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Making the journey from accidental to professional landlord

POSTED: 20th February 2014
IN: Personal Guides
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All sorts of things can happen by accident - stubbing your toe, putting salt in your tea instead of sugar, even falling pregnant.

All sorts of things can happen by accident - stubbing your toe, putting salt in your tea instead of sugar, even falling pregnant.

But becoming a landlord? That sounds like a strange one. Well, the fact is that the economic vagaries of recent years have resulted in an increasing number of people effectively becoming landlords by accident.

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However, this is not to say that letting out a property is something you can simply fall into and do successfully without putting in any effort. It is a complex business that requires careful planning, administration and awareness of issues such as insurance, tax and property maintenance.

How do you become a landlord by accident?

The term 'accidental landlord' refers to an individual who has decided to rent out a home after failing to sell the property or possibly inheriting it.

In recent years, this has become more common owing to the economic downturn and the slowdown in the housing market, which has made it more difficult to complete sales.

Jeremy Clarke, proprietor of the Christchurch branch of lettings agency Belvoir, explained that another factor in the trend is the competitive employment market. Many people are having to be more flexible in their jobs, often needing to travel or work in another location, which is easier if you are letting your home.

Mr Clarke added: "An 'accidental landlord' differs from a professional landlord as they normally have emotional attachments to the property and this can make it harder for them to view the property as a mini-business in its own right.

"However, if managed correctly, becoming an 'accidental landlord' can be beneficial for those struggling to sell and the property can potentially pay for itself until the market improves."

Lender crackdown

It is important for people who rent out a property to be aware of their responsibilities and obligations.

In November 2013, it was reported that mortgage lenders were launching a crackdown on 'accidental landlords' who let out their properties without informing their bank, in order to avoid being put on a higher interest rate or transferred onto a more expensive buy-to-let loan.

Mortgage borrowers are contractually obliged to notify their lender if they want to rent out their home, but it has become clear that many people fail to do this.

Ray Boulger, a broker at John Charcol, said: "We know there are many borrowers who have let their property but failed to inform their lender.

"Before the financial crisis lenders didn't often check whether borrowers were still living in their property, but they are increasingly doing things like checking the electoral register to see who lives at an address and looking on letting websites such as Rightmove.co.uk to see if a property is listed."

For people who are serious about the property letting business, the best approach is to treat it as a profession.

Becoming a professional landlord

One of the first steps on the road to becoming a professional landlord is making yourself fully aware of your responsibilities.

These include ensuring your properties are safe and free from health hazards, providing Energy Performance Certificates and protecting tenant deposits in a government-approved scheme.

On the health and safety side, the most important issues include the safe installation and maintenance of gas and electrical equipment, and compliance with fire regulations.

Landlords are also obliged to ensure the property is in good condition and necessary repairs are carried out. You will generally be responsible for repairs to the structure of the home, heating and hot water systems, basins, sinks, baths and other sanitary fittings.

Furthermore, being a professional landlord brings many financial considerations, one of the most significant of which is tax. You should inform HM Revenue & Customs when you start renting out property and you will be taxed on your rental income, minus day-to-day running expenses.

In December 2013, the National Landlords Association (NLA) released a report reminding landlords of the importance of taking out insurance to cover non-payment of rent by tenants.

Research by the NLA found that 38 per cent of landlords had experienced rent arrears in the previous year.

Once you feel confident about the financial, legal and administrative aspects of letting property, you can start to focus on methods that will increase your chances of enjoying success as a professional landlord.

Gavin Sung, head of residential investment at Savills' lettings division, told the Telegraph that landlords will have a better chance of attracting tenants if they retain an impartial outlook and do not get too personally involved in the process.

"When buying a property as an investment for the first time, it's too easy to have emotional attachment in what you might like, rather than looking at the numbers and the reasons why a property will be a good investment," he explained.

"If you are never going to live there, let the facts and figures do the talking."

It is crucial to take the property letting business seriously; do plenty of research on your local housing market and wider trends across the UK.

Another sensible step is to draw up a business plan clarifying things such as what type of tenants you are targeting, your costs and income, projected profits and plans for future investment.

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