Setting up a property business has a lot of appeal, with property being seen as a solid long-term investment that will appreciate in value over time. Where should you start, what are the challenges you should look out for and how can you streamline your processes to maximise your income?
What type of property business is right for you?
The first thing to consider is the nature of your property business. Each type means different expectations from your tenants, different admin needs and different rules and regulations to which you should comply.
A residential property business
Let’s say you live in a university town with a big influx of students, all needing somewhere to live, and decide to invest in a number of student flats.
You will have to consider:
- What rent will the students typically expect to pay?
- What types of accommodation are most popular? Flats will have more appeal than 6-bedroom houses with big gardens to look after.
- What’s the competition like – is there already a lettings agency that has it all sewn up?
- Where are your properties based? Will the students be able to get to university easily and socialise with friends out of hours?
- Are they going to be good tenants who are likely to keep the property in good condition?
- How you can keep up to date with regulations for gas, electricity, and health and safety
- How are you going to market your properties to make sure they are always let and bringing you income?
- If you need an office; the costs of this and where it will be based
A commercial property business
If you are planning on setting up a commercial property business where you rent out a series of light industrial units you will have a different set of considerations:
- What are the typical rents and length of leases on similar units?
- Are the units fit for purpose? So if you are in an area with an agricultural focus, there might not be much uptake if you turn them into serviced offices for IT companies.
- What else is in the area? Is there good access to trunk roads, easy parking, somewhere for people to go in their lunch hour?
- Who else will be competing with you to lease industrial units?
- Are there enough companies around who need this size and type of unit
- What health and safety regulations do you need to watch out for, and how much time is it going to take to keep on top of them?
- How are you going to market the properties to make sure they are always let? Do you know good sales people you can call on?
- Are you going to need an office; where will this be based and how much will this overhead eat into your profits?
A holiday business
You live near the coast and plan to buy up cottages in the area, do them up to a high standard and rent them out for holidays and weekend breaks. You will need to think about the following:
- How much is it to stay in similar cottages in the area for a weekend, mid-week break and full week?
- What are your changeover costs going to be – for example laundry and cleaning – and is there someone in the area who will be reliable and reasonably priced?
- Do you need any other staff and how much will you pay them?
- How will you take deposits?
- Can people book online? What’s your refund policy going to look like?
- Are you going to be able to find a steady flow of visitors who will want to stay in your type of properties?
- What costs will there be for repairs and maintenance?
- How competitive is the local market? You will need to think about what differentiates you from the competition – perhaps a sea view, easy walk to shops, a hot tub?
- What health and safety regulations will you need to keep up with?
- How are you going to market your holiday properties?
- It’s a seasonal business – do you have enough money in the bank to keep you going between seasons?
- Do you have time to answer queries during the booking process and help the holidaymakers when they come to stay?
- Is this a business you can run from home or will you need to find (and pay for) office space?
The rules and regulations of letting property
As we can see above, the different types of property you can rent out varies widely. However, when it comes to rules and regulations there is a lot of overlap.
- Make sure the gas equipment you supply is safely installed and maintained by a Gas Safe registered engineer
- Have a registered engineer do an annual gas safety on each appliance and flue
- Give your tenants a copy of the gas safety check record before they move in, or within 28 days of the check
You must make sure that:
- The electrical system is safe, for example sockets and light fittings
- All appliances like cookers and kettles are safe
- Follow safety regulations
- Provide a fire alarm on each storey and a carbon monoxide alarm in rooms with a usable fireplace or woodburner
- Check you have access to escape routes at all times
- Make sure the furniture and furnishings you supply are fire safe
- Provide fire alarms and extinguishers (if the property is a large House in Multiple Occupation (HMO))
- Have a clear policy about whether it is acceptable to smoke inside the building and individual rooms
And of course, make sure you investigate the different insurances required as a landlord so you are fully covered. These could include buildings, contents and legal expenses cover.
Registering your (property) business in the UK
You can register your business as a sole trader, partnership or limited company. For a typical property business a limited company is most likely to meet your needs.
You will need to appoint a director and register the business with Companies House.
You also need to register for Corporation Tax, and, if your expected income goes over a certain threshold, you will need to register for VAT too.
Don’t forget National Insurance, which will need to be deducted from your own income and the wages of your staff and paid to HMRC.
What licenses will you need?
Here are some of the activities for which you may need licences for your property business.
Notification to process personal data
Notify the Information Commissioner’s Office (ICO) if your organisation processes personal data in an automated form.
Social housing provider registration
The Social Housing Provider Registration is for those who want to provide social housing.
Permission to place tables and chairs on the pavement
Licence to place furniture on the pavement
Pavement or street display licence (England and Wales)
Licence for putting advertising signs on the road or pavement.
House in multiple occupation licence
A house in multiple occupation licence lets you rent out your property of 3 or more storeys to at least 5 people who form more than 1 household
The GOV.UK licence finder has all the latest information on what licences you need and how to apply.
Managing the money in your property business
It is wise to open a bank account specifically for this business. If you’re starting out small it can seem convenient to just use your personal bank account but keeping things organised and separate will stand you in good stead as the business grows.
You may want to have a separate account to keep money aside for repairs; some property businesses pay a percentage of their rental income into this fund each month so they are protected for those times when everyone’s boiler seems to break down at once!
By law, you must place your tenants’ deposit in a tenancy deposit protection (TDP) scheme within 30 days of receiving it. This applies to properties rented out on an assured shorthold tenancy that started after 6 April 2007.
These government-backed schemes were brought in to ensure your tenants get their deposit at the end of the lease – as long as they meet the terms of the agreement, haven’t caused any damage and are up to date with rent and bills.
The deposit must be returned to your tenants within 10 days. If there are any disputes, it is protected in the TDP Scheme until things are settled.
The schemes in England and Wales are:
It will be wise to get some good online accounting software in place. Sage One is very popular among those doing the accounts for property management and helps you stay organised from day one, which is crucial when you have lots of rental properties to look after.
- Secure, cloud-based software means you can access the accounts from wherever you are and keep it backed up too
- Automated invoices and estimates help you save time on manually entering information. Plus you can send them direct to the tenants to speed up the payment process and make sure they stick to the rent schedule
- Easy reporting gives you a snapshot of the accounts for different properties
- Reconcile the bank in minutes, and submit your VAT return online (and if you connect to HMRC it will come out by direct debit too, so no penalties for missing the deadline)
- With Sage Pay you can take rental payments and deposits online and over the phone
- With Sage Payroll you can keep on top of salaries and deductions like student loans and pensions, ensure everyone is paid correctly and on time
- You can also opt for a free trial of Sage One so you can see what difference it makes to your rental property accounts.
Employing people in your property business
The conditions of employment are like in any other business in the UK. Depending on the type of property business you may need salespeople, receptionists, bar staff, marketing assistants, cleaners and a handyman. There are seven steps to follow:
- You must pay National Minimum Wage
- You must check if they have the legal right to work in the UK.
- You may need to apply for a DBS check
- Get employers’ liability insurance
- Make sure all staff are given a written statement of employment within one month of working for you.
- Register as an employer with HMRC
- You may need to automatically enrol employees into a workplace pension scheme.