Simple steps to reduce your bills and pump up your cash flow
When you want to boost your profits from property investment, you’ve got plenty of opportunities to do so. For example, you could employ strategies to maximise buy-to-let yield and cut the tax on rental income. You could also raise rents. One area many property investors neglect when seeking to increase profits on a growing portfolio is getting real about costs. Every penny you cut from costs is a penny added to your bottom line.
In this article, we discuss a few simple strategies you can use to reduce your costs and maximise profits from property investment opportunities. Each of these steps will save you a different amount. Some savings are smaller than others. Add them together, and the difference can be quite dramatic.
1. Buy furniture for value
If you are letting your property furnished, don’t be fooled into thinking that the most luxurious and expensive furniture will recoup its cost through higher rents. It probably won’t. Expensive sofas are as easily damaged by young children as their cheaper counterparts.
I’m not suggesting that you kit out your buy-to-let investment property with basic, second-hand appliances and furniture. But when it comes to goods for a buy-to-let property, the question is, will a tenant be prepared to pay a premium that is big enough to cover the extra cost of high-end items? At the end of the day, a £200 washing machine does the same job as a £1,000 version.
2. Make sure to benefit from all the tax breaks
A lot has been made of the attack on private rented sector landlords. Despite the rigorous way in which the government has sought to take a bigger slice of profits in tax, there are still some very attractive tax breaks. By structuring your investment appropriately, you’ll maximise these tax breaks. For example:
- A non-working spouse could bank more net rental income before paying income tax.
- When selling your investment property, you’ll be liable to capital gains tax. If you own the property in joint names with your spouse, you can double up on the CGT allowance. If you are both higher rate taxpayers, this could save you more than £3,000 in capital gains tax.
- If you buy property in a limited company structure, you could take some income in the form of dividends. It may be more tax efficient than owning the property in your name.
- When growing your property portfolio, there are some awesome income tax advantages of remortgaging.
When your investment property is on board and producing income, always make sure that you claim all the deductions you can. Keep records of mileage and fuel costs to visit properties. Keep receipts from stationary and postage costs. If you spend any money on the management of your property investment portfolio, keep records and claim for every expense you can.
3. Cut your maintenance costs by using a property manager
You could do more yourself, of course. But when it comes to property maintenance, you’ll probably want to use professional tradespeople. They do a better job, and faster. So how do you cut costs of tradespeople? You could put work out to tender or ask for multiple quotes on each maintenance job as it is reported. But that’s a labour-intensive way of doing business, and you never quite know the quality you are getting.
A hidden benefit of using an investment property manager is that you leverage its access to cost-effective tradespeople. These are professionals that have been vetted and tested. They are often hired on a retainer or similar contract by the property manager. Because this leads to volume work, the charges paid by the property manager to such tradespeople are often lower. And these cost savings are passed to you.
4. Reduce your maintenance bills a second time
Okay, maintenance free is perhaps an overstatement. But you can certainly reduce the amount of maintenance needed. For example, create a less labour-intensive garden. Block paving, and fewer borders are attractive additions. It is easier and cheaper to tidy and prepare between tenancies.
Ensure that you inspect your property on a regular basis, and take care of any maintenance issues that arise, no matter how small and inconsequential they appear to be. Not only will this gain the respect of your tenant, but the longer maintenance issues are left for, the more expensive they tend to become.
5. Review your buy-to-let mortgage costs
As you grow your property portfolio, you’ll be using new mortgages to finance your investments. The buy-to-let mortgage market is highly competitive. Every extra 1% on a mortgage of £100,000 costs £1,000 more per year. That’s £25,000 over a 25-year term. On even the most modest property portfolio, paying more interest than is necessary will cost tens of thousands of pounds. All costs that could be flowing to your bottom line.
When it comes to maximising profit from investment property, there are plenty of strategies you could use:
- You’ll want to charge as high a rent as possible, without overcharging and losing great tenants.
- You should also seek to reduce taxes by structuring your investment for the greatest tax efficiency.
- And as in any business, keeping a lid on costs and reducing them wherever and whenever possible is a key strategy to maximise profit.
Contact one of the Gladfish team today on +44 (0)207 923 6100 , and we’ll be pleased to discuss strategies to help improve your cash flow.
Live with passion,
Brett Alegre-Wood
