With the UK’s rental market at its highest level since before the 2008 financial crisis, it’s a great time to become a landlord if you have the resources to invest and are looking for better returns than you’ll get in a savings account.
However, there’s a lot of work – and risk – that goes into being a landlord and it’s not the easy passive income generator many first-timers think it is.
Plus, government changes to tax rules around rental income have also made the prospect of renting properties less appealing for some.
Yet, it remains lucrative if you plan properly.
So, if you’re thinking of becoming a landlord in 2022, here are the main things you’ll need to consider first.
Do you have the time?
Investing in property isn’t a passive investment.
It takes a lot of time to research areas, narrow down specific properties, go through the buying process, make any necessary upgrades or improvements to the property, find a tenant and let the property.
And that’s before you consider the ongoing process of managing tenants, dealing with enquiries, sorting out unexpected repairs and collecting rent.
Even if you hire a letting agency to take over much of the management, you’re still going to have to take an active role in your properties.
Do your research
Many new landlords get caught up in looking at properties that they’d like to live in.
But remember, being a landlord is a business, and you have to judge your investments as such.
This means doing your research into the rental market in specific areas, judging which types of properties attract the best tenants and the highest rental yields, and which areas are up and coming so you get the best investments.
You should also do your research on the economic side of being a landlord, particularly when it comes to tax.
UK Government changes to tax rules surrounding landlord’s and rent have made it slightly less appealing than before, but if you do your research and have a solid rental strategy, there’s still money to be made.
Can you charge enough rent to make a profit?
On the money issue, you need to research thoroughly whether you’ll actually be able to charge the right level of rent to turn a profit – especially if you take a mortgage out to cover the cost of the property.
Not all the revenue you make from rent will be profit.
You’ll have to factor in mortgage payments, a repair and refurbishment fund, plus taxes and enough to cover any periods when your property isn’t generating rent.
As long as you do your research, you should be able to generate enough revenue to make a profit.
Do you understand your responsibility as a landlord?
As a landlord you’ll have a lot of legal responsibility to contend with in regards to your property and the safety of your tenants.
This includes basic things like installing smoke alarms and carbon monoxide detectors, having a valid EPC rating for the property, carrying out gas checks and obtaining gas safety certificates, complying with deposit protection laws – among other laws.
Will you self manage or use a letting agency?
Depending how involved you want to be in the day-to-day management of your investment property, you can either self-manage your rental home or hire a letting agency.
Both have their plus and minus points.
If you self-manage, you’ll have much more to do and will be responsible for rent collection as well as safety certificates and other regulations – but you’ll save on fees.
If you hire a letting agency, you’ll have more time to look for new investment properties as your agency will take care of all the management for you.
They’ll also go through the process of finding tenants and running the required checks for you too.
But you’ll have to pay a percentage of your rental income in a management fee.
Don’t forget your insurance
One thing you definitely don’t want to compromise on is your landlord’s property and contents insurance.
If your building suffers any damage, you don’t want to end up fronting the bill for any repairs or replacements as these can often be costly.
Similarly, if your tenants damage any contents, you could face a bill to replace them with no insurance.
Landlord’s insurance can also help cover you in the event your tenants go into arrears and ensure you continue to get the rent you’re owed.
It can also help the costs of any legal fees if you need to evict a tenant.
Is it still profitable being a landlord?
The fact is, while there’s a lot of work involved with being a landlord, it is still a highly profitable investment provided you do your research. If you want to find out about all of the different kinds of landlord insurance that we provide, such as student landlord insurance, then be sure to check out our website for more information.
As long as you take the time to investigate all the options and protect your investment with the right level of landlord insurance, you can find a profitable business model that can also help boost your retirement funds later on.