anybody. If you manage to rent out several properties and build up a portfolio, then you will have complete control over your own income. This independence is an attractive aspect of the role for many landlords as they are able to work by their own hours, set their own goals, make all the final decisions, and manage their own business. However, having this many responsibilities may prove too much work for those with a full-time job. In such cases, renting out property involves spending a lot of time and money on top of maintaining a separate professional life – so it is certainly not for the faint-hearted!
In order to offset the fairly heavy taxes on a landlord’s income, the UK government offers relief in the form of expenses. These can take some pressure off your cash flow when renting a property as not all of your income will be subject to taxes. The expenses considered ‘allowable’ are those which are exclusively for the purpose of renting out your property, including maintenance costs, utility bills, agency fees, and insurance payments. Be wary that expenses are not considered allowable if they relate to mortgage repayments or personal spending. Furthermore, as of April 2017, landlords are no longer able to receive expenses on their mortgage interest payments (although there are still reliefs available at reduced rates).
Despite minor fluctuations in house prices, buying property to let is generally considered a safe long term investment: it provides landlords with a reliable source of income that will last for years to come. Since house prices are projected to continue rising in the UK, a new rental property will likely become more and more profitable as time goes by. Plus, people always need somewhere to live, so owning a decent property in a good area will always draw in potential tenants regardless of what state the economy is in. Given the stability of the market and the potential profits involved, renting property can prove to be a secure way of saving money and building up wealth for you and your family.
In the UK, when renting out properties you are subject to mandatory income tax on the profits you make. The exact nature of this tax is complex and regularly updated in government budgets – generally speaking it changes on the basis of how much profit you make and your personal circumstances. Once you start making profits from a rental home, you are legally obliged to tell HMRC and (depending on how much profit you make) you may be required to submit a tax return. The exact amount of income tax you pay will depend on which tax band you fall under.
In addition, since those who own more than one property are subject to higher stamp duty rates, landlords will also be expected to pay more stamp duty than the average homeowner. This involves an added 3% on the rates in each tax band. In all, the heavy taxation that comes with being a landlord can lead to lots of administrative work and financial strain. Landlords must make an effort to budget, save money effectively, and keep their eyes on the final profits after tax for a lucrative and stress-free letting experience.
Letting property can make for unpredictable work, as it is your responsibility to handle any emergency repairs in your properties as and when they crop up (and pay any necessary extra costs as a result). This could be anything from a broken dishwasher to a blocked sink, but no matter how trivial it may seem it is not the duty of the tenant to spend money on fixing it. Although you can pay for an external agency to handle such matters, most landlords are expected to be on hand for every such possibility. As such, you should expect some stressful times when your properties require emergency maintenance – the likes of which will encroach on both your free time and your bank account!
The overall cost of buying to let extends far beyond just mortgages and taxes. You need to factor in the upfront costs associated with buying a new home such as mortgage deposits, survey and conveyancing fees, renovation costs, as well as money spent on new furniture and white goods. You should also expect to incur running costs for the upkeep of your properties and administrative costs for inventories, deposit protection, gas safety certificates, energy efficiency certificates, and agency fees. But even if you are not dealing with tenants because your property is temporarily vacant, you will still have to pay the mortgage. Not only can these additional costs be a nightmare of red tape, but they can also put a strain on your bank account.
Being a landlord is not for everybody, but with the appropriate financial prudence and a solid awareness of all the factors involved, there is no reason why it cannot be a highly profitable endeavour for those willing to take the leap.
If you are a prospective landlord currently looking to purchase a new property in South West London, feel free to check out the sales we currently have available or have a chat with a member of the James Anderson team.