Renting Out Your Property For Dummies, UK Edition

Melanie Bien has written about property for national newspapers and magazines and spent five years as Personal Finance Editor at the Independent on Sunday. She is the author of Renting Out Your Property For Dummies, Buying a Home on a Budget For Dummies and Sorting Out Your Finances For Dummies. Robert Griswold lectures at the Institute for Real Estate Management.

Introduction 1

About This Book 1

Conventions Used in This Book 1

What You’re Not to Read 2

Foolish Assumptions 2

How This Book is Organised 3

Part I: So You Want to Be a Landlord? 3

Part II: Renting Your Property 3

Part III: The Brass Tacks of Managing Rentals 4

Part IV: Techniques and Tools for Managing 4

Part V: Money, Money, Money! 4

Part VI: Only for the Daring 4

Part VII: The Part of Tens 5

Part VIII: Appendices 5

Icons Used in This Book 5

Where to Go from Here 6

Part I: So You Want to Be a Landlord? 7

Chapter 1: Do You Have What it Takes to Manage a Buy-to-Let Property? 9

Recognising the Advantages of Owning Rental Property 10

Being Honest with Yourself about Your Skills and Experience 11

People who need people: Putting your interpersonal skills to the test 11

Making sure you have good management skills 13

Chapter 2: Deciding Whether to Manage Your Property Yourself or to Hire an Agent 15

Managing Your Rental Yourself 16

Recognising the advantages of self-management 16

Paying attention to the drawbacks 17

Managing your property from a distance 17

Exploring Professional Management 18

Knowing what to look for in a letting agent 19

Telling the good from the bad and the ugly 20

Paying your letting agent 23

Making sense of management agreements 25

Knowing the tax consequences of using a management company 26

Chapter 3: Becoming an Accidental Landlord 27

Deciding to Rent Out Your Own Home 27

Needing to move but unable to sell 28

Recognising your home’s limitations 28

Setting the price 29

Finding a tenant 30

Knowing the law 30

Seeking Consent-to-Let 31

Staying on your existing mortgage 32

Paying a premium 32

Switching to a buy-to-let mortgage 32

Remembering your insurer 33

Part II: Renting Your Property 35

Chapter 4: Finding the Perfect Rental Property 37

Knowing What to Look For 37

Deciding on size 38

Setting your budget 39

Finding the ideal location 39

Considering dilapidated properties 41

Letting out a basement in your home 41

Sourcing Your Rental Property 42

Using an estate agent 42

Buying at auction 43

Using the Internet 44

Checking Out the Tenant Pool 44

Chapter 5: Preparing Your Rental Property for Prospective Tenants 45

Coming Up with a Plan to Handle Vacancies 46

Considering renovations and upgrades 46

Paying attention to the exterior or common areas 48

Making sure the interior of the property is up-to-scratch 49

Deciding whether to furnish 51

Preparing Your Rental Property the Right Way 52

Keeping up appearances 53

Making sure everything’s ticking over 53

Getting out the paintbrush 54

Applying some elbow grease 55

Sorting out flooring 56

Introducing Energy Performance Certificates 57

Inspecting Safety Items 57

Facing up to fire 57

Checking the electrics 58

Taking sensible precautions 58

Using Outside Contractors 59

Chapter 6: Rent, Deposits and Tenancy Agreements: The Big Three of Property Management 61

Setting the Rent 62

Examining the return on your investment 62

Conducting a market analysis of the rent in your area 64

Coming Up with a Fair Deposit 65

Protecting your tenant’s deposit 66

Setting a reasonable deposit 67

Avoiding non-refundable deposits 67

Increasing deposits 68

Using a Tenancy Agreement 68

The Rent Assessment Committee 70

A standard tenancy agreement 70

Chapter 7: Generating Interest in Your Rental Property 73

Developing a Marketing Plan 73

Determining your target market 74

Knowing what your tenants stand to gain from your property 75

Understanding the Importance of Good Advertising 76

Rifle versus shotgun: Picking an advertising approach 77

Kerb appeal: Getting your property to rent itself 78

Looking at Your Advertising Options 79

Word-of-mouth 80

Property signs 81

Newspapers 83

Internet 89

Flyers 90

Rental publications 92

Local noticeboards 92

Local employers 92

Letting agencies 93

Advertising without Discriminating 93

Chapter 8: Handling Prospective Tenants and Showing the Property 95

Making the Most of Technology 95

Using your phone’s special features to your advantage 96

Preparing for Phone Calls 99

Having the basic tools ready 99

Answering the phone 103

Providing and obtaining the basic information 104

Convincing the prospective tenant to rent your property 106

Checking the prospective tenant’s suitability over the phone 107

Handling phone objections 109

Converting phone calls to rental showings 109

Planning Ahead for Open Houses and Individual Viewings 111

Holding an open house 112

Scheduling individual appointments 113

Providing directions to the property 113

Showing Your Rental Property 114

Showing a vacant property 114

Showing an occupied property 115

Checking if the prospective tenant is suitable during the property viewing 116

Resolving objections 117

Convincing the prospective tenant 118

Inviting the prospective tenant to rent your property 118

Persuading the prospective tenant to complete a rental application 119

Holding a deposit 120

Using waiting lists 121

Handling Hazardous Materials and Environmental Issues 122

Lead-based paint 122

Asbestos 123

Radon 125

Chapter 9: Eenie, Meenie, Miney, Mo: Selecting Your Tenants 127

Understanding the Importance of Screening 128

Establishing Tenant Selection Criteria 129

Verifying Rental Applications 131

Verifying the identity of all adults 132

Reviewing occupancy guidelines 132

Checking rental history 133

Verifying employment and income 134

Reviewing the applicant’s credit history 136

Talking with all character references 138

Dealing with guarantors 138

Notifying the Applicant of Your Decision 139

Avoiding Complaints of Discrimination 140

What it is and what it isn’t 140

Steering 141

Children 142

Disabled tenants 142

Reasonable accommodations 143

Guide dogs 144

Sexual harassment 145

Part III: The Brass Tacks of Managing Rentals 147

Chapter 10: Moving in the Tenant 149

Establishing the Move-In Date 150

Meeting with Your Tenant Prior to Move-In 151

Going over the rules with your new tenant 151

Reviewing and signing documents 153

Collecting the money 157

Inspecting the property with your tenant before the move-in 158

Giving your tenant an informational letter 161

Distributing the keys 162

Setting up the Tenant File 164

Preparing a Welcome Pack for Your New Tenant 165

Chapter 11: Collecting and Increasing Rent 167

Creating a Written Rent Collection Policy 168

When rent is due 168

How rent is paid 170

Dealing with Rent Collection Problems 173

Collecting late rent 173

Charging late fees 174

Handling bounced cheques 175

Dealing with partial rental payments 176

Serving legal notices 177

Increasing the Rent 177

Deciding when and how much 178

Informing the tenant 178

Sweetening the pill 179

Chapter 12: Keeping Good Tenants – and Your Sanity 181

What Tenants Want 182

Timely and effective communication 182

Quick responses to maintenance requests 183

Respect for your tenants’ privacy 184

Enforcement of house rules 184

Fair rent and increases 185

Renewing Tenancy Agreements 185

Tempting your tenant to stay 185

Better the devil you know 186

Chapter 13: Dealing with Problem Tenants 187

Recognising and Responding to Common Tenant Problems 187

Late payment of rent 188

Additional occupants 188

Inappropriate noise levels 189

Unsupervised children 190

Exploring Alternatives to Eviction 190

Negotiating a voluntary move-out 191

Using mediation or arbitration services 191

Taking your tenant to court 192

Evicting a Tenant 192

Serving legal notices 192

Enforcing County Court Judgements 194

Knowing What to Do in Unusual Tenant Situations 195

Bankruptcy 195

Sitting tenants 195

Broken tenancy agreements 196

Subletting 196

Departing housemates 197

Domestic problems 197

Death of a tenant 198

Chapter 14: Moving Out Tenants 199

Requiring Written Notice 200

Giving Your Tenants a Move-Out Information Letter 201

Inspecting the Property’s Condition at Move-Out 202

Noting damages 202

Using a Deposit Itemisation form 205

Handling Special Move-Out Situations 206

When damage and unpaid rent exceed the deposit 206

When disputes arise over the deposit 207

When the rental property is abandoned 207

Part IV: Techniques and Tools for Managing 209

Chapter 15: Maintenance 211

Recognising the Importance of a Maintenance Plan 212

Being Prepared for the Different Types of Maintenance Issues 213

Emergency repairs 213

Preventive maintenance 214

Corrective maintenance 214

Custodial maintenance 215

Cosmetic maintenance 216

And what if I don’t? 216

Handling Rental Property Maintenance 217

Responding to a tenant’s request for repairs 217

Keeping tenants from fixing things themselves 218

Purchasing maintenance parts and supplies 219

Chapter 16: Safety, Security and Insurance 221

Tackling Crime in and around Your Rental Property 221

Participating in your local Neighbourhood Watch scheme 222

Paying attention to tenants’ questions and complaints about safety-related issues 223

Responding to crimes when they occur 224

Taking Security Precautions 225

Keys 225

Lighting 226

Addressing Environmental Issues 227

Fire safety 227

Carbon monoxide 229

Natural disasters 229

Cover Me, I’m Going In! Making Sure You Have the Insurance You Need 230

Choosing a company and getting the coverage you need 230

Understanding the types of insurance cover available 232

Determining the right excess 234

Encouraging your tenants to get home contents insurance 234

Handling potential claims 235

Part V: Money, Money, Money! 237

Chapter 17: Raising the Cash to Buy Your Rental Property 239

Making Sure You Can Afford to Buy a Rental Property 240

Buy-to-Let Mortgages 240

Generating enough rental income 241

Raising a deposit 242

Finding the right buy-to-let mortgage 243

Remortgaging to a better deal 247

Releasing equity 248

The more the merrier 248

Renting Out in Order to Buy Again 249

Using a Mortgage Broker 249

Chapter 18: Avoiding Property Taxes 251

Knowing Which Taxes You’re Responsible for Paying 251

Avoiding Income Tax 252

Allowances on Furnished Property 253

Avoiding Capital Gains Tax 254

Steering Clear of Council Tax 255

Minimising Stamp Duty Land Tax 256

Advanced Tax Avoidance Tips 256

Share and share alike: owning property with someone else 257

Thinking about Inheritance Tax 258

Chapter 19: Using a Company to Hold Your Property 261

Understanding the Pros of Using a Company 261

Beneficial tax regime 262

Limited liability 262

Flexible ownership 263

Status 263

Spotting the Cons of Using a Company 263

Setting Up a Property Company 264

Deciding on private or public 265

Choosing a name 265

Registering to pay tax 266

Placing Existing Property into a New Company 266

Chapter 20: Financial Management and Recordkeeping 267

Organising Your Files 267

The property ownership file 268

Separate files for each rental property 268

Tenant files 268

Insurance file 269

Maintaining Property Records 269

Taking Care of Business: Rental Property Accounting 270

Creating a budget and managing your cash flow 271

Using technology for financial management 272

Hiring a professional number-cruncher 273

Part VI: Only for the Daring 275

Chapter 21: Government Programmes 277

Housing Benefit 278

Housing Associations 279

How they work 279

Which properties are eligible 280

Pursuing this option 280

Chapter 22: Working in Niche Markets: Students, Pets, HMOs and Smokers 283

Taking another Look at Your Pet Policy 283

Renting to Students: Is It Really Like the Young Ones? 285

Getting a rental property in a university town 285

Preparing for the challenges involved 286

Houses in Multiple Occupation (HMOs) 287

Establishing whether you need a licence 287

Taking health and safety onboard 288

Changing an HMO: when to notify the local authority 288

Smoking or No Smoking? Tapping into Potential Markets 289

Catering to smokers 289

Designating your rental properties no smoking 290

Part VII: The Part of Tens 291

Chapter 23: Ten Reasons to Become a Rental Property Owner 293

You Can Diversify Your Investments 293

You Don’t Need Much Money to Start 293

It Can Be a Second Income 294

You Gain Tax Advantages 294

Property Holds Its Value 294

You Get Leverage 295

It Beats Inflation 295

You Get a Positive Cash Flow 295

It’s an Alternative to a Pension 296

It Can Make You Wealthy in the Long Run 296

Chapter 24: Ten Ways to Get and Keep Full Occupancy in Your Property 297

Maintain Kerb Appeal 297

Keep the Property in Rent-Ready Condition 298

Establish a Competitive Rent 298

Offer Prospective Tenants a Rent Guarantee 298

Stay Ahead of the Technology Curve 299

Offer Referral Fees 299

Accept Pets 299

Offer Move-In Gifts or Upgrades 300

Contact Big Companies or Corporations 300

Accept Housing Benefit 301

Chapter 25: Ten Ways to Increase Cash Flow 303

Increase the Rent 303

Decrease Your Operating Expenses 304

Reduce Your Turnover 304

Remortgage Your Rental Property – Perhaps 304

Upgrade Your Rental Property 305

Pre-Let to Minimise Void Periods 305

Buy Freehold Rather than Leasehold 306

Avoid Gas Appliances 306

Do Your Own Repairs 307

Manage Your Rental Properties Yourself 307

Part VIII: Appendices 309

Appendix A: Resources 311

Professional and Trade Organisations 311

Government Organisations 312

Further Information 313

Mortgage Brokers 313

Credit Reference Agencies 314

Appendix B: Forms, Templates and Standard Letters 315

Index 361