The buy-to-let industry is a lot tougher now than just a few years ago. Recent tax changes have made it harder to sustain a steady rental income, and the current economic climate in the UK as a whole, not just in relation to buy-to-let, is perhaps best described as uncertain. There are plenty of things happening right now, not least the uncertainties surrounding Brexit, while 2019 is set to see another raft of legislation aimed at making buy-to-let even more unattractive.
How can landlords protect against these uncertainties?
The government has pushed for a tax crackdown on investments in property, with the on-going removal of tax deductions on mortgage interest payments being one of those that’ll hit landlords. In addition to this, interest rates might be going up in the near future and house prices are going through a period of slowdown.
However, buy-to-let still offers a good opportunity to investors who are willing to play the long game.
Below are our tips on how to take the uncertainty out of your buy-to-let business.
Focus on the Finding the Right Tenant
Rents are expected to rise by 15% by 2023, which means there are plenty of opportunities to earn a hefty profit from rental properties. The ability to increase rents - or simply ask enough to cover your costs and make a profit - always rest on your ability to find the right tenant. Targeting the right tenants is the best way to protect your income in uncertain times. If you can keep your property occupied, you are getting paid. Even if it’s not always enough to make a huge profit, your buy-to-let mortgage is being paid and you retain the property itself as an asset.
To market your property to the right tenants, you have to understand all you can about your property’s location. Are there schools nearby? How close are the shops? If you know the amenities that are nearby, you have a better idea of knowing the kind of person who would like to live there. This will allow you to market your property for relevant tenants and charge a rental amount that is attractive to tenants while helping you to maintain your income and make a profit.
Keep Your Existing Tenants Happy
As well as making an effort to find the right tenant, you also want to ensure your tenants stay with you as long as possible. Finding new tenants will always add to your expenses and therefore, you want to hold on to good tenants for as long as possible. You also don’t have to worry about the financial and time costs associated with finding tenants, such as marketing the property and dealing with property viewings, for instance.
To keep tenants happy, focus on keeping your property in good condition. Sort out repairs as quickly as possible and communicate with your tenants openly about everything regarding the property. Sorting out repairs as soon as an issue becomes apparent might be something that hits your cash flow in the short term, but in the longer term you’re protecting your investment by not allowing minor issues to develop into something more serious.
Be proactive rather than reactive in terms of renewing tenancy agreements, and consider making it more advantageous to your tenants to sign longer leases. You might even benefit from lowering your rent slightly if you know the tenant will be happy to stay long-term.
Even if your properties and your location means that your usual tenant is a short-term one, having a good relationship with them can make it easier to get viewings done before they leave and makes it more likely they will leave your property in a great condition, meaning you have a quicker turnaround before you can move the new tenants in.
Accept Smaller Rental Yields in the Short-Term
As mentioned above, the biggest problem for landlords is an empty property. Even if you accept smaller rental yields, you will at least earn something towards covering your costs. In uncertain times, a competitive rental market, and a potential shortage of tenants to meet the supply, you might want to consider lowering rents in the short-term.
If you’re struggling to find tenants or have tenants leave because they can rent cheaper elsewhere, you could consider lowering the rent for a period of time or reviewing where your property stands in the content of your local rental market.
Stay Informed About Your Rights and Responsibilities
You can prepare yourself for many problems with the right preparation and planning. The more you understand and know about the different rules and regulations, the easier it will be to deal with any issues that might arise. This is why you want to keep an eye on general property and buy-to-let developments in terms of legislative changes and other regulations. Joining a landlord association can also be a good idea because they will help you with information and offer resources to deal with issues you might have. Following industry blogs can also help – use resources to stay updated and stay on top of developments to allow yourself to prepare for the future.
Create Your Own Business
One of the more popular strategies has been landlords’ decision to set up a buy-to-let business instead of operating as a private landlord. When you create a limited company, you will be paying corporation tax instead of income tax on your profits. Especially in the light of recent tax developments around buy-to-let, this is a good strategy to consider. It can also help you navigate uncertain times, as you don’t have to worry about dealing with the costs of the property yourself; you’ll still see it as “your” money, which it is, but the company will be liable for everything rather than yourself as an individual.
Sell and Buy From New Markets
If your property is not making enough money, it might be a good idea to consider selling, which releases some of your cash and provides you with the opportunity to re-think your strategies. If rental yields in a current location not enough, it could be smarter to simply sell the property and consider investing in another property in a different location. You don’t want to keep holding on to a property that’s not making enough – unless you’re able to do so in anticipation for a sizeable capital gain down the line - but rather move on and look for opportunities that might yield higher returns. There are certain markets right now that do still offer plenty of good opportunities, even though certain areas might not be as lucrative.
Taking the Uncertainty Out of Your Buy-to-Let Business in an Uncertain World
Running a buy-to-let business can be difficult at the best of times. The current uncertain political and economic climate is an additional difficulty landlords must deal with.
The good news is that there are plenty of strategies that will help you to take the uncertainty out of your buy-to-let business, maintain and grow your rental income, and capitalise on the opportunities available, particularly as many landlords choose to sell up and leave buy-to-let behind to explore other investment opportunities.
In addition to the ideas discussed here, the Upad Landlord Club provides a wealth of resources for landlords who are looking to make their buy-to-let operation more efficient and profitable.