Why renting property is a business not a hobby
While things have changed for buy-to-let landlords, in terms of tax, stamp duty and regulation, renting out property is still a very reliable source of income and a good long-term investment.
The key to success is being professional and understanding that your lettings venture is above all business, not a hobby.
A business-like approach
If asked to name the UK’s most influential entrepreneurs, who springs to mind – Richard Branson? Karen Brady? Victoria Beckham? Whoever who choose, it’s likely they have some of the same qualities – from a shrewd eye for an opportunity to the interpersonal and negotiation skills needed to clinch the deal.
It’s also likely they’ll know their business and their market inside out, with the capacity to keep learning. As a property entrepreneur, you’ll need to emulate some of these killer qualities too.
Most residential landlords in England and Wales aren’t operating their businesses full-time. Some are retired but many have day jobs – lots of them in business. So, it’s likely you already have a wealth of transferrable skills of benefit to your rental project – from communication and organisation to marketing and negotiation.
Remember the bottom line
Like any business, your ultimate goal is profit, so you need to manage your property (or portfolio) with rental income in mind. However, running a successful property enterprise isn’t about a ruthless, cut-throat approach. You’re providing homes for tenants – one of the most basic and vital services there is, and your reputation rests on how well they are treated.
Know when to delegate
Another key quality of the successful entrepreneur is knowing when to delegate. You may want to plunge into the property business head first but remember to play to your skills. If, for example, finance and taxation aren’t your areas of knowledge or interest, it’s time to bring in an accountant.
Seven steps to take now
Having established that the key to a successful rental venture is a business-like approach, what does that mean in reality? Whether you’re a new buy-to-let landlord, with one or more properties, or an accidental one following an inheritance or house move, there are steps you can take now to establish yourself as a property professional.
1. Get organised
Organisation skills are crucial in most jobs. For a landlord, being organised means keeping a record of all documents related to your tenants, property and finances. Set up a clear and accessible filing system for paper and online documents.
2. Treat your tenants as customers
You’ll want to be friendly and approachable with your tenants, while remembering it’s a professional relationship. By being helpful, easy to contact and on top of repairs you’ll encourage your good tenants to stay in the property, eliminating the dreaded void periods.
3. Research your market
Like any savvy businessperson, you need to have extensive knowledge of your customers. If you’re buying to rent, think carefully about location. Begin by trying to envisage the sort of tenant you’ll be aiming to attract, then look for somewhere that’s going to appeal to them.
If, for example, you’re looking at young professionals, you’ll probably want a lively area with good transport links and plenty of amenities. Having a good idea of your target market will help you to style and market the property to their tastes and needs.
4. Understand the industry
It’s a good idea to get to know the lettings industry inside out – and the relevant legislation and regulations. The buy-to-let sector has been subject to multiple changes in recent years, with stamp duty increases and changes to mortgage tax relief, as well as stricter rules around electrical installation, gas safety and energy efficiency.
You need to know about the checks to be completed before your tenancy agreement is signed and your legal obligations to protect your tenants’ deposits in a government-backed scheme. Read more about your responsibilities on the gov.uk website.
5. Get your tax right
HMRC classes all the rent landlords receive as income, which means it must be declared on your end-of-year tax return. If you are currently in employment, and are taxed by PAYE, you will need to register for self-assessment. If you do not usually send a tax return, you need to register by 5 October following the tax year in which you received rental income.
As a landlord you will pay tax on the profit you make after allowable expenses have been deducted. Read more about tax, self-assessment and allowances for landlords on the gov.uk website.
6. Consider setting up as a limited company
Recent taxation changes meant that setting up a limited company could be a more efficient way of managing your investment, especially if you’re looking at a portfolio of properties.
If you’re a higher rate taxpayer, who owns rental property through a limited company, you’ll pay corporation tax on profits at a lower rate than income tax. There are costs to consider too, so get advice from an accountant.
7. Don’t forget insurance
If you’re letting out a property that you already own, it is vital that you let your buildings and contents insurers know what you’re planning. Fail to do so and your insurance policy may not be valid. It’s also advisable to take out landlord insurance and public liability insurance to protect you against any incidents that take place in or around your property.
Letting a property as a business can make the difference between a profitable investment and one that flounders. Our advice? Be business-like, and don’t be afraid to delegate. No one is superhuman, so relinquishing some of the responsibility of managing a property can pay off.
If you’re thinking of investing in property in the Islington, Stoke Newington, Newington Green or Highbury areas, or you have a home to let, contact us today.