What to do to maximise your buy-to-let investment profits
The buy-to-let advice in this article addresses how to increase your profits from investment property. I’m often asked if property investment is worth it after the UK property tax changes. The answer, of course, is yes. Especially if you act to increase the profitability of a buy-to-let investment.
In this article, we discuss three things you should do before you invest in property and three things you should do after investing. You’ll increase your profits by following this buy-to-let advice.
Before you invest in buy-to-let
1. Don’t skimp on market research
You cannot afford to cut any corners when you’re doing your property research. It’s the key to making a profitable buy-to-let investment. Don’t fixate on a single area: the UK is a big place, and only research will find you the best places to invest in property UK.
Make sure that you invest in an area that benefits from strong property fundamentals. It will help your investment’s profitability from the start and in the longer term. There’s a lot of elements that affect how much demand there will be for prospective tenants to your property. The stronger these are, the more attractive the area will be for residential investment property because you’ll be investing where people want to live:
- You should invest in an area where there are ample shopping and leisure amenities.
- The existence of quality schools and further and higher education facilities is also important, especially if you want to lease to families.
- More people today (especially Millennials and young professionals) are shunning the expense of owning a car. Because of this, proximity to local transport is important: the more, the better. There are some huge infrastructure projects in place in the UK. The big transport projects, including Crossrail and High Speed 2 (HS2) are transforming great swathes of the country. You can find out how HS2 is shaping investment opportunity by downloading our free guide, HS2 Property Investment Opportunities.
- Look also for the existence of plenty of employment opportunities, and if supported by several major employers.
2. Invest for rental yield in the best places to invest
Look for buy-to-let properties that produce a higher yield than is available on other investments. Don’t rely on capital growth (even though UK property has a good and long history of providing a capital gain on investment property).
Make sure the numbers add up, by working out your cash flow projections. As a rule of thumb, first, work out your gross rental yield. If your buy-to-let cost £100,000 and your rental income is £6,000 per year, then your gross rental yield is 6%. Ask yourself how this compares to the interest you could make on a cash savings account, or in government bonds.
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3. Get the best mortgage
Take advice from an experienced buy-to-let mortgage broker. They will be able to source the best mortgage for your circumstances. While this doesn’t necessarily mean the lowest interest rate, remember that every 1% lower is equal to saving (and therefore extra profit) of £1,000 per £100,000 of mortgage capital.
While you hold your buy-to-let property
1. Review your mortgage regularly
You can use your mortgage interest to help offset your tax bill, though for higher rate taxpayers the benefit of doing so is being reduced over the next three years. If you’re a higher rate taxpayer, you’ll pay more tax on your rental income in 2020 than you do now.
Just like you search for the best mortgage when you first invest, you should research the buy-to-let mortgage market regularly to make certain you aren’t paying more interest than necessary.
For example, as I write this, there’s a mortgage war breaking out. Santander has recently released a buy-to-let mortgage fixed at 2.29% for two years. There is no fee, and £250 cash back on completion. If you’re currently paying, say, 4% on your buy-to-let mortgage, switching could save you £6,840 over two years. Your mortgage broker will be able to provide an accurate assessment, taking your personal circumstances into consideration.
2. Review your investment property manager
How good a job is your investment property manager doing, and are they worth the fee they charge?
It is the assessment you should make annually when reviewing the performance of your buy-to-let property. You’ll probably be charged between 10% and 15% of rental income, though some property managers charge as high as 20%.
Let’s say you are receiving £800 per month in rent, and are being charged 15% by your current property manager. If you can switch to another investment property manager, receive the same or better service, and pay only 10% in fees, you’ll save £480 per year in fees. Over 20 years, that’s £9,600.
3. Review your landlord insurance
While I’m one for keeping costs as low as possible, one cost I wouldn’t seek to cut out altogether is your landlord insurance. If you suffer a tenant who doesn’t pay or is unfortunate enough to have a tenant attempt to make a claim for injury against you, landlord insurance could come to your rescue.
Review your insurance every time it comes up for renewal. Make sure the cost is competitive, and be certain that the insurance policy will do what you expect it to if it is ever needed.
Research and review for maximum buy-to-let profit
Make ‘research’ and ‘review’ your two watchwords when investing in buy-to-let. Before you invest, research location, property and rents. Get property experts on your side, and benefit from a mortgage broker’s access to great financing deals.
After you’ve invested, regularly review financing, investment property management, rents, and landlord insurance.
Contact one of our team today on +44 (0)207 923 6100 and we’ll help you find the best property, and put in place a regular review structure which will help you maximise your buy-to-let profits.
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