Renting out a property that you own, either permanently or temporarily, is an excellent way to turn a profit and start building a property portfolio.
Before beginning this process, it’s important to know that there are two types of ‘mortgage to rental’ propositions;
1. Residential rental –designed for domestic homeowners who are looking to turn their current mortgaged property into a rental
2. Business rental –aimed at housing associations and/or businesses looking to increase their portfolio with rental properties
Different rules and regulations apply to both processes so before you start, first decide which type best suits your circumstances.
For the purpose of this article, we will be focusing on residential rentals – homeowners who are looking to convert their current property into a rental.
Image source: Alan Cleaver via Flickr
If you’re a homeowner looking to move house and then rent out your previous property to a tenant, the first thing you must do is contact your mortgage provider. If you don’t do this and instead decide to press on with the process, you could invalidate your current agreement. Your mortgage provider can also offer advice and insight into the process so it’s essential that you speak with them first.
Different mortgage agreements have different clauses built into the agreement. Some will prohibit any type of conversion to a rental, while others will only allow it on a temporary basis, known as consent-to-let.
Before making any firm plans, find out which one applies to you. If you’re not allowed to rent out your property with your current provider, you may have to think about switching before you can move on.
Assuming your mortgage provider approves your request to change your agreement, you can then move forward.
Unless you need to borrow more than 80% of the value of your current property, it should be a straightforward process to make the switch to a buy-to-let agreement.
If it is more than 80% though, your provider may not be willing to take the risk and you will have to reassess your plans. Ben Gosling from TurnKey Mortgages has this advice for those looking at buy-to-let agreements;
“One of the reasons that buy-to-let mortgages are more expensive is that they are riskier for lenders; they rely not just on you repaying your mortgage, but your tenants paying rent too.”
You will also need to have a professional evaluation done to see how much rental you can expect. This is used to calculate how much you can borrow for your next property.
Renting out your property means relying on a stable income from your tenants, as well as being able to afford repairs and maintenance that are your responsibility. Any money that is left over once the mortgage payments are made should be saved.
This creates a slush-fund that can be used for;
• Months between tenant changeover
• If you are unable to rent out your property for an extended period of time
• Repairs and maintenance – new boilers, fixing leaks, etc…
• Time and money spent managing the property in addition to your current schedule
Depending on the location of your property, you may also need to examine it from an environmental perspective. Some areas of the UK have environmental guidelines to adhere to if you are a landlord. You may need to make the property more energy efficient to bring up the Energy Performance rating.
Using an agent
Enlisting the services of a lettings agent can reduce your workload and make the transition process easier. This is a particularly attractive option if you are looking to rent out quickly and have other stresses to deal with.
Not only can the agent help with tenant viewings and getting your property on the market, he or she can also handle the day-to-day running of your let – handling tenant agreements, repairs, maintenance and disputes.
Bear in mind that using a lettings agent will also mean that they will take a portion of your monthly income. Depending on your circumstances, you may wish to do the extra legwork yourself.
There are rights and responsibilities that you as a landlord will need to cover, including;
• Ensuring that all fire regulations are met
• Making the tenant aware of repairs and maintenance services that you are responsible for
• Ensuring that building safety regulations are met, including gas and electric fittings
• Ensuring that the property meets the most recent building regulations
• Ensuring that an Energy Performance assessment is carried out
(Please note, legal responsibilities for landlords differ for England and Wales, and for Scotland. Visit gov.uk for further information.)
Charlotte has been writing online content for newspapers, magazines, websites and as a freelance ghost writer for the past eight years. She works at Spiral Media in Lincoln where she supports a number of ecommerce clients with their content and communication strategies.