Establishing a financially successful investment requires more than just a high rental income, it requires smart management. Our lettings director shares his expertise and knowledge, shedding a light on the trade secrets of successful landlords.
The notion of successfully investing in a lettings property is perceived to be quite simple; invest in a high yield property, with strong demand, to generate optimum rent, and all the while keep costs to a minimum. This basic theory is the underlying rule to any successful investment, but there is one misconception here, ‘costs’.
Investing is essentially about generating a profitable income, which more specifically, in terms of property investments is a long term affair. Inevitably, you are bound to experience a variety of costs overtime, some choice-related, while others include maintenance fees and then finally the unavoidable legislation and tax expenses. So let’s rephrase that initial statement, the key to a successful lettings investment is, quite rightly, to invest in a high yield property with strong tenant demands that would optimise rental returns, and also to manage all costs effectively. Understandably, the million dollar question here is “how do we achieve this”?
There are two key points to ‘manage costs’ and become ‘cost effective’.
Firstly, let’s tackle the process of managing costs. The principle here is simple, your property investment is fundamentally a business, so take inspiration from business processes, by consolidating all costs into a cash flow spreadsheet. It is quite easy to overlook the minor expenses you face, so running your investment as a business will create transparency, detailing in black and white, all costs, income, and essentially, profit and losses that you incur. This attentive approach will require some time, but will essentially help you to build awareness of where expenses may be over running, what can be avoided, help you to prepare for void periods and finally, illustrate whether this investment is actually viable. This is even more beneficial for those who have multiple properties, providing you with a clear picture of your overall investment income and allowing you to balance respective costs across your property portfolio.
Now that you have taken a more organised approach by managing the costs of your investment, let’s consider the equally important element of being more cost effective.
It is surprising how small processes can help you to ensure cost effectiveness, and ultimately, enable you to realise the income potential of your lettings investment. Several options here are choice related, while for some there is little awareness of. As this is an area many do not delve into too much detail in, it is quite easy to overlook the significance that these trivial processes can have to boost your income. These processes, together with your cash flow spreadsheet, will highlight your actual income and costs, allowing you to effectively manage your investment to establish a greater return.
So, what are these all-important income boosting processes?
Catalogue all expenses
When you have multiple balls to juggle, it is easy to overlook the importance of cataloguing all expenses relating to your investment, as a cost. These could range from minor administrative expenses, such as travel expenses, phone bills and stationery, to the more costly running expenses such as fees and council tax bills. All of these are expenses are incurring from your business, so should be catalogued as such against your profit generated, in order to give you a more accurate financial forecast.
Tax relief for expenses
All landlords are required to submit a self-assessment for tax purposes, but there are certain expenses that are provided tax relief. These costs vary from mortgage fees, finding the tenant – agency fees, inventories and advertising, to insurance. Other costs such as maintaining the property’s structure and accountant fees are all considered as tax relief expenses. Laws to do change frequently, so it is worth keeping up to date on where tax relief is available, as these minor expenses can make a significant impact.
Maximise your existing investment
The change in stamp duty laws has caused some apprehension in landlords taking on new lettings investments. While it may not make financial sense to take on something new, why not optimise what you have? Extending or expanding your existing rental will inevitably add value to your property as an asset, but also potentially, boost your rental income. This may not be financially viable for all investments, as all properties do have a ceiling price, but it could be an income-boosting option to consider. All the more, permitted development rights are currently more generous than they have been in the past, so maybe now is the right time to embark on such a project.
Setting yourself up as a company, LLP or Ltd, can provide a constructive mechanism for you to run your property as a business, allowing you to realise all finance costs to be set against profits. This can entail some costs to set up, but may be a positive way forward for landlords with larger portfolios to manage incomes more effectively.
Explore your mortgage options
There has been a significant variance in buy-to-let mortgage interest rates in recent years, so browse current deals or get in touch with an Independent Financial Advisor, such as MWA, to see whether you can access a better deal. The fees relating to a change in your mortgage will counteract as a business, so you have little to lose. This could also be a great opportunity to re-assess the value of your home, which could affect your loan to value rating, and in turn, the available mortgage packages and rates.
These are just a few simple steps that may help you to manage your investment costs more effectively to provide a realistic picture of your annual cash flow, now, and in the years to come.
As a dependable lettings agent, we strive to support our landlords, through offering expert advice, which does not just end at a property valuation. Whether you are a starter or experienced landlord, we look to guide you through your journey, helping you restructure your finances, manage your portfolio, or simply provide investment advice.
If you require independent advice or a valuation of your let, please contact the team on (01252) 514000 or firstname.lastname@example.org.