Are you considering renting out your home in order to make a bit of extra cash or pay off that overdraft? Can letting a property really help you make and save money? The answer is yes. But, before you take the next step, you definitely need to understand the rules of the game.
For instance, do you want to let for a few months or for several years? Perhaps you want to remain as a live-in landlord. Perhaps not. It is important to make these types of decisions up front because it is not always possible to change your mind once tenants have arrived.
Many private landlords let a single property and benefit from up to £11,850 pa in rental profits before crossing the tax allowance threshold (2018). Other individuals buy multiple investment properties and build up portfolios worth millions of pounds. These can generate a large income, but often come with some hefty hassle in terms of accounting and management. Large scale property investment portfolios are a pure ‘buy and sell’ business. Whether you are thinking big or small, it pays to do your research before you dip a toe in the water.
Think about your property
- What type of tenants do you want to attract? Will you allow smokers or pets, for example?
- What is the ‘going rate’ for rentals in your area?
- Is your property in good repair and ready to be let out?
- Will you be offering furnished, part-furnished or unfurnished?
- Are you letting a house or a flat? Remember that flats can come with high service charges which eat away at profits.
Think about your finances
It is important to sit down and work out all of the costs which you will incur when you let out your property. Who will be paying for utilities and council tax? As a landlord, you will need enough funds for annual safety checks and repairs. If you are thinking of taking on a letting agent to manage your property, add up how much that will cost you, too.
Think about the paperwork
When you become a landlord there is paperwork to consider. That includes tenancy agreements, insurance cover and declarations of rental income to the Inland Revenue as well as possible issues around capital gains tax. It pays to take professional advice about these things even if you are thinking of managing day-to-day affairs by yourself.
No two lettings are the same
Just like any investment, letting out property carries risks as well as rewards. Renters may default on payments or damage your home. House prices can fall as well as rise over the years, leading to capital losses. But, do your homework before you let your property out, and you could deal yourself a great personal finance investment opportunity.
Written by Wendy Davey