If you’re the proud owner of a house but you’re the only occupant, you must have thought at some point that it would be a great idea to live with a lodger for some reason.
Maybe you’ve reached an age where your kids have moved out into their own homes or you’re just about affording to keep the house on your own and need some additional income to pay back some of your mortgage.
Whatever your reason (of which I’m sure there is an unlimited amount), I’m going to cover some of the considerations you need to think about before you make the leap to become a resident landlord.
1. Speak to your mortgage lender
If you happen to own your property outright, this point won’t mean anything to you. If, like much of the nation though, you have a mortgage to pay then it’s important that you inform your mortgage lender of your decision to let out a room.
If you don’t inform your bank, building society, etc. about changes to the tenancy of your property then you could be in breach of their terms and conditions in your contract. This could lead to a legal mess that you would rather avoid, especially considering the fact that it concerns your own living arrangement.
It is likely that your lender will want you to switch mortgages to an often more expensive buy-to-let loan or they will increase your rates to a similar effect. Either way, don’t naively expect to be paying back less than you already do.
After reading the above you might be thinking of letting out your property on the sly with an under-the-table exchange of cash that you hope your lender will never know about. This is of course a decision you’d be making at your own risk that I don’t advise.
I don’t advise keeping your new landlord situation a secret from the banks because the risk of getting caught is not worth it. Think about the restrictions this puts in place.
Forget about promoting your room let on Zoopla or any of the big advertising platforms for renters. Lenders have been reported as increasing their efforts to catch out borrowers on regular mortgages who have been letting out their properties (The Telegraph).
So to summarise this point: talk to your mortgage lender before becoming a landlord.
2. Consider your insurance options
If you already have home insurance in place, it is also a good idea to talk to your insurance provider. Because your living situation will be changing, there might be a clause in the terms and conditions of your policy documents that becoming a resident landlord will affect.
Fortunately there is a range of landlord insurance cover available for you to take out that will help protect you and your property from the potentially expensive costs of damage that lodgers might incur.
The most important type of cover to buy is buildings insurance to keep your property safe from unforeseeable damage to the structure of your house (such as flood and storm damage). Other cover options are desirable though, such as rent guarantee insurance, which will ensure that income from your lodger is still coming in if they can’t afford to pay for up to 6 months of rent for whatever reason e.g. they lose their job.
Consider taking out landlord contents insurance if you are letting out a furnished room so that the cost of replacing them is covered if they are damaged by the tenant’s negligence or some other unpredictable incident. Keep in mind that this won’t cover your lodger’s personal effects though. If this is of concern to your lodger, ask them to take out their own contents insurance policy.
3. Conduct market research
When you become a landlord you are effectively the owner of a type of business where the product is your home, the service you are providing is accommodation, and the customers are your potential lodgers. So why wouldn’t you want to know how your competing landlords are positioning themselves to see where you can take advantage?
Your research should include investigations into the prices of let rooms, what those landlords offer to tenants, what part of your local area is most desirable due to transport connections, etc.
Zoopla and Rightmove are two industry-specific websites that you could use to carry out this research, however, a quick search through Google and a wander around your local estate agents can give you good, reliable insight into your target market.
This type of activity will allow you to set your price, figure out what you want to offer your tenants (furnished/unfurnished), get an idea of what type of tenants you want to let a room to (DSS tenants, students, professionals, etc.), and much more.
I would even recommend carrying out this type of research before my first point in this article because it could also reveal whether or not becoming a resident landlord is right for you.
Start renting a room out today
I hope that I’ve given you enough to be getting on with in this article. Remember, there are different types of landlord that you can become but what we’ve been focusing on is resident landlords, meaning you’ll be living with your tenants and most likely renting out a room or portion of the house.
The market research point I raised could be left to a letting agent if you’d prefer not to get involved in the nitty-gritty of it all but bear in mind that they will charge you fees for orchestrating everything, which could be done by yourself.
If you have any questions or points you’d like to raise, please add them in the comments area below and I’ll get back to you.