I have inherited a property and am thinking about renting it out. What should I consider before taking this step?
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Our property expert Simon Gerrard weighs up whether to sell or let out an inherited property
If you own a property and decide to go down the rental path, you are in the same position as someone who is coming into the buy to let market, and the advice is exactly the same.
The first question you should ask is the same as an investor, before they commit to buying a property; ‘is there a demand for my type of property from tenants’. Speak to your local ARLA licensed letting agent who will quickly be able to let you know the popularity and level of rent you could achieve. You don’t want a property in an area of low demand or an area that is already saturated with similar rental properties as this may mean that you need to lower the rent to stay in competition and avoid any void periods.
Just like a buy to let investor you will need to look closely at the outgoings. If the property is a flat you will have regular ongoing service charge, insurance and maintenance bills. It is also advisable to allow for some void periods when the property is empty.
You should employ the services of an ARLA licensed letting agent. Knowing where and how to advertise your property, how to vet your potential tenants and the kind of tenancy you should use can be tricky if you have no experience. Being a landlord is a full-time responsibility but you can use your agent to manage the letting for you, collecting the rent and taking care of the day to day issues, thereby removing much of the hassle.
Another aspect to consider is ensuring you comply with the myriad of legislation, any of which can easily catch out an unwary landlord resulting in heavy fines. There are more regulations than ever governing rented property, with more being introduced.
This October has seen major reforms in the law which have changed the way a landlord can gain possession of their property from a tenant. The circumstances in which the Section 21 notice can be served have been amended and if they are not taken into account the notice can be invalid. Having smoke and carbon monoxide alarms installed is also now a legal requirement.
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The government recently announced that from February 1, 2016 landlords in England must check a new tenant’s immigration status before renting out their property, or face penalties of up to £3,000 per tenant if they don’t have the right to be in the UK. Employ the services of a reputable agent to guide you through this legislative minefield.
The property may need work to bring it up to the right standard for renting. Don’t let personal tastes cloud your judgment, decorate and furnish to demand. Remember even the best tenants will cause some degree of wear and tear. Don’t furnish with second hand or cast off furniture as these could easily contravene furnishing regulations.
It is essential to get proper advice from a tax consultant as there will be a number of tax implications involved with letting. They will also be able to guide you on a forthcoming change in the tax law. During the last budget the Chancellor announced a change to the amount of tax relief that a landlord can claim. Currently relief on interest payments can be claimed at the top level of tax you pay. However from April 2017 and being phased in over four years, the maximum relief will be reduced to the basic rate of tax – currently 20 per cent.
Overall being a landlord can be rewarding and satisfying, however if the likely rental income doesn’t cover the running costs, or you don’t want the responsibilities of being a landlord then you should look at selling.
Simon Gerrard is the managing director of north London estate agents, Martyn Gerrard and a former president of the National Association of Estate Agents. Email your questions to firstname.lastname@example.org or tweet @hamhighproperty