With rent prices and other costs rising, making a profit as a landlord is key. We’ve set out our buy-to-let investment tips.
Seek out areas with rising rents
If you are looking to invest, where you buy is key to your profit margin.
Look online for rental indices that record changes in prices. They often highlight which areas are seeing an increase in rental yields, as well as tracking house prices. This can help you determine if a certain area is likely to be profitable.
Areas where property prices mean mortgage payments outpace rental income could result in your profit being squeezed. But that doesn’t tell the whole story, which we address in the next point.
Rental income versus investment
An increase in the value of the property is worth considering, and can result in a beneficial investment.
UK average house prices have been increasing in recent years. The Office for National Statistics (ONS) has reported that average UK house prices increased by 3.5% in the 12 months to April 2023.
Have a long term plan for your property investment
The Covid-19 pandemic taught many landlords a hard lesson in factoring in the unexpected.
While a succession of lockdowns are likely to be a once-in-a-generation concern, buy-to-let investments will always be subject to the wider economic landscape and rental trends.
Profits rarely materialise overnight – and often not over a year – even in booming times and it can pay to have an eye on the future to avoid being shocked by bumps in the road.
Having a long term plan can help you see the wider picture and enable you to pinpoint trends in the property market that can be capitalised on as well as risk-managing against potential pitfalls.
Pay attention to landlord legislation changes
Landlords are likely to see even more regulation changes in the future and it pays to keep one eye on rental reforms. Moving towards making your property better insulated, for example, could be a good investment before energy efficiency targets are inevitably toughened up.
And do not be complacent about rent rises. Estate agent Hamptons has forecasted continued growth of 5% in 2023 and 4% in 2024 for rent prices.
Consider longer tenancies
Long term tenancies have been discussed in recent years, with a government consultation taking place in 2019, seeking views on a proposed model for a 3 year tenancy with a 6 month break clause.
Some may have concerns that longer tenancies are weighted too heavily in favour of tenants, but a two-year or longer contracts can offer benefits to landlords.
Signing tenants on long term contracts can ensure a regular income and reduce the risk of void periods.
While demand for rental properties is high at the moment, longer term tenancies go some way to mitigate the risk of future issues. They can help to avoid the expense and administration of finding new tenants, such as letting agents’ fees and reference checks.
There is also an argument that long term contracts can attract better, more reliable tenants. As they are making your property their home over several years, they are likely to treat it with more respect.
Find suitable protection for your property
There are various risks associated with letting a residential home. Keep your investment safe, whether it’s a single property or a portfolio. Our comprehensive Landlord Insurance can help protect you from financial risks, including accidental and malicious damage by tenants and loss of rent if the property becomes uninhabitable due to an insured event.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Just Landlords accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.