letting & estate agents
While recent tax changes have led many landlords to put their expansion plans on hold, a small but resolute group continue to make prudent additions to their portfolios.
At 15% of the landlord population – almost one in seven – these growth-minded individuals plan to purchase an average of 2.3 rental properties over the next 12 months according to recent research from BVA BDRC. However, even though 85% of landlords continue to make a profitable living from their letting activity, growth is increasingly concentrated amongst those with larger and more complex property portfolios. While there’s no one approach that sets this group apart from other landlords, here are five tactics growth-oriented landlords often employ to boost their rental business.
All the research shows that buy-to-let landlords invest for the long term. When they set up and add to their portfolio, most look for property that offers the potential for both steady capital growth and healthy rental yield. One way to achieve these twin objectives is to look for property in an ‘up and coming’ area and invest as the area develops. For example, properties located close to a new train link, near to an expanding hospital or close to a growing university often hold out the highest potential for sustained, long-term returns by attracting new residents into the local community and increasing demand for housing.
2.Optimise what you’ve got
As cost pressures mount, now more than ever, landlords are looking for opportunities to develop the income earning potential of both new and already-owned properties through upgrades and refurbishment. Alterations might involve something as simple as redecorating or as ambitious as converting a single property into a multi-unit block or an HMO (House in Multiple Occupancy) to increase income-earning potential. To help landlords fund these improvements, specialists including Paragon have been introducing and developing well-targeted, short term finance products.
3.Maintain positive cashflow
Landlords who’re planning to expand will need to build up a reserve to help them fund their next purchase. This means making sure that rental payments cover the costs that the landlord has responsibility for, including mortgage finance costs, tax payments, maintenance and buildings insurance. If rent isn’t enough to cover these costs, landlords are effectively subsidising the property each month, limiting their ability to grow a deposit for a new property and therefore expand their portfolio.
4.Remortgage to release capital
Buy-to-let mortgages remain the most popular source of funding for landlords looking to purchase their next property, with seven out of ten planning to take out a mortgage for this purpose. However, alongside this, just over a quarter of landlords (26%) say that releasing equity from their existing portfolio helps them to generate or boost purchase funds. Of course, this route is only available to landlords whose existing properties have increased sufficiently in value to add to their equity and is limited by the requirement to meet the loan to value and affordability standards of their lender.
5.Investigate the pros and cons of operating in a limited company
Since the announcement of the landlord tax changes back in 2015, there has been a steady increase in the proportion of landlords making new property purchases through limited companies or other incorporated structures. The most recent research1 suggests that over half of landlords (53%) intend to purchase their next rental property within a limited company structure. For landlords with 11 plus properties, this is even higher at 69%. Incorporation allows landlords to expense their finance costs against rent before the deduction of tax. In addition, the corporation tax rate is currently a flat 19% compared with the basic, higher and additional personal tax rates of 20%, 40% and 45% respectively. However, landlords considering this route are should seek advice from a tax specialist as incorporation has some associated costs and condition that mean it won’t be suitable for everyone.
Posted in Landlords announcements on Jul 09, 2019