Mount & Minster, winner of last years East Midlands Lettings Agent award in the UK Real Estate & Property Awards, offers a guide to the basics, designed simply as a starting point:
Do the math.
Look at the difference between your total rental income and outgoings (mortgage repayments, insurance, agents’ fees, etc.). This is, in essence, your gross profit – and you’ll have to live on this (after putting some aside for tax) if you give up your day job.
Is this enough? Don’t forget vacancy periods where you wont have any income at all. Then there’s the occasional capital expense for repairs; boilers don’t last forever!
In order to live comfortably you’ll need around five properties or more, depending on The lifestyle you want to maintain.
Make a business plan
Get your bank manager on board. Use this opportunity to identify potential problems and outline your goals and how you’re going to achieve them. Take constructive criticism and use it to improve you plan.
Include your endgame. If the plan is to retire at 55 and sell your portfolio to fund a comfortable retirement, include this.
Manage or managed?
Tenants and tenancies can be tricky. Legislation is always changing. The day-to-day issues that will inevitably rear its ugly head need to addressed quickly and competently. If you’re knowledgable of the law and your statutory responsibilities then great. If you’re not sure or just simply don’t want to speak to plumbers, electiricans, students, council admin, debtors, utility companies etc, then make use of a professional and competent letting agent such as Mount & Minster.
Remember, if you get it wrong then you could go to prison or, at best, receive a hefty fine which will eat into your income.
Taking a wage
For tax purposes, you may well want to register as a limited company. In doing so, any profits the business makes belong to the business, and you’ll need to pay corporation tax on them. You’ll then need to pay yourself a wage as a director of the business. Or, you can alternatively take a small wage, then pay yourself a dividend once a year and pay tax on it through self-assessment.
If you elect not to register as a limited company, you’ll need to complete a self-assessment tax return and declare all of the profits you make, then pay income tax on them.
Managing your portfolio
As a full-time landlord, you’ll want to keep one eye on the wider housing market when deciding what to do with your properties.
You may want to accumulate as many properties as possible, or you may want to consolidate by having a smaller number of high-value properties that command a larger rent. This decision will depend on your local rental demographics, and a knowledgeable local lettings agent can steer you on where demand lies.
For instance, some landlords own several identical properties in the space of a few streets (although be aware this can leave you exposed in the event that demand for your one type of property suddenly dries up). Equally, a local agent may suggest a diversified portfolio, aimed at a mix of renter types.
Book an appointment with a professional agent and talk through your strategy. We can then point you in the right direction of suitable high yielding properties, help you acquire them, refer financial advisors and generally hold your hand from start… to retirement!
01476 515329 (Grantham office) or 01522 716204 (Lincoln office)