Home Page > Letting Property Types >
Investor Guide...
Short Term Lets - One method of
potentially increasing gross yield is to provide short term lets of three months. These
are allowable under the regulatory framework of the Assured Shorthold Tenancy
(AST). This sort of let is ideal for contractors doing project specific work
in a geographically new area for their company. Contractors (especially
visiting foreign ones working for Corporate organisations) need flexibility of
movement and are prepared / expect to pay a bit more in rental in return.
Companies are happy to pay higher rental values because it saves them a
fortune in hotel expenses, relocating an employee. In addition, this type of
let is ideal for foreign students who need accommodation in the summer when UK
students are not in term time. Rent a Room – the Rent-a-Room scheme is
a Government introduced scheme to encourage private individuals to rent out a
room of their own house to a lodger. The scheme allows you to rent out a room
and earn £4,250 rental income tax free. Any annual rental income over £4,250
is taxed on the excess in the normal way. You may not deduct letting expenses
in calculating your taxable income (as you would had you purchased an entire
investment property). This is because such a small income (£4,250) is not
considered a commercial enterprise. Holiday Lets – if you are purchasing a
property for holidays lets in the UK countryside you will still need a form of
tenancy agreement or ‘booking terms and conditions’ which you should ask
visiting holidaymakers to sign and return by post before the visit. Most
importantly you should obtain a booking deposit, which becomes non re-fundable
(in the event the holidaymaker cancels a few days or weeks before the holiday
let is planned to take place). The booking and refund process should form the
basis of your literature. You should include all costs as part of your rental
charge – heat, light, insurance, council tax etc. Lastly, the landlord is
legally liable to pay council tax not the tenant. Company Lets - a company let is where
an employer contracts with the landlord directly on behalf of its employee.
This is the case in relocation situations for the corporate tenant and his or
her family. Where this is the case, the tenancy is not classed as being
assured; as a result statutory terms favour the landlord. For example,
following completion of the tenancy term, the tenant has no additional
statutory protection and must leave the property. DSS/ Housing Benefit Lets - the Housing
Benefit scheme is a Government method of supporting lower income tenants to
help pay their rent. As a landlord, if you choose to accept tenants that are
reliant on Housing Benefit to pay your rent you should be aware of the basic
risks (and rewards). The entire Housing Benefit Regulations 1987 can be viewed
in detail on-line at
http://www.hmso.gov.uk/si/si1987/Uksi_19871971_en_1.htm . The local
authority pays the benefit to the tenant following a rigorous and painfully
slow procedure. This could potentially involve the local council instructing a
‘rent officer’ to assess the amount of rental income that is reasonable and
fair. Tenants are eligible for Housing Benefit in situations where they may be
unemployed, and have little savings and income less than circa £16,000 per
year. Houses in Multiple Occupation (HMO) - a
HMO is simply a house that “is occupied by persons who do not form a single
household' (please read the Office of Deputy Prime Minister HMO definition at
http://www.housing.odpm.gov.uk/research/ehcs96/hmo/ ). As with
Holiday Lets, the landlord is legally liable to pay council tax, not the
tenant. There are approximately 850,000 official HMO’s in the UK, housing over
1.5 million people.
Letting Your Own Home – rather than
purchasing a property for letting purposes, one option is to consider letting
your own property and moving yourself to a new house to live. At a time of
rising property prices this option could save you time and money. This option
applies when you have decided and really want to move house yourself. The most
common reasons for letting your own property are firstly; Difficulty Selling – in today’s sellers
market, this isn’t really a problem. It is where property owners are seeking
to buy another property but cannot sell their own house at the appropriate
price or quickly enough to stop a possible chain from collapsing; Reluctant to Sell - property owners at
some point in the future do not want to sell their property because they feel
they might want to return (for family reasons) or because property prices are
too low at that point in time, or they have inherited the property and don’t
want to sell the family home but cannot afford to keep it going; Vacant Property - a property becomes
vacant or unoccupied due to illness or death of a member of a family. In this
situation it costs money for continued mortgage repayments, council tax,
utility bills, insurances etc; Property Investment – Property letting
is a great source of long-term income. With this option in mind, we will
consider the financial advantages of letting your own home versus buying a
brand new investment property for the same purpose. Higher Yield - if the original purchase
price of your home was lower than today’s market value, the potential net yield
% will be higher (than having to buy a similar property to let at today’s higher
value when you let it). For example, if you originally bought your property for
£80k and ‘let it out’, the annual rental income is £9k per annum; you would
achieve 11.25% gross return – much better than putting the money in a building
society. In today’s inflated market, a property (similar to your own) may now
cost you £150k now to buy (with still the same £9k annual rental income). In
that case the gross return would only be 6%. In addition, you are well aware of
the condition of your property and are less likely to get nasty surprises from
leaky roofs or cracked walls. The downside is that you will obviously have to
purchase another property to live in that is probably more expensive. So where
is the financial benefit?… Building Research Establishment - is
the UK's leading centre of expertise on buildings, construction, energy,
environment, fire and risk
http://www.bre.co.uk H.M. Land Registry - responsible for
keeping and maintaining the Land Register of England and Wales. Its main
purpose is to register title to land in England and Wales and to record
dealings once the land is registered. Ordnance Survey - From traditional
leisure maps to adaptable digital data, Ordnance Survey products link people
and businesses to Britain's diverse landscape
http://www.ordsvy.gov.uk
The National Association of Estate Agents
- 10,000 members. Is the leading and largest professional body in estate
agency and is represented through its members in more than 60 per cent of
estate agency offices in the UK.
http://www.naea.co.uk
The Land Registry - instant on-line
access to nearly 18 million registers of title covering the great majority of
properties in England and Wales
http://www.landregistrydirect.gov.uk National Housing Federation - The
National Housing Federation is the body that represents the independent social
housing sector.
http://www.housing.org.uk/information/aboutus/index.asp National Land Use Database - collects
data on vacant and derelict sites and other previously developed land and
buildings that may be available for redevelopment.
http://www.nlud.org.uk
Residential Surveys - The engagement of
a SAVA Surveyor and Valuer enables you to use a SAVA approved 'Hidden Defects
Insurance', providing added peace of mind in the purchase of your home.
http://www.sava.org.uk
Letting Property Types
Introduction - there are many
types of letting property – each, which different levels of risk and reward attached. The
main ones you should consider when deciding what type of property to purchase
are:-
Intelligent Use of Equity - if you have large equity, (difference between
your outstanding mortgage and the market value), in your existing home and/ or
you are potentially prepared to borrow more, you can save literally thousands of
pounds a year in combined mortgage interest costs. Here is how it works… By
using your equity and/ or ideally borrowing more against your current home (soon
to become your rental property), you can increase and maximise the deposit on
your new home that you will need to purchase. The reason you do this is that
your mortgage repayments on your old home/rental property (which are offsetable
against tax) will be larger, while the mortgage payments on your new residential
home (will be smaller because your deposit was so much bigger– these residential
mortgage interest charges are obviously not offsetable)…..
Further Reading
