Updated on 4 June 2015.
If you have been unable to sell your house in a slow market then renting the property instead of trying to sell it can be a gainful alternative.
You might not want to sell your property but wish to live elsewhere for a while, for example taking a career break and live abroad for a number of months. You would want to come back to your house at the end of this time but meanwhile you could be earning rent on the property.
Whatever your reason, anyone can rent out a property with the right know-how.
Before you start setting the wheels in motion to make your house a rented property, it is a good idea to do a bit of your own research into the letting market.
Look into the sorts of properties being let in your area and how much rent they are asking for.
If you plan to use a letting agent you should also start looking around at the different options in your area including the service they offer, how much they charge, and so on.
When you decide to rent out your house you must let your mortgage lender know your intentions.
Failure to tell your mortgage lender you are renting out your house is likely to mean you are breaking the legal terms and conditions of your mortgage contract, so before you do anything else, you need to ask their permission.
You will usually have to obtain something called a consent for lease from your lender before you can get started. Find out more about how but to let mortgages work by reading our guide.
You do not have to use a lettings agent when renting out your property, but it will mean you can cut out a huge amount of the legwork of renting out your property as they will:
Agents however will generally charge around 10-15% of the rental income you receive, though you may feel this is worth it for the extra work they do for you. For more information read our guide, Letting Agents: Are They Really Worth the Cost?
Ask your lettings agent how much they feel you should charge for rent, but remember that this decision is down to you so it may be useful to gather opinions of two or three agents before settling on a figure.
If you are using one, you may prefer that your lettings agent does this completely on your behalf, or you may want to meet potential tenants before deciding on who you would be happy with living in your property.
If you are using an agent they can also perform reference and credit checks on potential tenants to ensure everything is above board - if not, you will need to do this yourself.
If you are worried about picking the wrong tenants, read our guide that explains how you can protect yourself against the tenants from hell!
Before you make your property available for rent you will need to decide whether to let your house furnished or unfurnished. but remember that if you do leave some of your own furniture or belongings in the rented property these should be minimal.
Other things to consider before any tenants move in include:
It is very important that your current insurer knows of your intention to let your property, both in terms of your buildings and your contents home insurance.
These policies may need to be amended or added to as necessary now that your home is becoming a let.
Crucially, you will also now have to sort out a new type of insurance known as landlord insurance. This covers your home when you are not living there and have tenants living there instead. You can explore landlord insurance products using our comparison table to find a suitable policy that will not only protect your property, but your tenants and your investment as a whole.
It may also be worth looking for landlord insurance that would pay out in the event that your tenants default on making payment if you are worried about this happening. Read our guide for help finding the cover you need.
While you might be making a tidy second income from your tenants' rent, any rental income you receive may be taxed at your usual rate (20% if you are basic rate taxpayer, and 40% if you are a higher-rate taxpayer).
You would have to take into account this deduction as well as any deductions from your agent if you are using one, then see how much you are left with.
This net figure would have to at the very least cover the mortgage payments on that property, and ideally leave you some surplus in case you need to do any maintenance and repairs on the property.
As such you will really have to sit down and do the maths to make sure it is worth it financially before you decide to rent.
You may also need to factor in a back-up fund in case you need to continue paying the mortgage between tenants when you are not receiving any rental income.
Remember, if you are moving to a new house and now have two properties to look after, there is double the chance one of them could need sudden expensive repairs, so you will need to keep some money by for this too.
If you do not want to move out you could rent out a room of your home and bring in a little extra money while you try to sell your house.
Under the government's Rent a Room scheme you can earn up to £4,250 each tax year, tax free by renting a furnished room in your family home. This roughly equates to a tax-free income of £354 a month or £81 a week.
Here is what you will need to consider:
Ultimately the decision to rent out your house will mean that you go from being a home-owner and occupier to a landlord, and with your new status as landlord you will have certain new responsibilities:
As well as these responsibilities you will need to be prepared to be on hand when you get a call from your tenants, as many issues will need attention immediately (a gas leak for example). You can avoid this stress by handing the reigns over to a letting agent, but this will come at a price.
Written by Sally at money.co.uk
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