Landlord is an occupation that gets a lot of negative attention. According to popular opinion, they simply own a lot of buildings, charge other people to live in them, and make a great deal of money without much in the way of effort.
This is overstating things a tad. Acquiring property is far from easy – especially if you don’t have a sizeable amount of capital to begin with. We’ll look at some of the steps you might take to become a landlord. But first, let’s ask why you might want to do so!
Why Become a Landlord?
The category of ‘landlord’ is broader than you might think. If you own several properties, and you’re renting them out, then you certainly qualify. But, as far as the rules are concerned, you also qualify if you’re just temporarily letting out the house you’ve been living in, because you’re staying elsewhere for a longer period of time.
Landlords can make a sizeable income, if they’re competent. But it’s easy to understand and account for all of your potential costs ahead of time, and to set aside a fund that can act as a buffer if you find yourself overstretched.
A buy-to-let mortgage is an easy way to become a landlord. You fund the purchase of a property through borrowing, and pay back the debt over time. The difference between the amount you charge your tenants in rent and the cost of repaying the mortgage is your profit. Factor in the cost of maintenance, wear and tear, and the fact that the property might not always be occupied, and you might find that this margin shrinks considerably.
For years, lenders have been suggesting that the Bank of England’s base rate could rise, and thus variable-rate mortgages are inherently risky. The coronavirus depressed rates even further, and thus this advice rings truer than ever. Bear in mind that your rate of repayment will be more generous depending on how much you’re putting down as a deposit.
The first property is among the most important you’ll buy. Choose the right location and your career as a landlord will get off to the best possible start. Don’t rush into a purchase, and always be ready to walk away. Look at the amount you need to not only pay off the mortgage, but to expand into a second property, and then a third.
When you have many properties, the risk of wear and tear and sudden damage is spread. When you only have a few, the danger becomes that little bit sharper. You can protect against sudden losses through landlords’ insurance.
If you’re buying a property in need of renovation, then factor in not only the cost of the actual work, but the time it’ll take (during which you won’t be able to rent the place out). If you have the time to spare in daily life, then you might commit to overseeing the renovation personally. If this isn’t something you can commit to, then outsource the work to a professional project manager.
As your empire expands, you may have difficulty in handling all of the day-to-day problems which will inevitably arise. If you have half-a-dozen properties, then it might be only once in a while that a tenant phones up with a problem. If you have several hundred, then the administrative workload will become unworkable. If your margins allow, you might consider outsourcing your responsibilities.