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How to get a (much) better return on buy-to-let property

Not all property is created equal. Investing in the right kind of property can boost returns by over 100%.

“Is this guy for real?” you might be wondering. I can’t say I’d blame you because Landlords have taken a bit of a beating over the last year or so.

First, the lovely people over at Number 10 decided to hike up our stamp duty payments. Then, I s’pose over a G&T after work, they continued chatting and decided our mortgage interest tax relief should go too.

In January they introduced tighter lender criteria for buy-to-let landlords. And – because that obviously wasn’t enough – they’re about to introduce a load more red tape for landlords to tackle, all of which are scaring property investors off.

Yet here I am dropping in on Landlord Blogger, suggesting you can still get a very attractive return on property.

But please bear with me!

Not all property is created equal. If you know where to invest your money, there are some sizeable returns waiting to be had.

Different properties offer different returns

As you probably know, different properties can be let in different ways, and each offers different rental yields. The list of options is fairly lengthy, but most people investing in residential property go for one of the following

  • A single let (the traditional buy-to-let)
  • An apartment (technically still a single let, but with important differences)
  • A holiday let
  • An HMO (a single property let to three or more separate tenants, such as young professionals or students)

The difference in return for each makes for some surprising reading.

Returns from single lets

Single lets sound like a property let to a single person. Not so.

Single lets are actually a property let to just one family unit. That could well be to a single person (and, presumably, her three cats) but it could also be a couple or a family with children. The key point is that contractually there is one tenant.

Letting to just one family unit makes single lets relatively passive investments. If you’re willing to use an agent -and thus accept a slightly lower return- single lets require very little management whatsoever (although you still have legal obligations as landlord).

On the flip side, letting to one family unit almost always artificially caps your return.

Ultimately, rents are determined by supply and demand – and demand itself is determined by household income. When letting to a single family unit, household income is typically restricted to no more than two wage earners, which limits the rent they can afford, and your yield in turn.

Yields have been a consistent 5 – 6% over the past 8 years.

Source: Mortgages for Business Complex Buy to Let Index

Don’t get me wrong, compared to even a generous saving account, a return of more than 5% might seem pretty attractive. But why stop there?

Returns from leasehold apartments

Leasehold apartments are a lot like the single lets described above, only with one key difference: you don’t actually buy the entire property. Instead, you buy the right to lease the apartment on a long-term basis from whoever owns the building the apartment sits within.

This creates the potential for maintenance issues to be outside your control.

Also, the length of the leasehold ticks down as time goes on. Renewing it is a legal right, but it costs money. Whilst the value of the property itself may appreciate, the value of your leasehold, if let to run down substantially will depreciate until you pay to renew it.

If that all sounds pretty terrible, leasehold apartments come with benefits.

For a start, they can be a little cheaper to acquire (making them more accessible to investors). Generally speaking, they’re smaller and newer so don’t always need a great deal of maintenance.

So long as the location is right (think major cities with strong economies) tenant demand can be high – which makes void periods infrequent and capital growth strong on what is, again, a relatively passive investment.

That all makes leasehold apartments a viable option if you’re just setting out but there’s a definite trade off.

If you’re lucky, yields from a leasehold apartment can outstrip those of standard single lets, but when it comes to maximising rental yields, your capital can work harder elsewhere.

Where specifically?

Returns from holiday lets

Although they’re rarely regarded as mainstream investment vehicles, holiday lets actually crank things up a notch.

Bag yourself the right holiday let and you can expect gross rental yields to jump up more than a percentage point or two.

According to Second Estates, The average income for a week in peak season is now £1,200. But remember that’s gross, and this sector is seasonal- don’t expect that week in week out. Overall however the average income from a typical holiday property is just over £22,000.

Why is this?

Management of holiday lets is fairly intensive. If you’re changing sheets and greeting new guests every few days (or, more likely, paying someone to do so on your behalf), the market is going to reward your additional effort/outlay.

Plus, the weak pound following the Brexit vote and recent election brings a double whammy bonus to the holiday property investor: More Brits on staycations (up 24% according to Sojern) and more foreign tourists attracted by the strength of their currency (up 19 % according to Visit Britain). The demand side of the equation is increasing faster than supply.

Airbnb has of course popularised the short term letting phenomenon and also brought it out of the typical tourist spots and into the ‘regular’ towns and cities. There are even now management companies dedicated to running your Airbnb profile and taking care of check-ins and check-outs for you.

Now, one of the major benefits of a furnished holiday let is that the mortgage interest relief (the removal of which has spoiled the party for so many) still stands. This is a significant tax benefit not to be overlooked…although you would probably be wise not to rely on that forevermore given the recent changes.

But there’s more risk with holiday lets. Such short term letting periods coupled with the potential for seasonal lulls can result in unpredictable and potentially substantial void periods.

If you’re purchasing with cash, you can run your property how you like. But, if you’re relying on a mortgage there are a relatively limited number of mortgage products that cater to the holiday property.

Most buy to let mortgages expressly prohibit short term lets, so you can’t simply purchase as a regular buy to let then pop it on Airbnb. Many apartment blocks also prohibit short term lets in the lease covenants (whether explicitly or implicitly).

Acquiring a holiday property is therefore something that needs careful consideration.

So where does that leave us?

Houses in multiple occupation (HMOs)

A house in multiple occupation is a single property that’s let to 3 or more tenants from different families – think houses shared by young professionals or students.

There is a renaissance happening in the HMO market at present. Well designed, high quality and high spec properties for discerning tenants are beginning to distance themselves from the average house share or ‘student digs’ of yesteryear.

For the most part, these tenants value the social connectivity and flexibility that come with sharing, or co-living as it is becoming known. Unwilling to settle, they rent out of choice, yet the quality HMOs they’re after are in short supply.

With short supply and high demand the market is set for higher rents, but only if household budgets allow. Fortunately for all parties, HMO household budgets are abnormally high.

That’s not necessarily because tenants are abnormally wealthy. Instead, it’s because HMOs house a wage earner in each bedroom. That might mean five or six wage earners, for example, as opposed to the one or two associated with single lets.

Per tenant they pay significantly less than they would living alone, but still that lesser amount, multiplied by the 5 or 6 tenants in a HMO, can double a property’s rental income compared to it’s use as a single let.

It’s a match that makes HMOs particularly attractive to both tenants and landlords alike:

Tenants get flexibility, companionship and lower rents. Landlords benefit from yields that outstrip those of a single let by almost 2:1.

Source: Mortgages for Business Complex Buy to Let Index

All that said, HMOs cost more to maintain, require more management and really do require you to vet tenants properly. A passive investment HMOs are not.

But for those with a taste for an active investment, – or for those willing to find and use a reputable agent – sizeable returns usually mean HMOs warrant serious consideration.

How to get a (much) better return on buy-to-let property

So let’s compare the two ends of the spectrum. Over the past 8 years a single let has returned on average 5.7%. Over the same period an HMO has returned on average 9.6%. The right holiday let will do similar.

In my eyes, you’re looking at almost doubling your return while reducing void periods with an HMO and for more information on how HMO’s reduce void periods you need to read this).

Despite unfavourable government regulation, there are still clear and sizeable returns to be made from property.

The trick, of course, is knowing where to invest.

 

This article was supplied to us courtesy of Tom Charrier who is the Director of Living Space Property who can be contacted for more information by emailing tom@livingspaceproperty.uk

Tips to Make Short-Term Lets Work for You

The life of a successful landlord is full of decisions and hard work. Among the many decisions to make, is the type of tenant you want to attract – short- or long-term ones. There’s a lot to be said for both kinds of agreements. But they also both require quite different approaches if you want to make them work financially and for your tenants.

In this post, we’re taking a look at how to make short-term city lets work for Landlords and keep attracting the best tenants.

“Short-term lets can be hard work, but once you have a system in place that works, you could find the reward is well-worth the effort,” said Battersea estate agent, Eden Harper. “The convenience factor of short-term lets mean they come with a higher rent.”

Getting the Location and Services Right

The market for short-term lets is more diverse than you might think. They include business, holiday and in-between home renters. We’re going to focus on city lets in this post, which includes all of the above but not the coastal, countryside or homes for large groups.

For short-term city lets, there are some details that are non-negotiable. They include:

  • Location – it must be central and convenient for transport, popular office districts and/or site-seeing.
  • Easy-to-maintain – this includes the inside and outside. If the property has a garden, it should include a patio and a small easy-to care for lawn.
  • Cleaner – this could be offered as an option or simply be included as part of the services included in the rent.
  • All bills included – short-term tenants don’t want the inconvenience of registering for services and amenities. Help them avoid that with a single, all-inclusive rental charge.
  • Furnished – this goes without saying. Modern and neutral will work best, with items that are easy-to-replace.
  • Clean, simple décor – if you feel you want to dazzle your short-term tenants with some amazing décor then of course you can. But, when it comes to touching up the imperfections left by every tenant, it’s easier to match plain colours than replace a specific wallpaper design.

“Short-term lets are all about creating a property that’s easy and straight-forward to live-in and manage, for the tenant,” said Central London estate agent, LDG. “Whether the tenant is here for work, play or while they wait for something specific to happen, they don’t want to deal with tonnes of paperwork or hiring furniture.”

Never ending Maintenance

We’ve already mentioned this detail, but that’s because it’s pretty important and shouldn’t be overlooked in the world of short-term let investment and management. If you have a high-turnover of tenants, no matter how considerate they are, you will need to replace and repair details of your rental property in between each and every tenant you get.

This means you need to put a reliable system and network in place that you can trust to keep your property in excellent condition. If you can do that, then tenants will return and recommend you to others, giving your investment a better chance of remaining profitable.

When it comes to the cleaner, try to employ one who will do a regular clean and a thorough one before every new tenant. While most cleaners offer this, not all are equal so try a few out and shop around. It’s something you need to get right and that your tenants will appreciate.

With your décor, fixtures and fittings, try and have well-made, good-looking items that can be easily replaced with something similar, if the exact match is no longer available. Better still, where possible, buy some extras on your initial shopping trip so you have a stock of decent bath and bedroom linens, lamp shades, soft furnishings and kitchen accessories.

Yes, it might be a bigger outlay at the start, but it will mean you can get the property up-to-standard quickly and without any problems, in the future.

“Short-term lets do require planning and thought, but if you get it right, the tenants will be queuing up to rent it and tell all their friends about it too,” said Andrew Reeves. “Being a landlord is about providing housing for those who need it, but it has to work financially too. It takes hard work to do that, but the rewards do justify the means.”

This article was provided to us by Property Division who are a specialist PR company for Estate Agents.

Do you own a rental property in Wales?

Unlicensed Landlords with properties in Wales could now be ‘Breaking the Law’ and they are being urged to register ‘to avoid legal action’, regardless of where they are based in the UK. rent-smart-wales

Many private landlords could face fines and possibly even prosecution for failing to sign up to the new registration and licensing system in Wales. In addition, landlords may not be able to secure possession of their property using a section 21 notice, if they are operating outside the law themselves.

Almost six months have passed since the Welsh government’s Rent Smart Wales scheme became law, as part of the Housing Act (Wales) 2014 however it is estimated that thousands of private landlords with homes in Wales have still not signed up to the scheme, which could mean that they are letting out properties illegally.

Read more here

 

Landlords: Refreshing The Way You Rent – Letproof.com

The past year has not been filled with the best news for UK Landlords; there have been an abundance of hurdles thrown in the direction of the buy-to-let Landlord and costs only seem to be rising.

Let’s begin with the tax changes; Buy-to-let landlords were hit with the announcement last year that their tax relief was being ‘phased out’ to mean now paying tax on their ‘turnover, rather than the difference between rental income and mortgage interest’ and this was expected to slow the buy-to-let market. April 2016 then saw landlords suffer a 3% increase on stamp duty. And earlier this year the Autumn Statement landed some great news for tenants and potential renters; there will be no more estate agent fees charged to tenants. This was, however, bad news for Landlords as it meant a high likelihood of them now footing the bill for these fees. But landlords are finding certain ways to deal with these changes, registering as a LTD company to lower taxes is one solution being utilised.

There is a need for change in the way buy-to-let landlords are able approach letting their properties. Cutting out any unnecessary fees and costs is becoming vital to ensure profits. Letproof.com has been built on this premise; to improve the experience for landlords and tenants, because while all of this signifies hard times, the market is still there for buy-to-let landlords. The demand for rental properties is high, partially as a result of a slight decrease in those investing in buy-to-let. However it is also largely due to the fact that renting is proving to be increasingly popular. Populations are rising and the trends and attitudes toward renting have changed. Renting has become a popular lifestyle choice, and popularity is predicted to continue.Happy friends meeting at cafe with laptop

The market is also looking up for buy-to-let investors, the build-to-let scheme offers fresh encouragement to rent and a whole new area of investment opportunities. London Rental yields are predicted to rise in the New Year. Despite seeing a significant decrease over the past 2 years, 2017 will experience the benefit of fewer buy-to-let landlords entering the arena this year and a high demand for rental properties continuing.

A change is needed in attitude and practice. Letproof.com is offering an alternative to the traditional practice of letting properties via an agent. Letproof.com is a platform enabling landlords and tenants to connect directly, without the middlemen. A new concept that gives both parties more control over their letting experience, fewer costs and offers support and flexibility.   The platform is free for tenants and starts from only 10p a day for landlords. By signing up, tenants are free to search for their perfect home, and via the direct messaging feature, can contact landlords about their favourite properties.letproof-logo

In changing times in the rental market, Letproof.com may be one way to ensure lower costs and more control over your buy-to-let investments.

For more information on Letproof visit their website http://www.letproof.com

 

Tax Changes and the Buy-to-Let Landlords

Over the next three years the amount of tax owed by many buy-to-let landlords will double or even triple as a direct result of the changes that are being phased in from April 2017. Landlords who have been enjoying four-figure net annual profits could sadly end up facing large losses – and it is thought that if interest rates rise, then this will make the situation even worse.

As a Landlord in the United Kingdom today, you can’t help but feel slightly battered by the Government and rather than being praised for helping to provide accommodation when there is clearly a shortage in the UK of decent housing, Landlords are being hit hard with tax changes and law changes.

If the Government keep demonising Landlords, we feel that more Landlords will have no choice but to sell up and invest their money else where and seeing as though the Government can not keep up with the demand for housing, it seems ludicrous that they insist on battering the Landlords, who are indeed only trying to help.

To read the article from the Guardian in full click here.