Investment property strategy
Before purchasing your buy to let investment you need to consider several factors; what is the objective of the investment, can you afford the investment if your circumstances change, how long do you want to invest for and what is your exit plan. Conducting market research and gaining as much advice and knowledge is advised, this will help you decide on the type of property and the location.
Buy To Let Market Research
Your first points of reference in your search for an investment property are likely to be online property portals, property pages in local newspapers and you are welcome to visit any Alan de Maid branch for advice.
By researching the rental property market, you can quickly gain an insight into achievable rents for various types of housing and areas. Look in the property sales sections for the likely values of property in those areas. By researching the property marketplace and seeking advice from a quality agent such as Alan de Maid, you can build a plan to start you investment; this should include the answers to the following questions:
• Which areas are most suitable for buy to let investment?
• Which areas you should avoid?
• Which areas have significant rental demand?
• What type of rental property is likely to be popular in your chosen locality?
• Average monthly rents being charged for your chosen property type in your chosen location?
Think about your target tenant
Instead of considering if you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want?
• Students - affordable, easy to clean and comfortable, but not luxurious.
• Young professionals - modern and stylish, but not overbearing.
• Family - a 'blank canvas', as they will have plenty of their own belongings.
When you are ready to consider purchase, this is when careful management of your costs is imperative. You will need to consider all associated fees such as Solicitors and setting up your mortgage. Alan de Maid Estate agency can give you advice on the purchase process.
Transfers of residential property are subject to Stamp Duty Land Tax
(SDLT) at the following rates (Based on 2014/15 tax rates):
Property price Rate
Up to £125,000 0%
£125,001 to £250,000 1%
£250,001 to £500,000 3%
£500,001 to £1,000,000 4%
£1,000,001 to £2,000,000 5%
Over £2,000,000* 7%
*Where the interest/property with a consideration in excess of £2 million is purchased in sole or joint names then a 15 per cent rate
SDLT charge will apply to the following:
• All such purchases by bodies corporate (largely companies);
• All collective investment schemes; and
• All partnerships where there are one or more members are one of the above.
Types of tenancy
The tenancy you are most likely to encounter is an assured short hold tenancy (AST). This is the type of tenancy which affords a Landlord the most protection with regard to evicting a tenant should the need arise, as there are mandatory grounds defined in the housing act to ensure the Landlord gets their property back. The other type of tenancy a Landlord is likely to encounter is a Non Housing Act tenancy.
This is likely to be the case if:
• A Company wants to rent the property for an employee
• The property is a conversion where the Landlord lives in part of it
• The annual rent exceeds £100,000
• The tenant uses the property only during the week and isn’t their main residence
Assured Shorthold Tenancy Agreements
Private rented tenants will automatically be assured shorthold tenants if they pay rent to private landlords who do not live in the same building.
An assured shorthold tenancy gives people a legal right to live in their home. The law provides basic rights and other conditions may be added into the shorthold tenancy agreement (if fair to both parties), to be signed by the Tenant and Landlord.
Tenants have the right to:
• Live there until the agreement ends or a court order is sought
• Receive details of their tenancy agreement within 28 days
• To live in the property without harassment or interference by the landlord or their agent.
• Can expect some repairs and maintenance to be carried out by the Landlord, so long as the tenant has not caused these works by his / her own actions or omissions.
• Live in their home without being disturbed
The landlord and other people cannot enter freely when they wish and must seek permission to visit – typically at least 24 hours written notice should be given or a mutually convenient time arranged.
Tenancy Deposit Protection Schemes
A deposit is put into place to protect the landlord against any damages beyond reasonable wear and tear a tenant may cause and also protects landlords from tenants leaving without paying rent. The deposit will be written into the tenancy agreement.
The tenant’s deposit will be need to be protected by a government approved tenancy deposit protection scheme (TDP). The TDP is in place to ensure that if there are any disputes about the return of a deposit an independent committee will hear both sides of the argument and make a ruling. It is exceptionally important the tenant’s deposit is registered into a tenancy deposit scheme, otherwise there are severe financial ramifications against the landlord for not doing so. Not protecting the tenant’s deposit can impact a landlord’s right to serve eviction notices.
Rent arrears is the amount of money that is not paid by the tenants at the agreed time. Unfortunately rent arrears increase in time of economic uncertainty. Where possible landlords should do all they can to compromise with the tenants over rent arrears? Creating a repayment plan or giving a small reduction is not ideal but it avoids the costly process of servingeviction notices and could possibly lead to void periods (no rental income at all) and finding a replacement tenant. We can advise you on this as circumstances will vary.
Rent and repairs
An agreed rent must be paid on time and if not, landlords may take action to have tenants evicted. It may be possible for tenants to seek housemates to move in as subtenants or lodgers. It is vital to ask a landlord’s permission for this otherwise a tenant may be in breach of their agreement. By law Landlords are required to conduct certain repairs and their responsibilities include the heating and electricity supply, the water and gas supply as well as the structure of the building. Alan de Maid can advise you about these. More information about this can be found in the rights and responsibilities section.
Landlords must have a valid landlord gas safety certificatefor every gas appliance and furniture should be fire resistant. Tenants are responsible for looking after their home, which includes keeping it clean, and simple tasks such as changing bulbs and fuses. If repairs need to be done, tenants should inform the landlord. The Landlord is accountable for certain repairs such as the water and gas supply and the electrics including wiring. Failure to tend to these repairs could cause issues when eviction is necessary or deposits need to be withheld from the Tenant. Property wear and tear is more likely to be to a greater degree from tenants who are students or families than from professional tenants.
Notice and eviction
A tenancy runs until it is ended by a tenant or landlord through agreed surrender of the property, a notice being served, or eviction. Tenants on fixed-terms can only end the tenancy during that time if their agreement says so, dependent upon the agreed notice period. A landlord must give notice if they want a tenant to leave. Unless the tenant has breached the agreement and the landlord is trying to evict, this notice may only be given if a break clause has been agreed within the terms of the tenancy. In order to terminate the tenancy at the end of the agreed term, and be certain of gaining possession, two months’ notice must be served using a Section 21 Notice. This notice period may be longer than two months if your rent is paid quarterly, six monthly or a year in advance.
Under an assured short hold tenancy a tenant can be evicted reasonably easily. However, there is a process to follow and a Landlord is required by the Protection from Eviction Act 1977 to gain an order for possession from the court. This is common for problems such as rent arrears, or consistent late payment, but may also occur under a periodic rolling contract, or fixed tenancy that has run out, or if a tenant challenges a rent rise or demands repairs.
Landlord Rights & Responsibilities
As a landlord you have certain responsibilities to the tenants that is protected by law;
• Live in a property that safeguards their health, welfare and safety and that is in good state of repair.
• Have access to an Electrical Performance Certificate.
• Have a full understanding of who their landlord is and have the accessibility to contact them.
• Live in the property undisturbed also known as have quiet enjoyment of the property.
• Challenge excessively high rents (tenants can appeal to an independent committee if they believe their rents are too high).
• Have their deposits returned to them at the end of the tenancy if they have met all the terms in their tenancy agreement.
• Be protected from unfair eviction.
In return you have rights that will help protect your investment;
• Agree the terms of the tenancy.
• Receive an agreed reasonable amount of rent on time.
• Reasonable access to the property, you must give 24 hours’ notice unless it is an emergency.
• Increase the rent at certain times as long as the rent is fair and justified.
• Receive proper notice of the tenant departing the property.
• Charge the cost of the repairs to the tenant that is beyond reasonable wear and tear.
• The right to serve an eviction notice if the rent is not paid or any other major infringements against the tenancy agreement.
The property requirements
As a landlord you do have some legal requirements, these are generally concerned with the health and safety of your tenants. The tenants’ rights to live in a property in “good state of repair” is protected by law so it is advised you adhere to your legal requirements.
Gas Safety Certificates
If the property has any kind of gas supply (kitchen appliances or central heating) it is the landlord’s responsibility to maintain this under The Gas Safety (Installation and Use) Regulations 1998: All the pipework and appliances must be maintained to a good working order, this will also mean regular inspections and occasional necessary repairs.
A valid and up to date gas safety certificate must be able to be made available if there are tenants occupying the property. Gas safety checks are required every 12 months and must be carried out by a Gas Safe Registered engineer.
If a tenant has a gas appliance the landlord did not supply the landlord is responsible for associated parts of the installation linking to the supply but not the appliance itself.
Landlords are accountable for any electrical wiring and appliances made available to the tenant. This involves the testing of electrics to ensure they are in good working order. There also needs to be enough plug sockets to minimise the need for using multi plug adaptors. The property will require residual current devices to protect tenants from electric shocks.
Any electrical items should carry marking to identify it has passed the basic requirements as per EU legislation; ideally a British Standard Kite mark. It is recommended the property receives an electrical inspection every time a tenant departs the property and before a new tenants occupies it.
An electrician can provide a landlord with an Electrical Installation Condition report, this will detail what has been tested and when; the paperwork should be kept and made available to tenants.
The landlord has a duty of care over their tenants to take general precautions, to ensure the safety of the people occupying the property and the immediate vicinity; this forms part of The Regulatory Reform (Fire Safety) Order 2005.
Fire risk assessments will identify any potential hazard and a landlord must put into place a maintenance process to ensure the continued safety of tenants. As fire hazards and the maintenance to minimise the risk of fire damage, injury or death specific to the property there is no all-encompassing set of guidelines. Ensuring tenants are aware or have access to the below principles should help landlords maintain fire safety;
• Escape routes are identified and these have been explained to the tenants.
• A fire detection system and smoke alarms that are hardwired to the electrical mains. Landlords should advise their tenants to regularly check their smoke alarms are working properly.
• Emergency lighting may be needed in larger properties or properties with many storeys.
• Fire extinguishers and fire blankets should be supplied but tenants made aware that these are for small fires. This equipment should be regularly checked and safety certificates proving their effectiveness made available.
If the property is furnished the furnishing will need to meet the standards laid out in the Fire Safety Regulations 1988. It is the landlord’s responsibility to ensure all the furnishings have a label on them to identify they meet the regulations.