It feels great being able to give a friend – or even a family member, such as a distant cousin – a roof over their head. You know, and like, them or their family well so there shouldn’t be any problems, right? Wrong!
For starters, when you know, and have a familiar bond with your tenant, it’s more difficult to see the whole letting situation as a business arrangement (certainly, on their part anyway!). Look at paying the rent, for instance…
For you, it’s essential you get your rent every month to pay off your mortgage – otherwise you’ll get charged interest. For them, being a friend or family member, they are sure you won’t mind if they’re a little bit behind with the rent – after all, you know they’re not going to do a runner. We’ve seen this too many times now not to be absolutely certain of this in at least 50% of cases. The end result is a big fall-out and, in the worst-case scenarios, entire families not speaking to each other.
So, think very carefully before you offer your buy-to-let to either a friend or family member – especially if you still want to be on speaking terms at the end of the tenancy.
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Get a Tenancy Agreement
To avoid the ‘I’ll pay you next week’ scenario,’ you have to go down the official business route. And that means using a Tenancy Agreement to keep yourself right.
It is possible to have an oral agreement – the very fact they are paying rent into your bank account every month proves this. And it means you can’t just turn up and enter the property when it suits you. If you want them to leave you will still have to go through the court eviction route. So, isn’t it easier just to go ahead and have the contract anyway?
You won’t need reference checks – unless you want landlord rental guarantee insurance. So, that’s saving you quite a bit of money for starters.
Paying Tax
Just because you know your tenant well, doesn’t mean you don’t have to pay tax. You are benefitting from their being there in terms of income, after all. You’ll have to fill in a self-assessment form at the end of every tax year, indicating how much rent you received. You’ll also be able to offset certain expenses though, such as repair costs, letting/management agency fees (if you go down that route) and claim 20% landlord buy-to-let allowance.
Fines and Breaking the Law
Landlords who don’t declare they are renting a property to a friend or family member run the risk of being reported and fined. However, because the tenant is a family member that’s probably unlikely. With a friend though, you may have a disagreement and fall out. The consequences could be that they (or a friend of theirs) report you. And then you can expect a grilling from the local authority and a large fine.
It’s in both your and your tenant’s interests to legally declare the tenancy. After all, there are statutory requirements for health and safety (such as fitting fire alarms and carbon monoxide detectors). You may feel, because you’re not declaring it, that you don’t have to ‘tick all the boxes’ for legal requirements but that’s not fair to your tenant. And, if anything happens ie fire as a result then you will be in hot water indeed.
Building and Contents Insurance
Another area worth checking is your building and contents insurance. Some policies won’t agree to your letting other people stay in the property. You would have to take out landlord building and contents insurance to be fully covered.
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