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First Timer – Let to Buy

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First Timer - Let to BuyI bought a one bed flat in North London a few years ago to live in with my partner. Recently we purchased our first flat together and have moved into it. I was able to secure the new mortgage partly based on the projected income from the old property – I believe this is known as “Let to Buy” and is becoming quite commonplace.

To avoid becoming a dreaded “accidental landlord” I’ve done a fair bit of research in the run up to moving out to ensure I know what I’m doing.

However, I’m still concerned that I may have overlooked something.

  • Could experienced readers just take a moment to check out my thoughts:
  • I have obtained consent to let from mortgage lender (for £100 fee).
  • We have cleaned the property and touched up paint etc. and it is ready to go.
  • I’ve had the boiler inspected, serviced and gas safety certificate issued.
  • I’ve spoken to the Inland revenue about tax implications (found out that the wear and tear allowance is only applicable to fully furnished properties as of April 2013).
  • I’m pretty much set to choose a letting agents and begin.

My questions (sorry for the long run up):

  1. Picking a letting agent: The flat is in great condition and I have a homecare agreement with British Gas which covers the boiler, the central heating, the plumbing and the electrics. The flat was built 5 years ago and is in great condition. Should I bother paying a management fee?
  2. Should I bother with a traditional letting agent at all: online letting agents seem to be far more reasonably priced?
  3. What are reasonable charges for finding a tenant, referencing etc. as there seems to be a large variability?
  4. I have been advised to sell my property 3 years after moving out to avoid CGT, but from my understanding there is also relief equal to the lower of: The maximum amount of Letting Relief due is the lower of:
  5. £40,000 the amount of Private Residence Relief due the amount of gain you’ve made on the let part of the property
  6. What are people’s strategies for tax planning; is it worth hiring an accountant just for one property (rent likely to be around £15k/annum)?

Any advice regarding one or all of the above questions would be appreciated, as would any other additional advice for a first timer!

Thanks!

JC

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Comments

  • @JC – you seems to have the bare essentials covered in terms of the law. There are so many pitfalls for a first timer though I would strongly recommend you to choose a good agent. Depending on where you are based you could get all of the following from a fully fledged ARLA letting agents for as little as £34.99 a month plus VAT, nothing up front:-

    Visiting your property, taking particulars and floor plans.
    Setting up an online account to store your documentation so it can be accessed at any time
    Advertising your property on the major property portals (Rightmove, Zoopla etc.)
    Viewings and periodic property checks
    Referencing tenants and guarantors
    Inventory and schedule of condition prepared by an AIIC qualified inventory professional
    Tenancy and Guarantor Agreements
    Rent Guarantee Insurance
    Taking meter readings on check in and check out and informing utility companies of tenancy change over
    Deposit protection registration with DPS
    Rent Collection with payment forwarded to your account by BACS and monthly rental statement
    Check out inventory at the end of the tenancy

    At that price would it really be worth organising and paying for all of the above seperately yourself?

    For further information please see >>> http://www.property118.com/?p=34413

    PS – yes definitely worth getting a good accountant, see the Tax section of this website :)


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  • JC,

    You seem more concerned about tax issues than getting a tenant! WIthout a tenant, you won’t have any tax issues to worry about … ! :)

    Therefore, I think your focus should be to get a tenant first and worry about tax later. If you have a tax problem, its a nice one to solve because it means you’ve made some money!

    As Mark said, you have most of the basics covered.

    If you decide to work with a lettings agents, DO NOT base your decision on price as cheap is not necessarily the best.

    Look for an agent registered with ARLA, NALS or RICS and who is a member of SAFEagent, as this ensures that your monies are protected.

    The decision to work with an agent should be based on if you have the time and inclination to deal with your tenant, not price point.

    You are now a service provider and your tenant is your client, so you need to think along the lines of how you can service the needs of your tenant or if you want a lettings agent to take that potential hassle away for you.

    My Landlord Toolkit will provide you with some tools to get you off to a flying start.

    http://www.propertytribes.com/landlord-toolkit-t-8159.html

    Good luck and welcome to the wonderful world of landlordism!!


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  • JC Member Profile Deleted says:

    Mark – Thanks for the speedy reply. I have in fact been considering the online letting agent that you referred me to. It does seem pretty comprehensive, I would probably choose the £25/month option and opt out of the rent guarantee insurance.

    The only thing holding me back from this option is not knowing anyone who has dealt with a letting agent that didn’t have a high street presence. Like a lot of other people have said on the site, it just seems too good to be true plus I couldn’t find out how much it costs the tenant to use the agent (i.e. what fees the tenant pays). All that said, I am very seriously considering this site.

    Vanessa – Thanks for the advice and the link.
    It’s difficult not to get carried away with looking at price when choosing a letting agent. Local high street letting agents are looking for around 12% + VAT for full management which is around £2k/year versus an online agent who charge £300-£420/year. I feel that traditional letting agents won’t provide value for money when the flat is pretty new and in perfect repair. I find it difficult to understand why letting agents should charge a percentage of the rent as opposed to a fixed fee that represents the level of work (i.e. per tenant, or by floor area etc.) I am shopping around and I appreciate all the advice I can get.

    With regards to finding a tenant, the flat is in a highly sort after area and flats are usually advertised for just a few days before a tenant is found (based on personal experience with neighbours who have let their flats). So I don’t think it will take long to fill with any agent, it’s the management of the flat I’m more concerned about.

    Plus, because tax is the most alien to me it is the thing I fear the most, and I keep reading that spending a little time structuring things correctly at the beginning can save a lot of hassle later on, so I thought as I have the luxury of time and other people’s hindsight I might as well ask for general opinion!

    Cheers both!


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  • @JC – Suzanne Edgecome, a member of The GOOD Landlords Campaign, sent in a wonderful testimonial for Letting Supermarket which we published here >>> http://www.property118.com/?p=40007

    They charge tenants a £200 fee.

    If you hover over the Tax tab on our Navigation bar you will be able to read my tax avoidance strategy.


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  • JC Member Profile Deleted says:

    @Mark – Thanks for pointing me to the tax section, definitely food for thought. Great to find yet another benefit to having a trustworthy spouse!

    Just read the testimonial, it certainly sounds like a good deal. I guess there’s only one way to find out for sure!

    BTW I forgot to ask about Landlord Insurance. I’ve signed up for the Landlord’s buying group but I wonder if anyone could outline briefly (i) the differences to look out for in insurance policies (ii) how to gauge whether it is a fair price or not.

    Usually for these sorts of things I use online comparison sites but when it comes to landlord insurance they are less inclined to provide a quote online.


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  • @JC – do shop around for Landlords Insurance and then compare the quotes, the buying group often comes out best but not always. Make sure you are getting enough but not too much landlords liability insurance and that quotes are on a like for like basis. Having been stung in the past I always make sure that “Malicious Damage Caused By Tenants” is quoted. It puts the premiums up but having had a £18k claim for malicious damage I swear by it. Check out this story, not that I would want to put you off getting into this amazing business >>> http://www.property118.com/perfect-tenant-evicted-prostitute/29056/


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  • @JC – Yes you are correct Landlords insurance is a more specialised area and one of the additional factors they take into account is the type of tenant eg. if they are working, on benefits or students etc.
    As it is a flat the main cost of Buildings insurance will be covered by the Freeholder, but you will still need to consider contents and liability insurance once you have found a tenant.
    http://www.property118.com/landlords-insurance-landlords-buying-group/


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  • I am wondering why your lender charged for consent to let when you already have a Let to Buy mortgage? I am not saying this is incorrect but seems odd.

    Don’t worry about the tax, the CGt assumes there will be a surge in house prices which appears unlikely at present. Nearer the time if you require help with your tax, get in touch. In the meantime keep records and receipts of everything connected with your rental.


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  • Hi JC<

    My Wife and i are property investor and but north.

    with regards to your questions i would defiently suggest you take professional advicein order to fulfil your strategy and tax planning requirements.

    This is our accountant he is also a Property investor and his clients are purely invetsors so he would be able to advise best.

    Simon-Elite Accoountants

    simon.jackson@elitefinancialaccounting.com


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  • As a letting agent, it could reasonably be assumed that I have a vested interest…….. Notwithstanding that, I believe that a good agent manages the tenants, the tenancy and the property. Whilst when good tenants are in your property, all of the above is relatively easy, if the tenants are poor or even worse, bad, the potential for excessive loss is frightening.
    We still pick up two or three clients a year who have let and managed their property themselves for years without any problem, but who come to us when something has gone wrong. It is worth remembering that one disaster can cost you many years’ agency fees.
    Part of your original enquiry was how to find a good agent……. I believe there are certain key search points……. Always check the review sites (all agents and Google) if they do not have any Google reviews you may choose to ask why? Ensure as Vanessa says that the agent belongs to an industry body, and not only that but find out how many of the staff are qualified. Ask how the lettings team are rewarded…… commission on lets is a double edged sword; you do not want your agent trying to get the deal before the one down the road and compromising on who is offered a tenancy…… a good agent will find you the best tenants looking now. Ask how many tenancy deposit disputes they have and what proportion of deposit money was returned to tenants. Find out what their renewal rate is…… and if they charge tenants for renewals. You could also ask them what proportion of their stock is on a periodic agreement (in some areas it is preferential to have your property come available to rent at prime times in the year) You could do well to establish the churn rate on staff…… in my experience a good agency retains key staff so you could establish average length of tenure and how long the newest members of the team have been around. There are also a couple of industry awards The Sunday Times awards and the ESTAs…… agents who have entered and done well in these are likely to have high expectations and standards. Invite two or three of the best looking agents to your flat to value it and explain their differentiators, then visit the office and meet the rest of the team……. They will be managing your asset so take time to choose the best one.


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