Becoming the Accidental Landlord
- 5th July 2018
- Posted by: Loanable
- Category: Resources
In the buy-to-let property market, not everyone sets out to become a landlord. For some it happens by “accident”, and should you find yourself in this position, there are a few things you need to be aware of.
Being a Landlord
Landlords are investors who instead of buying shares or stocks in a company, prefer to see their investments in the form of bricks and mortar.
Something tangible they can touch.
Being a landlord is rewarding as you are providing an accommodation, shelter, and a home to someone. Yes, as a tenant they pay you rent, but it is still a valuable service being provided.
Being a landlord can be a challenge, especially if you have difficult tenants, or properties that are constantly in need of repair. These repairs or lost rents, can take a landlord from profitable to bankrupt very quickly.
Being a landlord also takes some planning, and saving. You have to save money to begin your property portfolio business, and do research and be knowledgeable of the real estate market, trends, prices, and locations.
As you can see, being a landlord is work, real work. It is not all sitting back and watching the rents come in each month.
As a landlord you also need to know about financing, how to pay for the properties you are purchasing, which usually means a mortgage, in specific a buy-to-let mortgage.
Buy-to-let mortgages are mortgages granted to property investors who have stated they are buying a property to specifically let that property out. The purchaser and borrower have no intentions of residing in the property.
This fact that the owner of the property is no going to live there, causes the bank or lender to consider their position on granting a loan. If a person buys and finances a property and is not going to live there, there is a higher risk of a default.
Usually, defaults are higher on non-occupied properties, and non-owner-occupied properties.
Banks and lenders know the risks, and as such, underwrite or approve buy-to-let mortgages in a different manner.
This is important to know, and keep in mind when discussing accidental landlords.
The term accidental landlord really is not an accurate term or title, because in the scope of things, it is no accident someone becomes a landlord.
The term accidental landlord usually refers to someone who is trying to sell their house, but cannot find a buyer, so they rent their house out, using the rent to pay the mortgage payment, which frees up money so they can buy their next house.
While sometimes accidental, this is one way someone gets on the landlord-property ladder. They buy a property, live in it for a period, let it out, buy another property, live in it for a period, let it out, and the cycle continues.
There is a big problem with being an accidental landlord, and your mortgage company are the ones that take exception to this.
If your mortgage loan was approved based on it being an owner-occupied loan and property, by letting the property out, you are essentially breaking the mortgage contract. There are also insurance issues for the property as well. Your insurer may feel you are breaking that contract, and should there be a future claim, they may deny the claim.
Which takes us back to the need for a buy-to-let mortgage.
You can contact your mortgage company, and request a Consent to Let, which if granted allows you up to 12 months to have a tenant while still looking for a buyer to sell the property to.
If your mortgage company will not grant the Consent to Let, or the time period has passed, you will then need to consider getting a buy-to-let mortgage for the property. You also need to discuss this with your insurer as well.
There can be tax implications due to the government’s changes on how rental income is taxed. Previously landlords were only taxed on profits, now landlords pay taxes on the entire rental income, not just any profit.
In addition, as a landlord your property must be safe and inspected, and some councils require you apply for a landlord license.
Then there is the deposit scheme for tenant’s deposits, and how the deposit is to be handled.
And lastly, let’s not forget the Right-to-Rent, based on the Immigration Act 2014.
As a landlord you have a responsibility to make sure your tenants have the right to rent and live in the country. This is done by checking certain documents and holding copies of these documents.
As one can see, being a landlord is a job, and not one to fall into by accident.