For us, the key to funding our travels without having to work was renting out our house.
In financial terms, your house is probably your largest asset, so you need to protect it!
I am not an expert and this blog certainly does not constitute financial advice; I strongly recommend seeking professional counsel. This is merely a starting point, promoting awareness of the issues that you might have to take into account. The legalities are specific to our home country, the UK. I have highlighted what we took into consideration when letting out our property to fund our travels;
1. Use a reputable, professional agent – we are on a budget and will go a long way to save a pound here and there, but this is why we think a professional agent it is worth every penny;
- Peace of Mind – You may be uncontactable when travelling; you may be abroad for long periods. If there are issues with the property, the agent is on the ground and can sort them out promptly. This prevents escalation, potential damage to the property and unhappy tenants.
- Emergencies – Agents have their own tradespeople who can react quickly if there is a problem or sudden emergency eg with plumbing etc. If you prefer, many agents allow you to specify your own trusted tradespeople. We have found the charges for the Agent’s tradespeople to be reasonable. Since the Agent provides a lot of business to their tradespeople, it is not in the tradesperson’s interest to do a cowboy job! You won’t be spending your valuable time and energy trying to find a plumber when the tenant’s boiler breaks down on Christmas Eve. (This happened to us when we self-managed!)
- What an Agent Does – Your agent will vet tenants, check references, including the financial status of prospective tenants and whether they are legally entitled to rent, collect monies then set up the tenancy agreement and hold the deposit in accordance with the law. They will do an inventory, check in, hold spare keys and inspect the property periodically to make sure it is being looked after. They will make sure that you are fully in compliance with all new legal requirements for landlords, such as the recent mandatory requirement for a Carbon Monoxide alarm in rental properties. If there are disputes, a letter or call from an agent (a faceless corporate body) rather than you (ah c’mon. I’ll get the rent to you as soon as I can!) is all the more official and more likely to be resolved quickly. (This happened to us!)
- The Cost
- Be aware of ALL the charges you will incur. There is a monthly fee, usually a percentage of the rental income, but there will be additional one-off charges for things like check-ins, inventories, setting up tenancy agreements, annual gas safety certificates etc.
- Agency fees can be offset against the income you make from the property for tax purposes, so in real terms, they may be less than you think.
- Letting is a competitive business. Negotiate on fees and one-off charges – we had our charges reduced to match an offer from another agent.
- Better Tenants and Fewer Voids
- A good agent will generally find better tenants.
- Better tenants keep up their rental payments, look after your property and tend to stay for longer, so you avoid the costs involved with changing tenants (set up / inventory / check-in fees etc)
- Fewer changeovers mean that you are less likely to have interim void periods where the property is vacant and you have no income coming in.
- Think of it like this; if you are looking for tenants yourself, even a 1 week void with no income is likely to immediately wipe out any saving that you made by avoiding agency fees.
Get to Know your Agent – if get to know your agent, they get to know you, your property, your circumstances (out of the country!) and they can then manage your property appropriately. We use a local, family firm and are on first-name terms with everyone. We get extra-special service in all our interactions; they invariably find us lovely tenants, look after everything while we’re abroad – and even throw in dog training when we pop into the office!
2. Let Furnished or Unfurnished?
- Surprisingly, letting furnished does not necessarily mean you get more rent! In fact, tenants often prefer unfurnished, as many have their own furniture.
- Letting furnished means that anything that breaks will have to be replaced, as it forms part of the tenancy agreement.
- In general, I would suggest letting unfurnished. We let furnished because it was a way of storing our furniture without incurring extra costs! We simply have to accept that we will have to take on the chin any wear and tear to our furniture.
3. Don’t leave white goods – they are a landlord’s nightmare! If the tenant leaves the fridge door open and the fridge breaks down, YOU have to repair or replace it. If they don’t clean the filters on the tumble dryer… You get the idea! (This has ALL happened to us.)
4. What Kind of Tenant? – Decide what kind of tenant you want and whether or not you will allow children or pets. Either means more wear and tear on the property, but the more restrictions you place on the type of tenant, the more difficult it is to find tenants and the more likely you are to have void periods with no income. It is a business, remember – and bigger market = more likely to let.
5. Types of Tenancy we Considered
- Standard Assured Shorthold Tenancy Agreement (ASTA) – 6 months then rolls on with 1-month notice from tenant & 2-months notice from you. Notice period runs from the date that tenancy started ie if tenancy started on 2nd of the month and you or the tenant give notice on the 21st of the month, the notice period does not begin counting until the 2nd of the next month. You can sign up ASTA for longer periods, such as a year We chose to let on an Assured Shorthold Tenancy basis because it is the most straightforward. Click here for the Gov.uk guide to types of Tenancy Agreement.
- Short-Term Corporate Lets – there are agencies who rent property to visiting executives, perhaps because they are relocating and seeking permanent accommodation or those over on business for an extended period who don’t want to stay in an hotel. Some companies keep a property on their books to accommodate such executives as and when. In general, short-term lets generate higher rent yields.
- Holiday Lets – these command the highest return but the largest cost and hassle factor! You can expect to lose a substantial percentage of income straight away if you use holiday cottage agencies to advertise your property and take bookings. Then you will need to arrange checking in guests, cleaning, changeover and someone on the ground to sort out any problems. Unless you are in a year-round tourist destination, expect long void periods, which need to be offset against the higher income when the property is let. It may mean that you can stay in your house at some times of the year, but letting agencies (and the taxman) often impose a limit on the number of weeks that you and your family can use the property. Holiday lets are taxed differently from other types of lets and you can offset more costs against tax.
- There are other ways of letting, such as agencies who manage fully and rent to DSS (Department of Social Security) tenants, student lets and HMO (Houses in Multiple Occupation). The last two are much the same thing and they can be lucrative, but HMOs have to comply with much more stringent legal requirements than the other tenancy types mentioned above (such as mandatory hard-wired fire alarms) and there is a risk with all of these of a heck of a lot of wear and tear!
6. Advise your Mortgage Company – If you have a mortgage on the property, technically, you need to let the mortgage company know that you are letting. They may allow this but the likelihood is that you may need to convert your mortgage into a BTL (Buy To Let) mortgage, which may incur a set-up fee and the interest rate might be higher. Do your research – we use Moneysupermarket. In our experience, mortgage companies generally won’t allow a mortgaged property to be let to family members.
7. Advise Your Insurance Company – You need to let your insurance company know that you are letting your property and make sure that you have appropriate landlords’ cover. Again, we found Moneysupermarket very useful.
8. Tax Liabilities
- Income Tax – All rental income must be declared for income tax purposes.
- Capital Gains Tax
- Currently, you can sell your main residence without incurring Capital Gains Tax (Private Residence Relief).
- At the time of writing, you can rent out your house for 18 months without incurring Capital Gains liability.
- However, if you rent your house for more than this term, you become liable to Capital Gains tax on the capital growth FOR THE WHOLE PERIOD THAT YOU HAVE OWNED IT. That means that if you bought your house for £2,000 in 1965 and it is now worth £1m, Capital Gains tax will apply to £998,000, less the Private Residence Relief for the number of years that it was your main residence + 18 months. Click here for more information from the government website.
- Check your Calculations – When we sold a house that we had owned for 25 years and had been letting for about 7, we employed an accountant to work out our Capital Gains liability. SHE GOT IT WRONG!!!! I nearly collapsed when she told us that we owed £50,000 in Capital Gains tax (The correct figure was more like £5,000.) So even if you employ a professional, STILL CHECK THE ARITHMETIC! (It was not the only thing she got wrong – we parted professional company!)
9. YOUR HOUSE IS NOT YOUR HOME – I can’t stress enough that if you plan to let it, you really do have to let go of any emotional attachment to your home. You can’t keep poking your nose in or start to be precious about tenants not looking after it with the same passion and tender care as you. It may have been where you brought up your kids – mine was where my husband proposed to me – but once it is let, it is a business venture, generating income for you. Nothing more.
10. You WILL need an address – we found that Officialdom is not too comfortable with ‘No Fixed Abode’; ‘A Caravan Somewhere in Europe’ or a box number as a means of contact. Banks, insurers, the DVLA etc do require you to have a fixed, residential address. An understanding parent, sibling or friend is very useful here. If you have gone paperless, they won’t be inundated with mail and you shouldn’t miss important items, but having an address will enable you still to function in the modern world.
If you don’t have a friend or relative who can help, there are mail forwarding companies, such as Boatmail, who can provide a UK residential street address.
I hope that you find this guide helpful. I re-iterate that I am not an expert and my advice is based simply on my personal experience of letting property.
I have listed below some links to professional bodies who offer useful information on letting property.
- The Residential Landlords’ Association – free guides, information and advice for landlords.
- Arla Propertymark – a conglomeration of Association of Residential Lettings Agent bodies.
- HMRC – the residential letting section of Her Majesty’s Revenue and Customs.
- Moneysupermarket – price comparison site for mortgages and many other products and services.