Advice for landlords
Attracting the right tenants, achieving high occupancy rates and good capital growth are the keys to being a successful landlord. We offer a no let, no fee, turnkey service that has let over 200 properties since we opened in 2004.
Using the right letting agent is very important. You can lose more than £5,000 a year by having a property empty through rent loss, council tax payments, insurance, dilapidation and security measures. There is also the risk of vandalism and squatting.
As a landlord, you should not expect your letting agency to charge you a "marketing" or "registration" fee. This is normally around £50. At Morfitt Shaw we make no charge to place your property on the market.
Most letting agencies will try to tell you that they will not enter into multi-agency agreements. In practice, when pushed, they do market properties whilst they are also being marketed by other agencies. Of course, it is in your interest to have your property as widely circulated as possible. At Morfitt Shaw we will always allow multiple listings of your accommodation.
Many letting agents are in fact extensions of major landlords' own property operations. They often have a portfolio of their own properties available which receive priority treatment to ensure they are let more quickly than yours. We can confirm that Morfitt Shaw do not own any properties available to let - there is no conflict of interest.
Our minimum fee is just £250 plus VAT. As far as we are aware, this is the lowest commission in north Leeds.
Property management agencies
– did you know?
We provide a ‘let only’ or ‘tenant find’ service only. We do not perform property management.
Property managers often receive commissions from their panel of tradesmen. So, not only do you pay the agency far more to have your property managed, but you may also receive unrealistic charges for repair and maintenance work, on which the agency is itself commissioned by the tradesman.
Many agencies produce statements one month in arrears, and similarly, payments are made to you a month late.
H.M. Inspector of Taxes requires a return of all managed properties from property management companies.
Property management agencies require written confirmation of the lender’s authorisation to let your property.
When a tenant extends their initial fixed term or rolls into a statutory periodic tenancy, the property manager still receives commission on this extension. With our tenant finding service there is no further commission to pay beyond that paid for the initial fixed term.
We will conduct an initial, no obligation valuation and assessment of your property. We offer comparable evidence to substantiate our valuations. If required, we can also advise on changes which may be desirable, in order to improve the presentation of the property and obtain a better rent or a speedier let.
We give advice on whether to market as furnished or unfurnished, and information on the legal requirements for furnishing, gas & electric safety checks, etc.
We gather all relevant information to advertise your property including availability, whether you will accept smokers, pets or children, storey, number of bedrooms, parking or garaging, viewing arrangements, and whether utility bills, council tax and / or the TV licence is included in the rent.
Free advertising of your property in the local press
High profile, up to date website
Post based mailing lists
Database of over 500 active searchers derived from hundreds of recent inbound calls and emails
Regular email broadcasts to our prospect database
Full colour rental lists given out to all prospective tenants
Internet advertising on over twenty internet lettings portals
24 hour fax facility
Distinctive ‘TO LET’ board
We offer accompanied viewings with a skilled professional. We advise you immediately of any tenancy application.
Excellent relations and approved status with Leeds’ largest employers, relocation agencies, accommodation bureaus. We mail their key contacts regularly.
Office open seven days a week, including 9.00-5.30 on Saturday, and 1.00-3.00 on Sunday, so we can service all enquiries for your property, whether your prospective tenant lives locally or is just visiting Leeds for the weekend.
Landlords expect to be able to reach their agents when they need to. We respond quickly to queries and always return calls as promptly as possible.
There is NO additional charge to clients for this advertising as the costs are included within our fees.
We use an independent credit reference agency, Homelet to conduct our credit checks. We vet candidates by interviewing for suitability, and assess and credit search guarantors when needed.
Several references are taken up including previous landlords, employers, college tutors, electoral roll, etc. We take the tenants’ national insurance numbers. We photocopy the tenants’ photo ID ie. driving licence or passport, to verify their identity, and obtain copies of proof of address and a recent payslip.
We prepare the Assured Shorthold Tenancy (AST) agreement in line with current legislation, commencing with a minimum six month and maximum three year term. This contract can be tailored to meet your individual needs and preferences.
All listed tenants over 18 years of age sign the document. We sign on your behalf.
Energy Performance
Certificates
• An EPC is required whenever a building (with a roof, walls and uses energy to condition the indoor environment) in the social or private rented sectors is let to a new tenant.
• A building can be: the whole of a building; or part of a building where the part is designed or altered to be used separately. For residential purposes, ‘designed or altered to be used separately’ describes a unit that is self-contained, meaning that it does not share essential facilities such as a bathroom/shower room, wc or kitchen with any other unit, and that it has its own entrance, either from outside or through common parts, that is not through another dwelling.
• EPCs are valid for 10 years and can be reused as many times as required within that period. It is not necessary to commission a new EPC each time there is a change of tenant. However, once a more recent EPC has been produced for a dwelling, it will always supersede an existing one. Thus, where a number of EPCs are obtained for a property within the 10 year period only the most recent one is valid.
• The landlord must commission an EPC and ensure a copy of it, including the recommendation report, is available (for inspection at least) free of charge to prospective tenants at the earliest opportunity. As a minimum, this should be when prospective tenants are first given written information about a dwelling or are arranging to view it, and before any rental contract is entered into. A copy of the EPC (rating and recommendation report) must be given free of charge to the person who ultimately becomes the tenant before any rental contract is entered into.
• The landlord should maintain an auditable trail of communication to show: whether a tenant has agreed to receive an EPC electronically; and whether they have in fact received it.
•
If a landlord already has an EPC for a property, for example because it was
recently purchased and the EPC was part of the HIP, this EPC can be used for the
subsequent rental. EPCs are valid for 10 years from the date of its production
for rental purposes but only for three years if it is to be used for a Hips
related sale.
• If the landlord has failed to provide an EPC to a tenant, or fails to show an EPC to an enforcement officer when asked, Trading Standards can issue a notice with a penalty charge of £200.00 per dwelling. In addition to paying the penalty notice, the landlord will still have to provide an EPC to the person who has become the tenant.
• A pro active approach to EPC compliance means having them in advance of the trigger points at which they would be needed. For example, if a landlord has a block with a high turnover of tenants, then producing EPCs in advance of the requirement will mean that these are on hand to give to new tenants as they are offered accommodation and will reduce any impact on void times. It should be borne in mind however that a proactive approach typically requires surveys of tenanted properties and if any difficulties are encountered in gaining access, the need to make repeat visits could increase costs.
• A reactive approach means producing EPCs as and when they are needed. If there is no EPC in place when a tenant leaves, then one will need to be produced before the accommodation is next made available to prospective tenants.
• A landlord cannot charge for the provision of the original EPC. However it is permissible for a tenant who has already received the EPC to be charged for the provision of a copy document.
• Where a tenant sub-lets a dwelling, the responsibility to make the EPC available lies with the sub-leaseholder.
• There may be occasions when it is possible to offer a dwelling for rent before the EPC is available. However this should not be the norm. The landlord will be expected to have made contact with a DEA and commissioned the EPC with a view to receiving it within two weeks of the date it was commissioned.
• If the tenant wants to purchase the dwelling they rent, the same EPC can be used. This is because it is a non-marketed sale not affected by the Hips Regulations. An EPC is required but this can be up to 10 years old. However, if the dwelling is also being placed on the open market, the EPC must be no more than three years old because it is affected by the Hips Regulations.
• If the agreement between the parties expressly allows for a short period of holiday occupation only and no intention to create a tenancy can be inferred, then an EPC is not required.
For further information click ( Big HIPS )
The tenancy deposit law
From
6 April 2007, all deposits (up to the level of £25,000 tenancy value) taken by landlords and
letting agents for Assured Shorthold Tenancies in England and Wales, must be
protected by a tenancy deposit protection scheme.
www.direct.gov.uk/tenancydeposit
www.landlords.org.uk or www.mydeposits.co.uk
Within
14 days
of receiving a deposit the landlord must give the tenant the details about how
their deposit is protected including:
1.
The contact details of the tenancy deposit scheme selected
2.
Landlord contact details
3.
How to apply for the release of the deposit
4.
Information explaining the purpose of the deposit
5.
What to do if there is a dispute about the deposit
Alternatively, to avoid the paperwork of the deposit schemes, many landlords are making their rents payable two months in advance to protect the final month’s rent, whilst not taking a bond.
This is what the Residential Landlords Association states on the matter:
"The RLA advice is that if you take a deposit you should both protect / register the deposit and give the tenant the prescribed information within 14 days of receiving the deposit to avoid the possible cost and worry of a Court application. Likewise, you should give the tenant a copy of the official receipt you receive from the Scheme when you register the deposit.
Better still do not take a tenancy deposit at all. Undoubtedly there will be further litigation. The RLA therefore advises that you look at options such as taking two months rent in advance and not take a deposit."
The first two months' rent is collected before we hand over the keys to the tenant. We subtract our fees and VAT, and pass the balance to you by cheque. Rent is collected monthly in advance by standing order direct to the landlord's account to avoid delays. We would need your account number, name and sort code to set up the standing order.
It is usual to issue a set of keys to each tenant signing and listed on the AST.
The majority of houses we deal with are offered unfurnished, but usually with carpets, curtains, light fixtures and major kitchen white goods provided. Most flats are fully furnished.
Any soft furnishings (chairs and beds etc.) that are left in the property, must comply to fire regulations, and a label clearly stating so should be attached. If not, then the furnishings must be removed from the property. They cannot be stored at the rented address.
As landlord you are still responsible for the building and accordingly, the buildings insurance. Please note that your normal building insurance will not cover you for letting. It will need to be adapted or a specialist letting policy obtained. We can help you source a competitive quote.
We can also offer your tenants competitive insurance via our link with 'HomeLet', a leading national provider of tenant insurance policies.
If appropriate, you must ensure BT are aware that you no longer require a service at the property.
It is a legal requirement for all electrical appliances to be safe. We also recommend that you install a smoke alarm on each floor of your property, and put a fire blanket in the kitchen.
It is also a legal requirement that every gas appliance and gas central heating system be inspected on an annual basis. They have to meet strict conditions and a safety certificate must be issued.
You can ask British Gas (who charge per item inspected) or a private gas engineer (some of whom have a flat rate, regardless of the number of appliances). Remember for an inspection to be complete, the piping must also be inspected and the person conducting the inspection MUST be CORGI registered.
If the property you wish to rent is subject to a mortgage, then the mortgage lender should be informed that you intend to let the property. This should be done before a tenant moves into the property. Gaining permission from the building society usually depends upon the mortgage account not being in arrears. Some lenders do ask to see a copy of the lease the tenant will be asked to sign. We will happily provide them with this. The lender may make a small charge to cover administration costs.
If you have a large garden provide the tenant with tools to help ensure its upkeep.
You have a guaranteed right to get your home back after six months if you need to.
You can charge a "market rate" for rent. This is the going rate for a similar property in the area.
You can get your home back if your tenant owes you at least two months rent.
You can evict tenants who cause a nuisance to local people.
You are entitled to end the tenancy without giving a reason at any time after six months.
You may need a House of Multiple Occupation (HMO) licence. If you are not sure whether you need an licence for your property, you should contact Leeds City Council for advice.
You should also be aware of the Housing Health and Safety Rating System (HHSRS) which can prove very costly to landlords.
The sites at the bottom of the page give some excellent free advice for landlords. Click on the logos.
Tax
The rent after deducting allowable expenses will be subject to income tax at the landlord's highest rate, but with careful planning and good advice it is possible to minimise tax exposures.
Allowable expenses include:
Mortgage interest
Ground rent and maintenance charges, if leasehold
Letting and management fees
Buildings, contents, and rental warranty insurances
Council tax whilst vacant
Repair and maintenance of the property and contents, but not the cost of improvements
Water and sewerage rates unless charged to tenants
Legal expenses, but not those related to the purchase or sale of the property
Stamp duty on tenancy agreements
Accountant fees
And for furnished property...
The inland revenue will allow a deduction if the property is furnished, which is calculated as: rent minus water rates x 10%
Allowable expenses may only be claimed whilst the property is let or available to be let.
Calculating yield
Property investment is really about one thing and one thing only, getting the highest capital possible return on the initial capital invested - in simple terms, making as much money as possible. How you calculate the potential return on investment is very much open to discussion, but most investors base their calculations on rental yield.
When initially looking to invest in property, you are faced with the dilemma of which strategy to follow, cashflow or capital growth. Whichever you choose to base your investment on is dependent on many factors, such as age and available investment capital. For instance, you may be retired with available funds to buy a property outright, thereby aiming to create an income through the rental alone, or maybe you are in your 20s with just enough money for a deposit, in which case you would be looking for capital growth over a long period of time with the rent used to service the loan.
Indicator
Of course, many people look for a mix of both cashflow and capital growth, but either way, one common denominator is essential to establish and that is the rental yield. The rental yield is one indicator of the overall potential of the investment. It will determine just how much cash flow the property will generate and therefore give you a clear idea of whether this would be enough to live on or whether there is enough to keep payments on the mortgage without having to "feed" the loan with your own money.
So what exactly is rental yield? In its simplest form, rental yield is the market rent for property divided by its price. Quite literally, this means the rental income generated by letting the property is expressed as a percentage of the purchase price. On average, in the UK today this figure stands at between 4.7% and 6%. So a property with a purchase price of £150,000 and an annual rent income of £7,500 would give a rental yield of 5% (£7,500 ¸ £150,000 x 100 = 5%)
It should be noted, that this figure is the gross rental yield. Of course, there are other costs associated with property investments such as service charges and insurances, and when these additional costs are taken into account you are left with the net rental yield. However, it is gross rental yield that investors are interested in.
The object of property investment is to maximise profit, and rental yield is a good way of working out the potential of the investment. Generally speaking, the higher the rental yield, the better the investment, although depending on your strategy as an investor (cashflow or capital growth), you will view this figure in a different way.
With cashflow, rental yield is a direct indicator of the income that you will expect to receive from the investment. However, a highly leveraged (i.e., mortgaged) capital growth strategy will be different and you are more likely to use this figure to establish the rental coverage on the loan repayments, as long term your profit will be generated by capital growth and not immediate cashflow.
Rental coverage is an indicator of how well the rental income will cover the loan repayments on the property. Most lending institutions like to see a coverage figure of around 125% (based on the maximum loan value) to make sure that the loan repayments can be met easily. However, many experienced capital growth investors are more than happy to purchase property with considerably lower rental coverage than the magic 125% if the potential exists for considerably stronger capital growth.
Higher risk
This results in a situation of having to "feed" or "top up" the loan repayments to fill a shortfall in the rental income. Although this is a higher risk strategy, the returns can be much greater. This is true of many of the London regions where it is often not possible to get rental coverage of 125%, but capital growth potential is strong. Another factor that can have an impact on the rental coverage is just how you borrow money to start with.
If for example, you purchased your investment property with a repayment mortgage (where you pay the interest and a portion of the loan capital each month) your repayments would be higher than if using an interest only loan (where you repay just the interest each month without repaying any of the loan capital). This would cause your rental coverage figure to be skewed. So we can see that rental yield does not necessarily show the overall potential of the investment property, but it is certainly one indicator, and for this reason is considered a good starting point when looking at the viability of the property.
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