How buying a second home and renting out the first in the UK is a smart idea

Sep 09, 2022
buy second home and rent it out

So, you're thinking of buying a second home? Or maybe you've already own the house, perhaps you have an empty house and have moved in with a partner and are now wondering what to do with it? Renting it out may be the answer!

Renting out your first home can be a great way to make some extra money. There are many things you need to take into account before making the decision, such as the mortgage payments and whether you can afford them if the tenant doesn't pay, but there are also many benefits to renting out your home. In this video, we will look at five of these benefits, as well as some tips on how to find tenants and what the tax implications are.


So, why should you rent out your home? What are the benefits:


Benefit 1 - You can make some extra money - This is probably the number one reason people rent out their homes. If you have a spare room or even an entire house that isn't being used, renting it out can be a great way to make some extra money.

There are 2 ways you can make money.

  •  You can cashflow and make money when your rent is more than your mortgage and running costs. It's important to try and make profit, as you want the property to contribute to your income not be a drain.
  •  You can make long term capital gains, from the increase in house prices. According to the Halifax House Price Index, at beginning of 2022 UK property price average is £276,091 and increased over £24,500 in 2021.

2021 might be a peak year but ownership can make you money, when house prices increase, your mortgage stays the same. Debt doesn't go up when house prices go up. From 1950 to 2020 uk property prices doubled 7 times. We may be in for a bumpy ride in next few years but if you own the property it doesn’t matter what happens in the short term to prices but we hope in the long term we make more money. History shows us that on average in UK house prices increase on average every 10 years


Benefit 2. You can get someone else to pay your mortgage - Another great benefit of renting out your home is that you can have someone else pay your mortgage for you. You will need to get permission from your mortgage provider that it is okay to rent out your property. Your tenant will pay you and YOU will still be responsible for paying the mortgage but metaphorically speaking the tenants rent is paying towards your mortgage. If you don’t pay your mortgage the mortgage provider can still repossess the house and you will be liable for all the unpaid payments and costs and fees.

So if you want to keep your property getting a tenant is definitely going to help you meet your mortgage payments.


Benefit 3 You can have some extra security - You may not want to sell your home, if you have moved in to a partner's home, emigrating and want a UK base or taking a promotion or contract in a different city, moving jobs, it might be that you don't want to sell your house right now, you want the security of owning a home, you can come back to in time. Remember you will need to get vacant possession and get the house back off the tenant, which normally involves a notice period, check your local government website, as rules differ in England, Wales and Scotland.


Benefit 4. You can't sell your house - If you have purchased a house fairly recently, selling your home may crystallize a negative equity position, where you owe more than you'd get if you sold, this is common with new flats and apartments. Perhaps you've purchased a unique property that isn't the easiest to sell, don't worry renting out is easier than you think.


Benefit 5. You start a property business - you become a landlord. YAY! This is  a great time to become a first time - accidental landlord. Its a great way to start building up a second income and cashflow. Perhaps saving for retirement. Renting out your first home could be the start of creating a property portfolio with 20, 30 or 40 houses in the next decade. Is this you?


But ONE of the most important things to consider when renting out your home is finding the right tenants. And it's not uncommon for new landlords to be a little scared of this at first.

You want to make sure that you are getting someone who is going to take care of your property and pay their rent on time. You may consider using an agent, but this might be costly for what you need. You can ask an agent to do tenant find only, you may not know this.


There are a few things you can do to make sure you are finding the best tenants possible:


  1. Check their credit score - One of the best ways to get an idea of how responsible a potential tenant is is to get them referenced, you can use companies like Letting Ref.
  2. Always ask for references - especially from the previous landlord, not only their current landlord. They may want to get rid of their tenant and could give a good reference - even though this is illegal. The previous landlord will be the most honest and graphic in describing your tenant.
  3. Google your tenant name and town. You'd be surprised what people post on social media about themselves, drug smoking and parties photos are clues to how a potential tenant may use your property. Any newspaper articles about them perhaps committing criminal activity is also going to show.
  4. Get landlord insurance. Its possible to get insurance to cover your rent and any eviction procedures, just google landlord insurance. Make sure you do this before getting the tenant, the insurers will probably vet the applicant with you.
  5. Get your tenant on the right documentation called an AST – Assured Shorthold Tenancy and ensure your house is compliant. You can use landlord management software for self-managing property like my software GO Tenant, which will help you recruit and issue the right documents to tenants and comply with housing legislation. Check out the description for a free trial

Finally, What are the tax implications of owning a second home and renting it out?

- You will need to declare your rental income on your tax return

- You may be able to claim reliefs or expenses against your taxable income, such as mortgage interest payments or repairs/maintenance costs but you should get in touch with a property specialist accountant for advice.


SO that’s it, renting out a second home is a great way to become a landlord. And a great way to start your property investing journey. Property is a great way to create wealth and grow a legacy for your children or supplement your retirement. Happy investing!


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