Becoming a landlord means making a big investment in two very different ways: by putting your money into buying additional property to let out, and by giving some of your time up to managing your tenants and their needs.
If you come into property through inheritance then you may be able to circumvent some of the financial cost, but either way you are going to end up spending out on repairs and spending some of your spare time keeping the property inhabitable. If you’re willing and able to put these things in, then becoming a landlord can give you a tidy source of extra cash. Renting out property doesn’t tend to make people extremely rich, but it can be a nice way to supplement your income and provide you with extra savings, more disposable income or a way to top-up your pension pot.
Calculating your return on investment
When you start to consider buying-to-let, the first thing to do is to calculate what your return on investment would be. ThisisMoneyco.uk provides a handy calculator to help you work out what your percentage ROI will be based on the property price and the monthly rent.
To calculate this properly, you need to do your research and make sure you really understand the rental market within the area that you’re planning to buy. Knowing the average monthly rent for different types of property and within different neighbourhoods is vital if you want to make an informed decision. It’s particularly important to be aware of how much average rent can vary from street to street: just because two houses look close together on the map, you can’t assume that the rental value is the same.
Things like crime rate and proximity to local schools have a notable impact on how much your property will rent for. You should also consider the costs of any repair work that needs doing. It’s possible to buy a bargain property, give it some TLC and then rent it for far more than it was worth in its original condition. But if you’re doing this, you need to be realistic about how much you’ll need to spend on repairs and renovations and include them in your ROI calculation.
Considering the other factors
Once you’ve worked out what the financial return will be, it’s time to weigh up the other pros and cons to decide whether being a landlord fits into your lifestyle. Here are a few things to consider:
Will you run the property yourself, or have it managed by an agency? Being a hands-off landlord may be appealing if you don’t have much time, but using an agency will bump up the costs. If you want to be an active landlord, you’ll need to have the time for research, home maintenance/improvement, and activities like property viewings.
Do you have property that you want to keep in the family? Renting out property that you have inherited can be a great way to avoid selling a home with sentimental value whilst also making some extra income.
Do you live near the property? It’s much easier to manage a rental property if it’s near your own home, as this makes it easy to pop round for things like viewings or inspections.
The important thing to remember is that becoming a landlord is not a passive source of income: it requires work and needs to be treated as a job. However, if the landlord lifestyle sounds right for you, it can be a great way to supplement your income.