Accidental Landlords: Potential Pitfalls of Letting Your Property
In the modern “boom and bust” era, many homeowners have found themselves in a compromising position, referred to as “accidental landlords”. Following the 2008 recession, accidental landlords have become extremely common, and continue to rise, with more and more people still struggling to sell their house quickly. This subsequently means sellers are faced with one of two options: leaving their home vacant, or renting it out.
Just because you are renting out your house, it doesn’t mean you are going to make money. Most times when you can’t sell your property, renting is the only solution, but the rent won’t necessarily cover your mortgage, and it can bring about its own set of associated problems.
Whilst many people only see the benefits of renting out your property (of which there are many!), what’s not as widely known are the pitfalls you also need to consider, which we’ll cover in this article.
What is renting?
“Renting is known as an agreement whereby a payment is made for the temporary use of a property owned by another.”
Why do people generally rent property?
There is no one set rule for why people rent property instead of buying it, and there can be a number of reasons why, such as:
1) Financial implications: On average, it takes first time buyers in the UK eight years to save for a deposit. Often, people simply can’t afford to save for the large deposit required to purchase a property, so have to rent instead..
2) Job relocation: Some people’s jobs mean they have to continually move around the country – or even abroad and therefore, may never have a permanent place of residency.
3) Burden of upkeep: Some tenants are happy paying smaller increments in rent per month, knowing that the financial upkeep of the property (such as the lawn, roof, exterior of property etc) is left with the owner and their managing agents.
With approximately one in five UK households (4.5 million families) renting, if you are faced with the need to let out your property, rest assured that there will always be plenty of demand.
Problems with renting property?
Letting your home isn’t just about finding a tenant and making a profit. There are many factors that can influence your experience of being a landlord, so it’s best to be prepared of some of the potential negative situations you could be faced with.
1) Finding a tenant
If you were to rent your property, one serious hurdle you need to overcome is finding not only a tenant, but a good reliable tenant with a track history of paying their rent on time. We would suggest using a reputable local letting agent to find you a suitable tenant. Depending on the type of property you have to rent, fees from estate agents generally range from £500+ for a “tenant find” only service. If you want the local agent to manage your property if and when it gets rented, they charge circa 10% of the gross rental received per month.
Regardless of whether you try to rent your property yourself, which isn’t alwaysadvisable, or through an estate agent, there is no guarantee you will get a good tenant. While it may be rare, the worst case scenario could be a tenant that doesn’t pay and refuses to leave. It can take months, sometimes years to vacate these types of tenants through the courts, and when they finally leave, they have wrecked the place. Good Move recommends that either you or your managing agent undertakes thorough credit agency checks on all potential tenants. You can carry out credit checks on websites such as Experian or Credit Karma, and they can be priceless at fishing out problematic tenants.
If you’re new to letting your property, bear in mind that some tenants haven’t rented before. If this is the case, make sure to ask for an employer’s reference, and potentially even a guarantor who can confirm they know the tenant, and can vouch they have the financial ability to pay the rent. The benefit of having a guarantor is if the tenant doesn’t pay, the liability falls on them, meaning you should still receive your money.
2) The legal implications
Whether you become an accidental landlord, or you willingly want to rent your home, you need to understand the legal ramifications and abide to the respective law.
There are a whole host of legalities you must consider, which can bring other potential issues when letting out your home. We recommend that you become a member of a professional landlord organisation such as the Residential Landlords Association, or the National Landlords Association, as you’ll have access to free legal advice, and help with documentation.
You should also ensure you have and use the right tenancy agreement for proposed new tenants. It’s imperative that this legal document is signed before you let any tenant through your door. The standard is the Assured Tenancy Agreement for residential lettings, and it’s a contractual and legal document between you as the homeowner, and the tenant.
It’s also important to remember, that if you’re renting out your house, you mudy keep your tenants’ deposit in one of the government’s approved tenancy deposit schemes, such as Deposit Protection or My Deposits.
3) Time management & problems for rental properties
Other potential issues can arise if you’re renting your home, but live a long distance away.
If you want to manage the property yourself, we’d recommend living within a five-mile radius, so you can keep an eye on it.
After all, being a landlord is a 24-hour job – if a tenant calls with a serious issue, such as the shower breaks, or they’ve lost their keys, then you need to be reactive, and get it sorted as soon as possible.
You’ll also need to bear in mind that if you’re letting out your home and managing it yourself, you will need to sort out any general maintenance and repair issues that arise.
Compile a book of reliable and trustworthy tradespeople who are available 24/7, so you can resolve the situation when it arises. There are some insurance schemes available to cover maintenance and repairs, but these can be quite costly..
Alternatively, you can hire a managing agent to deal with the day-to-day running of your rental property. They typically charge between
10 – 15% of your gross rent each month, but if you are living a distance from your home and have a job, then this could be the best option.
4) Ending a periodic tenancy
When a tenant is due to move into your property, in addition to getting a tenancy agreement signed, you need to sort out an inventory too. Create documentation along with
plenty of photographs of your property prior to occupation, and ask your tenant to review and sign it. That way, when the tenant eventually leaves, you can
refer back to the inventory to determine if the property has been left in poor condition.
Whilst the vast majority of tenants will keep your property in as good a condition as you would, unfortunately this is not the case for everyone. If a tenant leaves it dirty or damaged and you have an inventory, then as a landlord, you are well within your rights to knock the repair costs off the tenant’s deposit.
Whilst renting your home can bring about several potential problems, there are also many benefits to it. Namely, if you’re faced with a situation where you’ve bought a new house but your current house hasn’t sold, then becoming a landlord can enable you to move into your new property.
If you’re considering renting out your house, you’ll need to look at the different types of mortgages available to you, and the possibility of selling a house with sitting tenants later on down the line.
I you are struggling to sell and don’t want to leave your house vacant, have you considered selling your property quickly to a cash house buyer like Good Move? Regulated by the RICS (Royal Institution of Chartered Surveyors, and members of the NAPB (National Association of Property Buyers) we can buy properties within seven days. To get a no obligation cash offer, get in touch with us today.