With recent changes in regulations and unstable house prices, is property still a good investment?
If you’re looking for a long-term investment, buy-to-let property can still provide rewarding returns.
We explore the benefits and drawbacks of buy-to-let investments to help you decide whether expanding your portfolio or becoming a first-time landlord is still worth the risk.
Buy-To-Let Investment: The Risks
We would be lying if we said investing in property was completely risk-free. It’s important to understand the risks involved before making any big investments.
Here’s a look at some of the potential risks currently facing the buy-to-let sector;
Unstable Property Prices
With Brexit on the horizon, no one can be entirely certain what the after-effects will do to the UK property market. If house prices fall, you may lose out on money if you decide to sell.
However, this works both ways. If the property market experiences an uplift post-Brexit, as it often does after slow periods, your investment worth could grow by a significant amount.
Stamp Duty Changes
The changes to stamp duty made in 2016 mean that landlords now have to pay up to 3% more on buy-to-let properties. This can greatly increase your initial outgoings so needs to be factored into the decision-making process.
However, this doesn’t apply to first-time, buy-to-let buyers who can pay the standard home mover rates instead.
Reduction to Tax Relief
A new tax system is being phased in, and by 2020, buy-to-let landlords will no longer be able to deduct any mortgage interest payment from their rental income before paying tax.
These changes mean most landlords will be paying higher tax on their rental properties and may even find they move up a tax bracket.
Unfortunately, void periods can happen, and are sometimes out of your control. Extended void periods can negatively affect your annual returns and are best avoided.
To prevent void periods, there are some simple steps you can take;
- Invest in quality marketing
- Keep up with maintenance
- Think about your target tenant
- Ensure compliance with current health and safety obligations
Investing in Residential Property: The Rewards
When you get it right, buying residential property to rent can still be a profitable investment. Here, we explore some of the benefits;
HMO Properties: Higher Rental Yields
Investing in an HMO property is a good way to see larger returns on your investment.
An HMO property is shared by multiple people or ‘households’, and according to Property Investment UK, can provide rental yields up to three times higher than single lets.
With the demand for shared housing continuing to grow in cities and student towns, investing in property with the idea of renting it as an HMO remains a solid investment.
Location: Maximising Returns
When looking for a stable investment property, location remains key.
While larger cities in the North such as Manchester and Liverpool are currently experiencing an uplift in local housing markets, some areas of London are slowing down.
Finding the right rental market in an up-and-coming area will improve your chances of enjoying a higher rental yield.
For example, properties in larger University towns make a great investment for student landlords as there is a steady supply of students looking for housing.
To get a better idea of where to invest now, the following areas have been tipped as providing a solid investment;
Look for areas with a younger population who haven’t yet stepped a foot onto the property ladder and areas with good transport links into popular areas.
Long Term Rewards
As long as you’re willing to exercise patience, investing in buy-to-let property still brings with it worthwhile, long-term rewards.
The security of a steady income flow and the possibility of inflation provides a solid return on investment and a safety net for retirement.
The Brexit Effect: Should I Be Worried?
Due to Brexit uncertainty, many people have delayed selling or buying a home. But that shouldn’t necessarily put you off investing in buy-to-let property.
The UK population is growing, and people still need homes to live in. In fact, as first-time buyers are thinking twice, the demand for renting may even rise in the short term.
Although it’s hard to predict, unstable house prices and rising mortgage rates could result in a higher number of people looking to rent, allowing private landlords to enjoy a stable rental market.
Either way, the residential property market continually experiences ups and downs, meaning that quiet periods don’t usually stay quiet for long.
Look After Your Investment with No Letting Go
If you’re thinking of investing in buy-to-let, it’s vital to have all of your documents and property checks in order.
Here at No Letting Go, we help landlords, letting agents and property professionals alike manage their portfolio by providing reliable inventory reports and other essential services.
From check-in services to property appraisals, discover our wide range of professional property inventory services to see how we could help protect your investment.
For landlords and property professionals, finding the right tenant for your rental property is fundamental for business success.
But who should be your target tenant?
It’s not as simple as finding someone who can pay the rent on time. Wide-ranging factors such as profession, marital status and long-term goals should also come into play when thinking about what you want from the arrangement and the safeguarding of your property.
Here, we look at the pros and cons of renting to different types of tenants so you can identify the right target tenant for you.
Choosing the Right Tenant
Before you start marketing your rental property, you first need to identify a target audience to gear your tenant search towards.
By identifying a specific tenant persona from the get-go, you will be in a better position to rent your property and attract your ideal tenant. Whether your first priority is the careful upkeep of your property, or to find a long-term tenant, establishing your needs and requirements at this stage will help narrow down the search.
When it comes to finding a good tenant, think about your future relationship and who you want to be dealing with on a regular basis. A good tenant looks different to different landlords. Do you want someone looking for a long-term let, or a you happy with a quick turn-around?
Whatever your needs, here are some of the pros and cons of different types of tenants;
High Income Tenants
The income of your target tenant depends largely on the type and size of the rental property you own and its location.
For example, landlords with property in central London will need to target high income tenants in order to meet monthly rent payments.
One of the biggest benefits of renting to high income tenants is that you can rely on sufficient rent return and are unlikely to have to chase up missed payments. However, a tenant with a higher income is likely to hold your property up to higher standards.
Any good landlord will be committed to ensuring their properties are pleasant, safe spaces to live in, but renting to this group requires a higher level of detail.
This means replacing carpets and furnishings more regularly and providing sought after benefits such as high-speed internet and modern security systems.
Low Income Tenants
If your property is located in a less costly area, it’s likely you will need to target lower income tenants.
Renting to tenants receiving housing benefits comes with its advantages and disadvantages;
- One disadvantage is that rent is paid to the landlord in arrears rather than in advance.
- There is also a lot of paperwork involved in renting to tenants on housing benefit and administration processes can be slow.
- Another issue is contents insurance. Premiums can rise when letting to this tenant group.
- Unfortunately, some landlords are wary of renting to tenants on housing benefit due to an assumption that their property won’t be looked after properly, and payments will be missed. However, this negative stereotype is unfounded and is down to a minority of individuals.
However, renting to this group comes will lots of benefits to landlords;
- Due to the lack of rental properties available, advertising your property as accepting housing benefit means you will have a large pool of prospective tenants to choose from.
- Tenants in receipt of housing benefit are often looking for long-term housing
- As the rental payments are made by the Department for Work and Pensions, payments should be regular and guaranteed.
Renting to Families
Renting to families comes with wide ranging benefits;
- For one, most families are looking for a long-term home as moving with children is a hassle usually best avoided.
- There has also been research to show that renting to families results in less property management time.
The downside is that with children, there usually comes more damage and wear and tear to your property. If you’re particularly precious about a certain property in your portfolio, you may want to avoid renting to large families with young children.
However, if you’re letting the property long-term, you will most likely be redecorating at the end of the tenancy agreement anyway.
Most families are looking for a rental home with a little extra space. Make sure you highlight this benefit of your property when attracting tenants. Families are also more likely to have their own furniture so may be looking for an unfurnished home.
Tenants with Pets
It could be debated what causes more damage to a property- children or pets! While lots of landlords refuse renting to tenants with pets outright, accepting these tenants may be to your advantage.
For one thing, you can charge more in rent. With rental properties that accept pets being few and far between, pet owners will expect to pay a little extra for the privilege. The extra maintenance needed allows you to justifiably charge a premium.
If you do decide to go down this route, obtaining a previous landlord reference from your potential tenants will alert you to any problems caused in the past.
Renting to Student Tenants
Students have a bad reputation when it comes to taking care of rental properties. However, the student rental market is ripe with opportunity, with student homes in high demand in University towns.
Here are some of the benefits;
- If you own property in a University town, finding tenants won’t be a problem.
- If you’re looking for short-term lets, students tend to move on after a year.
- Students are less fussy when it comes to appliances and furnishings, so if you have an older property with basic furnishings it shouldn’t be a problem. As long as your property complies with health and safety obligations and is a comfortable place to live, you won’t need to offer state-of-the-art appliances.
- Renting per room means higher returns!
But don’t forget to consider the following;
- Maintenance and repairs needed may be higher as there tends to be more individuals living in student properties.
- Students like to socialise. When renting to students you need to be aware of the neighbours as you might be called upon to deal with complaints!
- For most students, this is their first time living away from home. In place of a credit check, you will need to ask for a guarantor to safeguard your investment.
- There is growing competition in the student rental market, with purpose-built housing being created. Do your research before you commit.
Renting to Young Professionals
Young professionals are often favoured by landlords due to their independence and financial security.
Here are some of the advantages;
- While still young, this group are less likely to host big parties than students and tend to be more house proud, resulting in less wear and tear.
- With more experience behind them, young professionals are better able to deal with minor issues independently before asking the landlord for help.
- If you decide to rent an HMO property you can expect greater returns.
- Professional couples tend to be stable tenants and are better able to manage rent requirements with two incomes.
Here’s a few things to keep in mind;
- Like high income tenants, young professionals will expect certain living standards and mod cons. You may need to provide a dishwasher, high-speed internet and contemporary furnishings to attract this group.
- If your property is an HMO, you need to be aware of the added paperwork and responsibilities this requires. You may also need to consider potential conflicts between tenants.
- Young professionals tend to move jobs more often which may result in the premature end of a tenancy.
- Younger renters usually search online to find rental properties. Bear this in mind when choosing where to advertise your property.
Finding the Right Tenant
Once you’ve chosen a target tenant group, make sure you complete this checklist before renting your property;
- Meet your potential tenants face to face. It’s important to have a good relationship with your tenants and meeting in person is the best way to work out if it’s the right match.
- Ensure essential tenant checks are undertaken. No Letting Go offer a right to rent check service which is a legal requirement for landlords and letting agents in the UK.
- It’s also worth getting a credit history check and a previous landlord check to be on the safe side.
What Happens Next?
The rental property industry works both ways. If you want to attract your ideal tenant, you need to prove that you’re a responsible and organised landlord with the right safety checks in place.
No Letting Go provide a range of professional services to help streamline your workload and ensure you are fully compliant. From house viewings to inventory management, we can help during all stages of the rental process.
Browse our fully-compliant suite of letting services and feel confident that your property inventory management needs are taken care of
Achieving a high rental yield is one of the main goals for successful landlords. In order to cover the costs of mortgage repayments, repairs and maintenance, an adequate rental yield is essential to stay afloat.
Although you may feel constrained by property location or property prices, there are ways to maximise profits and cut outgoings.
From making simple renovations, to targeting specific tenants, here’s some straightforward advice on how to increase rental yield on your rental property.
What Does Rental Yield Mean?
As a landlord, you’ll be more than familiar with the importance of rental yields. For anyone new to the game or thinking of taking the plunge into property investment, here’s a simple definition.
Rental yield is the annual return on investment you make as a landlord on a buy-to-let property. It’s the remaining amount of money left over after rent, divided by the value of the property and is expressed as a percentage.
How to Work Out Rental Yield on Rental Property
To work out the rental yield of your property, first deduct all annual expenses and outgoings from the annual rental income, then divide this number by the purchase price of the property. Next, times this number by 100 to find the percentage yield.
Alternatively, find a free rental yield calculator online to do the hard work for you.
What is a Good Rental Yield?
In order to comfortably cover outgoings, a rental yield of 8% or more is deemed good.
However, the average rental yield differs vastly depending on location. For example, cities like Liverpool and Nottingham enjoy higher rental yields of up to 12%, while London is more challenging and tends to stay around 4 – 5%.
Decide on a Tenant Profile
Having an ideal tenant profile in mind makes it easier to tailor your property to the needs and desires of tenants. By offering an attractive property to specific renters, you’ll be able to charge premium prices and stand out from the crowd.
For example, if you are renting to young professionals, it’s worth choosing properties in areas with good transport links and furnishing the property with convenient mod-cons.
Whereas families are more interested in space, excellent local schools and extra bedrooms.
It’s impossible to please everyone. Maximise rental yields by catering to a specific tenant group and provide them with what they really want.
Location, Location, Location
As always, location is key when it comes to improving rental return.
Picking an up-and-coming area is a good idea, as property purchase prices are lower and there is potential for increased rental income as the area expands. Somewhere with good transport links, access to great schools and a growing number of bars and shops is a safe bet.
Go Green for Tenants
With sustainable living becoming increasingly popular, improving insulation and making green changes to your rental property could strengthen the appeal to certain tenants.
Improving the energy efficiency rating of your property not only saves you money on energy bills,but is also a big deciding factor for potential tenants.
Think About Facilities
Equipping your property with high quality, time-saving facilities such as dishwashers, driers and high-speed Wi-Fi will attract more tenants and place your rental property ahead of the competition.
Think about what your ideal tenant profile wants out of a rental property and go from there.
Can You Add Another Bedroom or Bathroom?
Adding a second, third or fourth bedroom to your rental property is a guaranteed way of boosting rental yield.
If a property has a large living space that isn’t entirely necessary, turning it into a bedroom could drastically improve cash flow! Just take care to comply with bedroom regulations, especially if you plan to turn it into an HMO property.
A second bathroom is another way of adding value. Although this requires a little more upheaval, the results can be well worth it, especially in larger properties.
Keep Things Fresh
If larger scale renovation is out of your budget, simple, affordable updates such as new tiling in the bathroom or a fresh lick of paint can work wonders in attracting the best tenants.
The more you can do to make your property attractive to potential tenants, the more rent you can responsibly command.
Maximise Space for Maximum Yields
Another way to add value and appeal to renters is to maximise every inch of space in your property.
This doesn’t have to mean adding extra bedrooms. It can be something as simple as providing inbuilt cupboards and clever storage spaces. This is especially important if you’re targeting growing families.
Consider Allowing Pets
Flexibility is a trait highly valued by prospective tenants. From allowing minor aesthetic alterations to saying yes to pets, remaining open to tenants helps grow your yield in the long run.
Rental properties which allow pets tend to be few and far between which means they are able to command more rent- another easy way to increase your rental yield!
Avoid Vacant Periods
Naturally, extended vacant periods will have a negative impact on your rental yield.
Asking current tenants what their plans are well in advance of the end of a tenancy is one way you can avoid this. Early preparation means you can start advertising for new occupants quickly.
In the case of an extended void period, it may be worth lowering the rent requirements to encourage tenants and minimise losses.
Make Regular Rent Reviews
It’s important to keep up with the rest of the property market. Keeping a finger on the pulse and raising or lowering rent as needed is essential for maintaining and increasing rental yield.
Factors such as a new school in the area can dramatically increase rent prices, so don’t miss out on opportunities to cash in on your property investments.
Assess Your Outgoings
Taking a regular look at all of your outgoings is an important part of managing your finances. You may find that a few simple changes could be surprisingly profitable.
Mortgage rates, for example, are always changing, and it’s possible to find good deals on property insurance on comparison websites.
Keep your eyes peeled for deals to cut costs and improve rental yield.
Keep Up to Date with Regulations
Part of being a responsible landlord includes keeping up to date with current health and safety regulations. Good maintenance of your rental property results in long-term tenancies and increased interest from renters.
Save Time and Money with A Professional Property Service
Instead of spending your time as a property manager, answering queries and sorting out viewings and check ins, allocating tasks to property professionals can help streamline your business, saving you time and money.
No Letting Go provide comprehensive property reports and essential services such as inventory management to help landlords protect their investment and increase yields.
For more information on how No Letting Go could help, visit our services page here.