Should you become an Accidental Landlord?
With property prices stagnant, standard mortgages hard to get and property sales sluggish, many people turning to the private rental market when they need to find a home, rather than buying. But what do you do if you already own a home, and want to move? The answer for many is to become a so-called ‘accidental landlord’, letting their home while renting another. For those unable or unwilling to sell, it seems like the perfect housing solution. But is it as easy as it sounds?
The Cost of Letting
If you want to rent out your home, the most important thing to do first is to work out full costings. Some first-time landlords make the mistake of thinking that they just need to make enough on rent to cover their mortgage. Not so – there are other significant costs to take into account.
Consider the following:
– Maintenance and repair costs. Work out what your average maintenance costs have been per year while you’ve lived in the property, and factor these in plus a little more to cover emergencies.
– Agency fees. It’s a good idea to let and manage your property through an agency. Otherwise, you will be constantly on call if anything goes wrong. If you can’t commit to being there, you’ll need to pay an agency around 10 % of the monthly rent to do it for you.
– Voids and arrears. Your property might not always be occupied, and your tenants might not always pay their rent on time. You need a contingency fund so that you can still pay the mortgage when this happens. The average property is vacant for around 3 weeks per year – but budget for up to two months.
– Insurance. Landlord insurance costs vary, but standard advice is to put aside around 2-4 % of the rental value to make sure they’re covered. Make sure you shop around to get the best landlord insurance quote you can.
Rental Essentials
Done the sums and think you can make letting your home work? Then you need to start planning. The first thing to do is to contact your mortgage lender. Most want you to ask permission before you rent out, and many will ask you to switch to a buy-to-let mortgage. They tend to have bigger fees and higher rates, but letting on a homeowner mortgage is likely to breach your terms and conditions and can invalidate insurance.
Next, get in touch with local letting agencies and see which can offer you the most attractive deal. Make sure they will vet tenants and credit check them, and don’t automatically choose the agent that offers you the highest rent – above market rents can mean long void periods.
Then get your property on the market – with rents rising, you’ll be joining a booming industry while keeping hold of your investment and having the freedom to move home.