Buying a house to rent out

Buy a house to rent out: all rules in a row

Buying a second house to rent out can be an attractive way to invest your money. Although it offers advantages such as extra income and potential appreciation, you will also face extra responsibilities and rules. In this article, we discuss important matters such as taxes, mortgage options, and practical aspects of renting out, so you can make an informed choice.

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Why choose to buy a second house for rental?
Buying and renting out a second house: is that always allowed?
What taxes do you pay when buying a second property for rental?
What (maximum) rent can you charge?
What responsibilities do you have as a landlord?
Can you sell a house with tenants in it?
Get advice from the right professionals

Why choose to buy a second house for rental?

Buying a second house to rent out can be a smart investment, especially in times when savings yield little. By investing in a rental property, you can generate passive income monthly. Moreover, house prices are rising, and with the ongoing shortage in the housing market, there is a good chance that you can sell the property in the future with surplus value.

An additional advantage is that rental income is often tax-free, making this investment especially attractive. However, it is important to realize that buying and renting out a second home involves more than it seems at first glance. The location of the property, the right type of mortgage, and the applicable regulations are crucial factors that can influence the success of your investment.

Additionally, you cannot just rent out any second home. You can read more about this below.

Buying and renting out a second house: is that always allowed?

In principle, you can buy a second house and rent it out, but there are specific rules and conditions that you must take into account. Unlike your first purchased home, you usually cannot just take out a standard mortgage for a second property. Most banks do not allow you to rent out a property under a regular mortgage. You often need a special 'rental mortgage' if you want to rent out the property.

Are you considering buying a second property with your own money? Read up on buying a house without a mortgage.

The rental mortgage

A rental mortgage is specifically developed for the rental of properties. This type of mortgage comes with stricter conditions. Banks see renting as a higher risk, which leads to a higher mortgage interest rate and a lower borrowing limit. Thus, you can often only finance 70% to 90% of the property's value, while with a regular mortgage for a purchased home you can usually borrow 100%.

The percentages for the rental mortgage are calculated based on the market value of the property in rented condition, which is often lower than the market value of a property occupied by the owner. The market value is determined by an appraiser. It varies per bank whether the expected rental income is included in the calculation of the maximum mortgage amount.

Note: are you 57 years or older and planning to retire within 10 years? In this case, the bank may decide to lend you less due to the decreasing income after your retirement. How this is handled varies per bank. A mortgage advisor can tell you more about it.

Read more about buying a property at an older age.

Mortgage: everything you need to consider when buying and selling your home

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Taking your mortgage to a new home

Double mortgage

Do the VvE and the municipality allow rental?

Before you buy a second house for rental, it is also important to find out if the Association of Owners (VvE) allows rental. Although renting out your own property is legally allowed, a VvE can impose restrictions, for example against commercial rental via platforms like Airbnb or using the property as an office.

Additionally, more and more municipalities are introducing an owner-occupancy obligation to ensure there are sufficient affordable homes for the local population. In such cases, you are not allowed to rent out the property and are obliged to occupy it yourself. This can limit your plans to rent out the property. Find out in advance whether such rules apply to the property you wish to buy for rental. A real estate agent can assist you with this.

Get advice from the right professionals

Consult with a financial advisor and a mortgage advisor to map out your options, so you know in which price category you can search and what the financial impact is of buying the second property for rental. A real estate agent can then help you find suitable properties for rental.

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What taxes do you pay when buying a second property for rental?

When buying a second property for rental, you pay a higher transfer tax percentage. From 2024, this amounts to 10.4%, instead of the usual rate of 2% for a first property. Additionally, your second home is considered an asset in box 3 by the Tax Office, meaning you do not have the right to mortgage interest deduction, unlike your first home which falls in box 1.

As a result, your gross monthly costs are also your net monthly costs, which affects the maximum amount you can borrow. If you have a permanent tenant, the rental income is usually untaxed. You must declare the WOZ value of the rented property in box 3 as 'other real estate'. If you sometimes rent out your property, for example via Airbnb, this is different. You must then declare 70% of the rental income in box 1 as 'income from temporary rental'.

If you are considering buying a second property to rent out, we recommend speaking with a financial advisor in advance. This will give you a clear picture of the financial impact of buying the property - and can help you determine if it is an attractive option for you.

What (maximum) rent can you charge?

When renting out a property in the private sector, you are basically free to set the rent, provided the property meets a certain number of points according to the points system. But beware: this system is currently being revised (2024), which could result in many more properties falling under the social rent cap. If you then rent out the property for a higher price, the tenant can go to the Rent Tribunal to enforce a lower rent.

In addition to the current regulations, there are also plans to introduce the 'Affordable Rent Act'. This act could lower the maximum rent you can charge, meaning rental income could be lower in the future than initially expected. This is an important factor to consider when deciding to buy a second property for rental.

What responsibilities do you have as a landlord?

As a landlord, you are responsible for both major and minor maintenance of the property. This means you need to take care of repairs, replace worn-out parts, and ensure a safe and habitable environment. It's helpful to have a savings fund for financing these kinds of matters, as they often crop up at inconvenient times.

Since you are the point of contact for your tenants, they should be able to reach you with questions, complaints, and problems. This requires you to be easily reachable and to respond quickly to notifications. Additionally, it is your duty to ensure the property meets all safety regulations, such as fire safety and proper insulation. This is not only legally required but also crucial for the well-being of your tenants.

Furthermore, there are annual costs in addition to the mortgage payments, such as property tax (OZB) and municipal charges. It is important to include these costs in your financial planning.

Moreover, you must stay informed about the applicable laws and regulations surrounding rental and comply with them. This includes matters such as rent protection, adhering to the points system, and timely drafting a rental contract. Failure to comply with these rules can lead to legal action by tenants.

Can you sell a house with tenants in it?

Yes, you can sell a house with tenants in it. But beware: the new owner must respect the existing rental agreement, and tenants can usually continue living there under the terms of their contract. This can affect both the speed of sale and the sale price. Want to know more about this subject? Read further in our detailed article about selling a rented house.