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:-

• 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 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?…

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)…..