If you’re thinking about renting out your buy-to-let property to a family member, you should you should take into account a number of considerations.
Letting to a relative can have financial implications, and you have to ensure that arrangements such as deposit collection are in line with legislation. In addition, a family relation doesn't necessarily translate to a model tenant, so the right checks should still be carried out.
By following certain steps, you can give such an arrangement the best possible chance of being a successful one.
Carry out tenant referencing
If you’re renting to a family member, you need to follow the process you would in any other professional letting capacity.
One of the first steps is to initiate a tenant referencing process with regard to the prospective family member wishing to enter a tenancy agreement with you. By doing this, you’ll be more confident in knowing that rent can be paid in full and on time as well as having peace of mind that a reference has been provided by a previous landlord.
Ensure you have a tenancy agreement
Even if you’re renting to a family member, a tenancy agreement is essential. Tenancy agreements set out legal requirements for the landlord and the tenant, as well as the rights and the responsibilities of each. If you ask your family member to sign a tenancy agreement, you’ll both be clear as to what is expected of each party from the start of the tenancy. This way, you can prevent difficult conversations and misunderstandings.
While it may feel formal to request a deposit prior to occupancy, by doing so you’ll allow for any accidents such as furniture breakages or stained carpets. This way, you can avoid putting any unnecessary financial pressure on your relation to pay for damage as it can be deducted from the deposit. Make sure you’re familiar with the 30 day deposit registration legislation beforehand.
Charge the right amount of rent
If you choose to rent your buy-to-let at market value, then finding out what level that is should be relatively straightforward. Look at similar properties in the vicinity, and compare the rental rates of properties that are a similar size to yours with the same amenities.
If you’ve bought the property specifically as a buy-to-let, your mortgage provider may have specified the amount of rent you need to charge. For many, this is around 120% of monthly mortgage repayments.
If you decide to charge a reduced amount of rent or no rent at all, financial implications are often attached. So make sure you receive advice from HMRC about the tax implications of this. Your tenant should also seek advice from somewhere like Shelter if they’re receiving housing benefit.
Keep on top of maintenance
By visiting the property, you’ll be able to spot any developing maintenance issues, dealing with them before they become problematic and scheduling in any jobs that need to be carried out.
Have the right insurance
Finally, before your family members move in, ensure that you have the right level of landlord insurance. This helps to protect you against property damage, legal costs and missed rental payments (depending on the level of cover you opt for). This way, you’ll know your property’s protected.