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Rental Accounting

Renting Out Your House Has Never Been Easier With Open Banking Innovations

Renting out your house or a room in your house is a great way to generate some extra income while holding onto an appreciating asset. Property is the primary vehicles of wealth-building used by individuals looking to save wealth for the future. However, the prospect of renting out your house can be daunting. Running a rental is not that different from running a business, and while the income is deemed to be passive any experienced real estate investor can tell you that it’s anything but.

In this article, we take a look at why renting out your house could be a great idea as well as how modern innovations like open banking paired with good software solutions can make renting out your house efficient, easy and profitable.

Why Rent Out Your House?

There are numerous reasons why you might rent out your house. For example, if you are moving but are struggling to sell, or don’t want to.

The primary reason though to start renting out a property is to build wealth. Rentals allow you to generate cash flow to cover the costs of owning the property and create a bit of cash on the side.

So, if your goal is to build wealth through property investments then this is definitely something you should consider, whether it’s an inherited property, your second home, or you’re simply considering rentals as an investment strategy.

How To Rent Out Your House?

Before you start renting out your house there are a few essential things for you to know to make sure that you stay compliant with rental property laws and regulations.

Get the right insurance

When renting a property you must have a good landlord insurance policy. It’s also important to recognise that homeowners insurance is not landlord insurance.

You’ll also have to arrange a special landlord insurance policy. This can protect your property, your tenants and your investment as a whole.

It’s well worth shopping around to find the best policy. Some landlord insurance policies can even payout if your tenants miss their rental payments. If you’re a landlord renting out your house, and you rely on your rental income to pay the mortgage, non-payment could be a huge problem. Having the right landlord insurance in place could protect you in a financially challenging situation.

Talk to your lender

Additionally, if you’re changing the use of a property you currently own from your primary residence to a rental you will need to talk with your current mortgage lender and let them know what your planning to do.

Failing to tell your mortgage lender could mean you’re breaking the terms of your mortgage contract by renting out your house. You need to ask their permission before you go ahead.

You’ll usually have to get something called a consent for lease from your lender. Once you’ve got this, you can get started with renting out your house.

Know your responsibilities

As a landlord, there are a few things that you are required to know and actions that you must take to ensure you are allowed to rent your property out. Make sure you know what your responsibilities as a landlord are and do everything by the book.

Your responsibilities as a landlord include:

  • Ensuring your properties are safe and habitable. You will need up to date gas and electric safety certificates.
  • It becomes your responsibility to manage all maintenance and repairs for the property. Some repairs can be charged to the tenant, however, you will still need to manage them yourself to make sure they are done properly. If it is something urgent, such as a plumbing emergency or gas leak, your tenant will need to be able to get hold of you out of hours so that you can immediately resolve the issue.
  • You will need to get an Energy Performance Certificate (EPC) for your home. Currently, this needs to be at a minimum of an E grade. However, you will need to get this grade up to C by 2025 which depending on the age and current EPC grade of the property could cost a substantial amount of money.
  • You are responsible for ensuring that the tenant that rents from you has the right to rent and live in the UK.
  • You will need to keep your tenants deposit in a secure government-approved Tenancy Deposit Scheme. Additionally, it’s a good idea to become familiar with what you can and can’t deduct from a security deposit at the end of the tenancy.
  • It is your responsibility as a landlord to ensure that all smoke alarms and carbon monoxide alarms are installed and working properly.
  • You will need to share the how-to rent checklist with your tenant.
  • If the house is furnished then the furnishing needs to be fireproof.

The Importance Of Rental Property Accounting For Your Rental Business

As well as managing all of the above things listed there are the day to day tasks of managing a rental property which includes things like finding and selecting tenants, routine property inspections, and keeping careful and accurate income and expense records for tax time.

There are three main reasons that keeping accurate up to date books are vital for success as a landlord.

Run a profitable business

Having a good bookkeeping solution means you can easily gain an accurate view of your properties performance. You’ll be able to determine which areas of the business are losing money, and how much exactly you are making. Having these metrics at hand is central to running a profitable rental business.

Get ready for the end of the tax year

At the end of the tax year, you will need to file your tax return. This is made immeasurably harder if you need to go back through your bank statements, find all your receipts, and manually enter all the data at the end of the year. Not only is it a fiddly, time-consuming process that is prone to error, but leaving it to the 11th hour in this way is a sure-fire strategy to forget or miss deductible expenses and end up overpaying your taxes.

Keep and store important records

You will be required to keep records of everything related to your rentals. Having a system that allows you to store and organise these documents from Energy Performance Certificates, to lease documents, to digitised receipts.

How Are Open Banking Innovations Changing Rental Management?

Many businesses fail because they lack visibility and clarity over their capital and expenses, which prevents them from properly preparing for the future. Open banking innovations have allowed companies to create new streamlined financial management processes. As a landlord this means with the right software solution to manage your income and expenses you will be able to view and manage your historical transactional data and your rental property books all in one place for more efficient and error-free rental accounting and better financial oversight.

The benefits of leveraging open banking innovations for your rental property accounting include:

  • Improve the efficiency of your income and expense tracking.
  • Reduce manual data entry for faster and less error-prone bookkeeping.
  • Manage your accounts in real-time.
  • Gain an accurate and detailed overview of finances.
  • Become MTD ready before the 2023 deadline by keeping accurate digital records.

On an important note, all landlords will need to be using software to keep digital records of their accounts and to submit their Quarterly tax returns by the MTD deadline of April 2023. For more information on how MTD is going to affect you as a landlord and what you need to do to prepare head to these free resource pages:

How Can Landlord Studio Help Improve Your Rental Property Management?

With Landlord Studio you can pair award-winning income and expense tracking with time-saving property management software to save yourself time and money. A few of the essential features that will help you when renting out your house include:

Final Words

Running a rental can seem like a daunting prospect with various unknown regulations lurking in the shadows with the promise of strife and hours of admin.

However, it doesn’t have to be that way. With the rights tools, you can reduce the amount of administrative work and run a streamlined and lean rental business that generates positive cash flow while you build equity in an appreciating asset.

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