How to become a landlord

Landlords own property that they rent or lease to tenants in exchange for rent payments.

Landlords have several responsibilities, including: 

• Communicating with tenants 
• Maintaining the property 
• Addressing necessary repairs. 

In addition, they are legally obliged to provide a safe and habitable living environment for tenants. 

These rules are outlined in various legislations, including the Landlord and Tenant Act 1985, Section 11 (external link), the Housing Act 2004 (external link), and the Homes (Fitness for Human Habitation) Act 2018 (external link). 

Researching the market 

Prospective landlords often start by researching the local rental market. Comparing property values and rental rates can help you find the right investment with your budget. 

Market research can help you: 

• Identify current rental rates 
• Understand property values and occupancy rates 
• Set competitive rental prices that attract tenants 
• Ensure your property meets tenant demands. 

This research can reveal important insights. For example, low rental demand in an area might reward more competitive pricing. Meanwhile, high demand might mean increased rental rates. 

Managing rental properties is a complex business. At Hiscox, we want to see your investments thrive. Our articles offer insights into property management and landlord best practices. But these articles aren't professional advice. To find out more about a subject we cover here, please seek professional advice.  

Financing your investment 

There are various financing options for prospective landlords. 

Mortgages 

A mortgage is a loan used to purchase or maintain real estate, where the house itself is used as security in case you can’t pay. The loan is repaid over many years, usually through monthly payments. 

• Pros: Mortgages can have lower interest rates and longer terms. 
• Cons: Mortgages often require good credit and a significant down payment. 

Personal savings 

Landlords might use savings to finance all or some of their rental property. 

• Pros: Personal savings don’t come with interest or loan fees. 
• Cons: Putting a large portion of your savings into a single property can be risky. If the property doesn’t perform well, you could face significant losses. 

Investment partnerships 

Some landlords form groups, pooling their money together in an investment partnership. 

• Pros: Pooling your money together means that you share the investment risk. 
• Cons: Sharing an investment means you also share the profits, so income can be lower. 

Private loans 

Private loans are funds borrowed from individuals or private organisations rather than traditional financial institutions. 

• Pros: Private loans can offer more flexible repayment terms and quicker approval processes. 
• Cons: They often come with higher interest rates. 

Home Equity Loans and HELOCs 

Home Equity Loans and Home Equity Lines of Credit (HELOCs) let you borrow against the equity in your home, which can be used as a down payment for purchasing rental properties. 

• Pros: Home Equity Loans and HELOCs typically have lower interest rates compared to other loan types. 
• Cons: Using your home as collateral means you risk losing it if you can’t repay the loan.

Finding the right property 

When looking for a suitable rental property, landlords often consider factors like location, property type, potential rental income, and budget. 

For example, they might consider properties in areas with high rental demand, such as near public transportation centres, universities, or business districts. They might also consider whether a single-bed flat, single-family home, or multi-family unit would suit their budget, helping to ensure the investment is financially viable. 

These factors can also affect potential rental income and tenant type. 

Preparing the property for rent 

There are several steps to preparing a rental property. 

Many landlords start by making necessary repairs, such as fixing leaky taps, replacing worn carpets, and ensuring all appliances are working. 

Compliance with safety regulations (external link) is crucial. Landlords must ensure that the property is fit to live in – is safe and free from health hazards – and that smoke and carbon monoxide detectors are installed and functioning.

Renovations might include updating old kitchen cabinets or bathroom fixtures to make the property more appealing. 

Once your property is in good condition, obtaining landlords insurance can help protect your investment against various risks and liabilities. 

Setting up a rental agreement 

A rental agreement is a legally binding contract that outlines the terms and conditions of renting a property. It helps protect landlords and tenants by defining their rights and responsibilities. 

Here are some key components: 

• Name and contact information – include the full names and contact details of the landlord and tenants 
• Property address and description – provide the address and a detailed description of the property, including an inventory of any furnishings and fixtures 
• Rent details – monthly rent amount 
• Security deposit – state the deposit amount, conditions for deductions, and the returns process 
• Lease term – clarify the lease duration, whether it’s a fixed term or month-to-month lease 
• Utilities and maintenance – outline who is responsible for paying utilities and maintaining the property 
• Pet policy – include rules regarding pets, such as allowed types 
• Termination conditions – detail the terms for ending the lease, including notice periods and conditions for breaking the lease. 

Having a legally binding rental agreement can provide a clear framework for the landlord-tenant relationship. It outlines the terms and conditions of the tenancy, ensuring that both the landlord and tenant are aware of their rights and responsibilities, which can help in resolving issues. 

Additionally, having a written agreement is a legal requirement (external link)if you have a fixed-term tenancy of over three years. 

Marketing your property 

There are various ways you can market your property. 

Rental websites like Rightmove, Zoopla, and SpareRoom help potential tenants find properties based on criteria such as location and price. 

In addition, traditional methods like advertising in local newspapers and community bulletin boards can help reach potential clients who may not be active online. 

Effective marketing can help you reach a wider audience and make your property more appealing to prospective clients. 

Screening and selecting tenants 

There are several steps that landlords use to screen potential tenants and select reliable renters. 

• Pre-qualify – ask initial questions about employment, right to work in the UK, income, and rental history 
• Rental application – have tenants complete a detailed application with personal, employment, and rental history
• Background and credit checks – conduct checks to review criminal history and financial responsibility 
• Verify income and employment – confirm income through pay stubs or bank statements and verify employment status 
• Check references – contact previous landlords and personal references for insights into the tenant’s reliability
• Interview applicants – meet with potential tenants to discuss their application and suitability. 

Managing the property 

Property management involves maintaining the property, collecting rent, and handling tenant issues. This includes routine maintenance, repairs, invoicing, financial reporting, tenant screening, lease management, and addressing tenant complaints. 

Some landlords find that hiring a letting agent can make renting out property smoother and more efficient.

Letting agents handle everything from marketing the property to collecting rent and managing maintenance issues. They offer legal expertise and established service networks, which can alleviate some of the stresses of being a landlord. 

Understanding legal and tax obligations 

Landlords must fulfil various legal and tax requirements, such as: 

• Ensuring property safety and maintenance 
• Protecting tenant deposits 
• Conducting Right to Rent checks (external link) 
• Providing an Energy Performance Certificate (EPC)  (external link)
• Complying with gas, electrical, and fire safety regulations (external link) 
• Reporting rental income and deducting allowable expenses 
• Paying National Insurance and Capital Gains Tax, if applicable. 

Becoming a landlord demands time, money, and effort. By researching the market, securing financing, and preparing your property, you can be on your way to a successful rental investment. However, even the most diligent landlords can face unexpected challenges. 

Landlords insurance can protect your investment against various risks, from property damage and liability to loss of rental income.