How to reduce your buy-to-let costs

Strategies to maximise profits by reducing your costs as a landlord

In our last article, we introduced you to the range of costs that a landlord might face. Some are mandatory, with little scope to reduce them. Fortunately, the mandatory costs (EPC, Gas Safety Certificate, and ICO registration) are only a total cost of around £100 annually.

It is by tackling the non-mandatory costs that you can make a big difference to your bottom line. In this article, you’ll learn the strategies you should employ to reduce your costs to achieve your property’s full profit potential.

Cost-cutting strategy #1: Review your investment property management fees

How much are you paying your current investment property manager? If it’s 15% to 20% or more, then you may need to change. You should weigh up the benefits first. Consider what services you receive for your money. Does your current property manager meet your expectations of them?

When assessing an investment property management service, you should consider what local reach they have and what their capabilities are. Here are a few questions to ask:

  • Do they have ties with local tradespeople?
  • What number and quality of tenants do they have on their books?
  • Are their staff qualified and experienced?
  • How do they collect rent?
  • Do they have a repair reporting system that makes it easy for tenants to report maintenance issues?

You might also consider managing the property yourself. This may save you money on property management fees, but you should ask yourself:

Nightmare tenants can cost a fortune. Long void periods could destroy any saving you make by taking the DIY route.

More than half of the UK’s buy-to-let landlords have their properties managed professionally. Given the benefits of using an investment property manager, this is not surprising. Linking up with an investment property manager with a lower fee structure and comprehensive service offering could save you as much as 30% on your property management fees. Simultaneously, you get the benefits of buy-to-let investment without the stress of day-to-day landlording.

Cost-cutting strategy #2: Maintenance and repair fees

Even though repair and maintenance costs are something of an unknown, you can keep them to a minimum when they do occur. Here are a few tactics to employ:

  • Make sure your tenant is properly vetted, including background checks with former landlords
  • Make sure all appliances are under warranty or repair insurance
  • Always have maintenance carried out by professionals – if you attempt to make a repair yourself and it goes wrong, you could find the repair bill goes through the roof
  • Make certain that you benefit from the best tradespeople at the best price
  • Conduct regular property inspections, and undertake any maintenance work needed immediately

Taking these actions could save you as much as a fifth on your repair and maintenance bills.

Cost-cutting strategy #3: Review your mortgage every year

For most buy-to-let investors, their mortgage payments are their largest expense. Any saving you can make here is money on the bottom line. This is especially important for higher rate taxpayers. From 2020, tax relief on buy-to-let mortgage interest will be limited to the basic rate of tax.

Use a mortgage broker to review the buy-to-let mortgage market to discover if there is a lower rate of interest or more beneficial mortgage product available to you.

For every £10,000 of mortgage, a reduction of 0.5% would save you £50 each year. On £100,000, this adds up to £500. Over 20 years, you would save £10,000 on your mortgage interest payments. £20,000 on a £200,000 buy-to-let mortgage over the same period.

Cost-cutting strategy #4: Review your landlord insurance every year

The average annual premium paid on landlord insurance is around £180. If you are paying more than this, you should review the policy. What benefits does it give you? Could you get the same cover more cheaply?

Cost-cutting strategy #5: Manage your void periods

Any void period will cost you money. The trick to reducing this cost is to get your property let to new tenants as soon as possible. This is easier if you have a good relationship with your current tenant, accommodating you in allowing others view the property before they move out. It is also easier if you have a bank of tenants to market the property to.

The average rent in the UK is now over £900 per month. Every week that you can shave off a void period will pay you more than £200 in rental income, and will be a week less of having to meet the property’s costs (such as the mortgage) out of your own pocket.

Cost-cutting strategy #6: Maintain a reserve fund

It may seem strange to recommend a reserve fund as a strategy to reduce costs. However, it is crucial. Many new buy-to-let investors neglect maintaining a reserve fund. When an unforeseen emergency happens, they don’t have the funds to see them through.

If you don’t have a reserve fund, you may not have the money to cover a void period. A faulty boiler will need to remain faulty (possibly meaning you breach Fit for Human Habitation laws).

Not maintaining a reserve fund could be an expensive error. Always put a portion of your rental income profits into a reserve fund. Doing so means you won’t be caught short in an emergency.

Cost-cutting strategy #7: Review your property costs every year

The changes to UK property taxes charged to property investors have concentrated the attention of many landlords on costs. The need to review your rent and costs has never been more urgent. Review them every year, when you review your rent.

Contact Gladfish today at +44 207 923 6100, and we’ll discuss the strategies being used by landlords like you to reduce costs and maximise rental income profits.


Dan Varnaseri

Dan Varnaseri
October 4, 2019

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