5 things you need to know before becoming a landlord
Investing in property such as ‘buying to let’ used to be an incredibly popular way of making money, for those with the capital to do so. However, changes to tax have made this a slightly less attractive option. As well as the less favourable tax situation, there are plenty of drawbacks to becoming a landlord.
If you are thinking about doing this then you should read this first before you put any money into it.
1. Tax changes on buy-to-let properties
Since April 2017, tax relief changes have been phased in for the landlords that the new rules apply to. Previously, finance costs were used to calculate taxable property profits but this is no longer the case. So mortgages, loans and overdrafts are not used in the calculations to decide the profit amount. The government decided to stagger the tax changes over the years 2017-2020 to help existing landlords decide whether to sell their properties and move out of the type of work.
So if you are thinking about becoming a landlord, you need to understand how much tax you are likely to pay from 2020 onwards. You will also need to have a good idea of the price of the property you are going to buy and the rental yield, so take a look at a house bidding website for property auction prices or an estate agent’s website for house prices.
2. Estate agents vs. managing yourself
There are lots of pros of paying a letting agent to manage your property, particularly the fact that you will not be the person dealing with tenants when they have issues or chasing payments etc. They also do the reference checks for you to determine whether it is a risk taking on a particular tenant if they have bad credit.
All of that comes at a price though and it is for you to decide whether it is worth the money. There are also different levels of service you can get from them.