Apr 30, 2020

What’s Your Investment Strategy? Top Tips for Landlords

It’s a difficult time for landlords right now. The private rental sector has taken one too many knocks recently with legislation and tax changes, Brexit uncertainty, not forgetting the challenging Covid 19 epidemic. So, what should be a landlords’ current investment strategy?

Here we’ll look at a range of investment strategies that will help private landlords maximise their return on investment during tough times.

The Current Economic Climate for Private Landlords

Regulatory and tax changes such as mortgage interest rate relief, changes to stamp duty, and amends of section 21 have led to a dip in landlord’s confidence.

For many landlords in the UK, owning and renting out a home is becoming a frustrating, unrewarding, and tiresome affair. According to data from the National Landlords Association, landlords’ confidence is at a record low, with 71% posting a negative outlook in the sector. The number of landlords in Great Britain is said to have dropped to 2.66 million, the lowest level since 2012.

A recent survey of 750 UK landlords conducted by Accumulated Capital indicated that 37% of those surveyed have plans to exit the property market by selling their property. Approximately 72% of the investors in the property sector felt that the current regulation changes were making it extremely expensive to be a landlord. About 69% of those surveyed noted that the cost of managing their property had grown considerably due to the regulations and tax changes made by the UK government.

If you are a landlord right now in the UK market, you must be feeling the force of the tax and regulatory changes. The good news is you can still make money from the property sector as tenant demand for rental properties has continued to grow and rents are still forecast to rise.

You can also use an online portfolio management software to make your landlord responsibilities more manageable. To help you stay on top of the competition in the private rental market, here are some smart property investment strategies you can use.

Investment tips for Existing Landlords

1. Make use of online letting agents

To cut down costs, an increasing number of landlords who are investing in the private rental market are opting to do more things autonomously. After all, most landlords pay service fees that vary between 12 and 20% of their rental income for a letting agent or property management company. You can save part of this money by comparing agents and doing away with certain services that you don’t need.

One such cost-effective and practical option is the use of online letting agents. Online letting agents such as Portico charge a fixed, low fee to list your property on the main UK property portals. For as low as £1, landlords can use Portico Direct to advertise on Rightmove and Zoopla, getting a chance to get their properties in front of millions of prospective tenants.

2. Review your Mortgage

Your primary expense as a landlord will be your mortgage. Regularly review it and do due diligence to ensure you’re getting the best deal. As the Bank of England recently cut the base interest rate, now is a great time to remortgage your buy-to-let property.

Simply get an up-to-date online property valuation and your lender will need to recalculate your loan-to-value (LTV) ratio. A lower LTV typically means you’ll be able to get a better interest rate and have access to more lenders.

3. Find out if a Company Structure Could Improve Your ROI

One of the biggest threats facing landlords right now is the changes to mortgage interest tax relief. If you have a broad property portfolio, setting up a company structure makes more sense. Setting up a company structure allows you to offset your mortgage interest when preparing your tax. Therefore, you will pay the tax bill as a corporation tax interest based on your rental profits. You can find out whether this is a smart option for you here.

4. Consider Short-term Lettings

Short-term lettings are a major attraction for many private landlords as they offer higher profits, and reduced tax burden as their income is classified as a company rather than individual income. However, make sure to do your research before launching into anything, and be aware of the licensing policies, listing limits, and mortgage implications.

Photo by Aw Creative on Unsplash

5. Consider Improving your Property

Today tenants are looking for quality accommodation. If your property is a little tired or outdated, or if you’re suffering from long void periods, now may be the time to consider a makeover.

Attending structural issues and repairs is one way that can boost the appearance of your property. You can also consider redecoration, upgrading the carpet or flooring, repainting, creating attractive outdoor space, or replacing any old windows and fixtures. Anything that makes your property more appealing will see you get tenants fast, and the value of your property should increase if you do it right, too. After this, you may want to consider doing an inventory before leasing out your space.

6. Use Tax Reduction Strategies

Tax reduction strategies help you minimise your tax bills. If you aren’t aware of the legal tax exemptions you qualify for, consider using a tax resource that will give you updated tax information relating to your property. Some of the notable legal ways you can reduce your tax bill include:

Offset property maintenance and improvement expenses against your rental profits
Claim for all your costs before you submit your tax returns
Split your rent if your property is under joint ownership
Claim letting expenses incurred when your property is empty
Claim expenses for running your rental business and the costs of having a home office
Claim your finance costs such as your property’s loan interest
Claim private residence relief by moving into your buy-to-let rather than selling it
Get your tax return in on time to avoid penalties

If you have many properties located in the same locality, you can use one agent and use this as a negotiating tool to get a cheaper deal.

7. Thank Your Loyal Tenants

Tenants who pay on time, are respectful, and take care of your property are every landlord’s greatest asset. Consider keeping such tenants happy to encourage them to stay in your property longer. Lengthy void periods when your property is empty can be costly to you and comes with the hassle of vetting for new tenants. Some ways you can use to keep your current tenants happy include:

Reaching out during this difficult time and checking they are okay with rent payments or have any concerns
Proper property maintenance – and seeing if you can improve the property in any way
A quick and fair response to complaints
Maintaining a good relationship
Building a sense of community for your tenants

Investment tips for new or Hopeful Landlords

8. Research the Market

If you are a new investor in the buy-to-let market, you need to know the risks as well as the benefits of investing in property. You also need to understand that the market has undergone significant changes, and you need to consider the market predictions in your area. Do thorough research and gain as much knowledge as you can on the market so that you can invest with your eyes wide open.

9. Start Small

The private rental sector is facing many changes. If you are a new investor, you need to start small as you get a clear understanding of the market. Starting small gives you a firm foundation and lets you decide if you need to expand slowly.

10. Location, Location, Location

Similarly, if you’re new to buy-to-let, or considering another investment, location should be your number one consideration. Find out all you can about hotspot areas, which areas are experiencing infrastructure investment or gentrification, and which areas are experiencing strong rental yields and capital growth.

Many central zones in the UK have been subjected to relentless regeneration. Northern locations such as Manchester and Liverpool are now being considered as top spot cities to invest.

Photo by William McCue on Unsplash

11. Who’s Your Target Tenant?

Identifying your target tenant gets you one step closer to getting the best property. Are your target tenants young professionals, students, or young families? By finding out which tenants are prominent in the area you wish to invest in, you can get a property that best appeals to them, and furnish it in a way that appeals to them too. This will hopefully result in less void periods and happier tenants.

12. Take a Rent Protection Insurance Policy

Rent guarantee insurance protects your rental income in case your tenants are unable to pay rent.

If you rely on your monthly rental income to pay your mortgage and stay stable, a drop in your rental income may mean trouble for you. With rents in the UK rising and the financial difficulties posed by the novel Coronavirus, even the best renter may struggle to pay rent. It’s certainly worth looking into available rent protection insurance, and what you’d be able to recoup in the event your tenant is unable to pay their monthly rent.

There you have it. These investment tips will help you get on top of the game in the challenging UK private rental market.