How to become a landlord: your step-by-step guide

Although the pandemic skewed the market over the short-term, rental income has been on the rise over the past few years, and the average UK monthly rent at the start of 2022 was close to £1,000. Prompted by increased rental demand, rent rises have reached a 13-year high.

The combination of that kind of potential income and rising house prices means lots of people are tempted by property investment. 

But where do you start? Here's a step-by-step rundown on how to become a landlord.

A house with a to let sign


Can I become a landlord?

To become a landlord, you of course need a property to let out.

If you already own a property outright, you can skip this step. However, if you own a property that you still have a mortgage on you should talk to your mortgage lender before you rent it out.

If you’re letting a property out you normally need a buy-to-let mortgage, so you may need to remortgage.

You should check whether the property is freehold or leasehold. If it's leasehold, you'll need permission from the freeholder to sublet the property.

If, on the other hand, you haven’t got a property you need to find one and then arrange a mortgage.


Understand the costs of being a landlord

With the right property, becoming a landlord should bring you a healthy and reliable income. However, you also need to balance this out against the costs of being a landlord.

These include:

  • Mortgage repayments (unless you own the property outright)
  • Tax on your rental income
  • Stamp duty when you purchase the property
  • Letting agency fees 
  • Set-up costs to bring the property up to standard
  • Ongoing maintenance and upkeep costs

It’s also important to consider rental voids - there may be some months when you don’t have a tenant (perhaps between tenancies).  So you need to dip into your own pocket to pay the mortgage.

You also have to cover any bills such as council tax.

There’s also the risk that your tenant may miss rental payments. Although you can evict tenants, it’s not an easy process.

This means it’s important that you have a slush fund to cover periods where you’re not getting any rent, which can crop up unexpectedly.

Unfortunately the cost of becoming a landlord in the UK has steadily risen in recent years. Landlords have to pay an additional 3% stamp duty to buy an investment property. And since April 2020 your expenses can no longer be deducted from your rental income to reduce your income tax bill.

Landlords now only get a 20% tax credit, which is significantly less generous for higher rate taxpayers.


Understand your responsibilities to become a landlord

When you become a landlord in the UK you take on a number of responsibilities.

For example, you must: 

  • Maintain the property to a suitable standard and be responsible for all repairs
  • Ensure the property is secure, with properly functioning door and window locks
  • Provide a gas safety certificate when your tenants move in and ensure checks are made once a year by a gas safe engineer. Follow all energy, fire and building safety regulations.
  • Protect your tenant's deposit in a government approved scheme

How to choose and find the perfect buy-to-let property

When you’re looking for a buy to let you need to park any ideas about where you want to live or the style of home you want.

Instead you need to think about the type of tenants you’d prefer, for example, students, young professionals or families. Also think about where they would like to live and the sort of properties they would be drawn to.

To do this you need to think about the following:

  • Location - local amenities are likely to have a big impact on the type of tenants you get:
  • Good transport links – commuters and professionals
  • Schools, GPs and hospitals – families
  • University campus and town centre – students
  • The age of the property - newer properties are likely to cost less to maintain
  • The state of repair – you have to pay to get the property up to a lettable standard
  • Decor - as boring as it may be, neutrally decorated properties tend to be easier to let. Remember you won’t be living there so it doesn’t matter if it’s not to your taste
  • Accessibility – you have to make reasonable adjustments for tenants with a disability.

Should I buy a property at auction?

It’s also worth thinking about how you buy your property. If you want to buy a place that tenants can move right into it’s best to head to the local estate agents.

If, however, you’re after a bargain it might be worth investigating local auctions. You need to be up for the challenge though - you may need to spend a lot of time and money renovating the property and getting it tenant-ready. 

You also need to be super-organised with your financing - properties bought at auction usually need to complete within 28 days. Some buyers use bridging loans to fund auction purchases that could be arranged quicker than a mortgage. They can also be helpful if the property is currently not mortgageable because it lacks basic amenities like a functioning kitchen or bathroom. If you're considering becoming a commercial landlord then you need to learn about commercial property insurance.


How to calculate rental yields 

A good way of investigating a property’s investment potential is to calculate it’s rental yield.

The rental yield refers to how much you earn from your rental property as a proportion of its value. So, to calculate your rental yield before you buy it, you need the likely purchase price and a good idea of the rent you’re likely to charge.

Let’s assume your tenants pay £750 a month, giving you a total of £9,000 over the year, and that the property cost you £180,000. Your rental yield will therefore be £9,000 divided by £180,000 and multiplied by 100.

So in this case your rental yield is 5%.

Your rental yield is likely to vary substantially according to where you buy. According to SevenCapital the average rental yield in 2022 is 3.63%. Achieve anything over that and you can consider it to be a high yielding investment.


Apply for a buy-to-let mortgage

Once you've found a suitable property, it's time to apply for a buy-to-let mortgage.

To be eligible, you usually need to:

  • Be a homeowner already
  • Have a good credit record
  • Earn £25,000 or more a year
  • Be under 70 years old

Unlike residential mortgages, buy-to-let mortgages are usually interest only. This means that you only need to repay interest charges each month. You only repay the original capital at the end of the mortgage term - usually by selling the property.

To get a buy-to-let mortgage you’re likely to need a 20-25% deposit. However, as with residential mortgages, the more you can afford to put down, the better the deal you’re likely to get.


How much can you borrow with a buy-to-let mortgage?

The amount you can borrow depends on how much rental income you expect to get. 

Lenders need to be confident that the rent you get is going to be enough to cover the cost of your monthly mortgage payment. You can typically expect lenders to require that your rental income is 125% of your mortgage payment. Some lenders, however, may demand as much as 145%.


Comparing buy-to-let mortgages

It’s important to shop around for the best buy-to-let mortgage. When you’re comparing deals it’s important to look at the total cost of borrowing. Super low rates may not be as cheap as they look if you have to pay a whopping fee to get them.

In many cases it makes good financial sense to seek the advice of a good, independent mortgage broker.


Mortgages for accidental landlords

If you have a mortgaged property and a change of circumstances prompts you to rent it out, you must tell your mortgage lender.

In some cases it may grant you consent to let, or you may need to remortgage on to a buy-to-let mortgage.


Make sure your property meets building and fire safety regulations

The specifics on safety regulations for landlords vary depending on where your property is.

But whatever they are, it’s crucial that you follow all landlord regulations.

In general, you need to:

  • Have a valid gas safety check record and an annual check on all gas appliances, carried out by a Gas Safe-registered engineer
  • Make sure the electrics and all electrical appliances are safe to use, and comply with the recently updated government legislation
  • Fit a smoke alarm on each floor and make sure there's an accessible escape route
  • Install fire alarms and extinguishers if you're renting out a house in multiple occupation (HMO)
  • Make sure any furnishings meet government standards 

Register as a landlord

If your property is in Wales or Scotland, you need to register as a landlord.

In Wales, you do this at Rent Smart Wales. In Scotland, you do this at the Scottish Landlord Register.

If you're a full-time landlord, you also need to register as a business. This could change how you pay tax.

If you have full-time employment elsewhere, you don't need to register as a business. You still have to pay tax, though.

The rules on paying tax for landlords depend on where you are in the UK. 


Decide how you want to manage your property

You've two options here.

The first is to manage everything yourself.

You  can develop a rapport with your tenants, and you save money on agency fees. But it can be pretty labour intensive and you have to do all the work. This means finding tenants, taking charge of rent payment and being on hand to sort out and resolve any problems quickly.

Bear in mind though that you can’t just pop around to fix the washing machine whenever it’s convenient for you. Landlords must give their tenants 24 hours written notice of any visit.

The second option is to use a letting agency.

This means you can be pretty hands-off and it often works well if you don’t live that close to your rental

Agencies can find tenants, collect rent and inspect the property. They can also arrange for the plumber to sort the washing machine out.

Letting agents don’t come cheap though and can cost upwards of 20% of your monthly rental income. So it's worth weighing up your options before you make a decision. 

If you live locally and have time on your hands, you might make more money managing it yourself. However if you have neither the time or inclination a lettings agent could be a price worth paying.


How to find some tenants

How successful your investment is doesn’t just come down to the right choice of property. You need to select the right tenants to move in and manage it as cost-effectively as you can.

If you’re using a lettings agent, they take on the responsibility for finding you reliable tenants.

However it is possible to source good tenants yourself.

Advertise your property as you would if you were selling it. Invest in good photography and make your property look as neutral as possible.

You can promote your property via the major letting portals (Zoopla and Rightmove) by registering with an online letting agent. This is likely to cost in the region of £50.

However fantastic you think your pad is, be careful not to over price it. Research the going rate for similar properties in that area and charge the going rate. Be prepared to market it a little lower than the market rate and you might get a lot more enquiries and a better choice of tenants.

If the tenant feels like they’re getting a good deal, they’re also more likely to stick around, reducing your risk of rental voids.

Showing potential tenants around your property can be time consuming. So it’s worth doing a bit of screening first to ensure you’re only getting suitable tenants through the door.

You might want to be sure they’re employed, earn enough to pay the rent, have references and are your target tenant. You can do this by conducting an interview over the phone or asking them to complete an application form.

Make sure the property is looking at it’s best before you conduct viewings. A few rugs and scatter cushions can go a long way in making it feel more homely. 

If you're letting a property in England, you need to check that your tenants have a right to rent.

Check that they are who they say are, and that they can pay the rent on time.

The National Landlords Association can run a basic tenant check for you from £12.95.

Professional tenant checking services typically include identity and financial checks and provide you with a tenant risk score. They also confirm your potential tenant’s employment status and salary and check references from previous landlords.

You also need to secure their deposit into a Deposit Protection Scheme.


Compare landlord insurance

When it comes to home insurance, you aren’t legally required to take out landlord insurance.

But most buy-to-let mortgage lenders need you to have it as part of the agreement.

Landlord insurance aims to protect your investment. It covers the physical building in the case of fire, flood and subsidence.

When you get a quote you can choose to add on extras such as home emergency cover.  This protects you against things such as broken boilers or burst pipes. 

If you're furnishing the property, you might want to consider landlord contents insurance.

This could help protect things such as furniture and appliances from fire and flood. Tenants who want to insure their own contents can take out tenants insurance

You might also want to think about public liability insurance.

This helps protect you if a visitor injures themselves at your property.

Compare landlord insurance quotes


How to become an HMO landlord

HMO stands for house in multiple occupation but you’ll probably see it more commonly referred to as a house share. It covers lettings where your property is rented to three or more people who don’t form one household, but share a kitchen and bathroom.

Rules are different for HMO landlords. If you live in England and Wales you need to check with your local council to find out if you need a licence.

Larger HMOs (with five or more tenants) always need a licence, whether or not smaller HMOs need one depends on where the property is.

You need to show the council that you’re keeping the property safe for your tenants and conforming to landlord regulations.

This means:

  • Sending the council a copy of your gas safety certificate each year
  • Installing and maintaining smoke alarms
  • Providing safety certificates for electrical appliances whenever asked

Let out an HMO without the necessary licence and you could hit with an unlimited fine.