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The advantages of renting
With the distinct lack of affordability in the sales market, over the course of the last decade more and more people are renting, up to a third of the population in urban centres. Renting is an option of choice for many now because of the flexibility it offers:
Long term tenancies start from as little as 6 months and you can move after this time if it doesn’t work for you.Being able to give notice to vacate lets you test relationships, whether that’s a new flatmate or a new partner.Working lives have changed and people change job, including their location, more frequently and renting makes this easierProfessionally managed properties take the burden of maintenance away from you, giving you time to enjoy other things. You will have one point of contact and you don’t have the problem of finding contractors and overseeing works.The ongoing costs of maintenance, building service charges buildings insurance are covered by the landlord.As you don’t have the additional costs that are covered by the owner it is much easier to predict your monthly costs.Whilst the costs of renting are high, the cost of getting on the rental ladder is substantially cheaper than buying a property.Property sharing reduces the cost per person allowing you to move to an area you may have thought out of your budget.Rental properties have to conform to safety standards.Shorter term lets are great for those who are in between moves or moving out whilst they do renovations.Short term lets are generally all inclusive of costs and so you’ll have one regular payment.You are more likely to find that one bed and two bed apartments in city centres are more likely to come furnished as well as properties designed for certain user groups, such as students. Landlords used to be able to claim tax relief against furnished properties. This tax break has now been removed and so there is no financial benefit to a landlord in providing a furnished property other than it making the property more desirable in certain circumstances.
The pros and cons of being a landlord
Being a landlord seems like a cushy job, but is it? We look at the arguments for and against owning and renting out a property.
On the face of it, being a landlord seems like an easy gig. After all, you're getting a lot of money every month for not doing very much, right? Well, not necessarily.
Being a landlord can be a complex and time-consuming job, and the legalities and financial obligations involved mean it's not right for everyone.
Advantages of being a landlord
Income
This is undoubtedly the main reason many consider becoming a landlord.
Every month (providing your tenants pay on time!), you'll receive a decent wedge of money which should be enough to cover any mortgage outstanding on the property, allowing you to hold on to the property while it (hopefully) gains value.
Obviously, this is an even more appealing prospect if you own the property outright.
Tax deductions
All rental income a landlord receives is taxable, and buy-to-let mortgages tend to have higher rates than others.
So as not to discourage individuals from becoming landlords, there are a few tax deductions available to address this. These include expenses for:
RepaintingReplacing damaged furnitureReplacing water pipes and disposal ductBuildings and contents insuranceAccounting processesCleaning and gardeningProfessional servicesDepreciation in the form of wear and tear (usually around 10% of the gross rental income)
Long-term security
Renting a property can provide an ongoing income which can be saved as a pension, or for a 'rainy day', plus - if your living situation changes - it's also possible for you to use the property yourself (so long as you uphold any contracts signed with tenants).
Flexibility of managing an investment
Being a landlord is like managing your own business, which can be very rewarding. You get to make the decisions on costs, contracts and terms, plus whether or not you want to sell your asset, and when. You're the boss!
View it as a long-term investment; it costs you to get in and it will cost you to get out
Disadvantages of being a landlord
Tax
Despite some tax breaks, you will have to pay tax on any rental income and deal with the associated paperwork.
Your money's locked in
The thought of being in control of your own investment may be appealing, but if you've put resources into a rental property you probably shouldn't be thinking in the short term.
Bear in mind also that - if and when you choose to get out - it may take some time to sell the property and release your assets.
Financial outlay
It's not enough to simply have a house to let, being a landlord can incur many further expenses, not all of which are tax deductible. Some common costs include:
Tax on rental incomeTenancy deposit schemeGas safety certificateEnergy efficiency certificateRepairs and maintenanceLandlord insuranceFurniture and decorationLetting agency fees, should you choose to use one (read more on using a letting agency in our guide)
Emergencies
Burst pipes, lost keys, broken boilers... all the household emergencies that could apply to you at home apply to your tenants, too.
Unless you employ an agency to deal with this sort of thing (an extra expense), you need to be prepared to deal with panic-stricken phone calls at all hours of the day or night from tenants needing help.
Maintenance and repair niggles
A broken door handle or dripping tap may be the sort of thing you can fix yourself, but your tenants might not be quite as DIY-savvy.
Be prepared to deal with small maintenance niggles which on the face of it don't seem too demanding, but - after you've factored in the efforts spent organising a suitable time to visit, or booking a handyman, then liaising with the occupants and then actually getting the job done - could prove to be quite a headache.
Legal issues
You'll need to be up to speed on the latest property law and legislation affecting landlords, and also know where you stand when it comes to late rent payments, deposits and evictions.
If things turn sour with your tenants you can expect to spend a lot of time - and potentially money - sorting things out.
Time
Being a landlord can be a time-consuming job. In addition to time spent sorting contracts, undertaking maintenance, sorting any disputes and dealing with taxes, you'll need to spend quality time vetting prospective tenants.
You can pay an agency to do this, but if you go it alone you need to view the potentially lengthy process as an investment - good tenants shouldn't cost you anything, but bad tenants almost certainly will.
Being a landlord means cutting any emotional ties to your property.
'Letting go'
It can be a bit of a wrench allowing new people into your property, especially if you've lived there yourself and view it as your home. Being a landlord means cutting any emotional ties to your property, learning to deal with wear and tear and not wincing if your tenant's taste in scatter cushions doesn't match your own.
Bad press
Landlords - particularly buy-to-let landlords - often get a raw deal in the media, especially during periods of housing crises. The long-held stereotype of landlords as dodgy wheeler-dealer types doesn't help, either!