If you are a first-time landlord, or just a prospective one, the property market can look tempting. That’s because it is, and there are certainly profits to be made as a landlord while you provide an essential service to the community. But when it comes to the costs involved, it’s not always clear what you are paying for.
Tenants rarely fully understand what their rent pays for. It is assumed by some that their landlord is simply using the money to pay the mortgage and then keeping the rest. This couldn’t be further from the truth – the reality is that tenants’ rent pays for a wide range of services vital to the property, as well as issues legally required of landlords.
Landlords really need to know what they have to pay from their rent payments, as it drastically affects the potential profit from the property.
Rent payments need to cover:
- The cost of the monthly mortgage payments
- Buy-to-let landlords insurance
- The cost of maintaining the property
- Gas and electrical safety certification
- Tenants search and vetting
- Void periods (the time where you don’t have tenants living in your property, but still have to pay all of the above costs)
Given all of these costs that need to be factored into the price you are asking for with regards to rent, it is important you do everything you can to maximise your investment. Here we take a look at some of the ways that you can make more money as a first-time landlord.
Understand the market
It is essential that you fully understand the market you are going into. Before you buy a property to rent you need to have a full understanding of the kind of people that live there. There is no sense buying and renovating a large property into multiple student rooms if the neighbourhood is exclusively populated with young families.
Also, consider what kind of rental yield properties in the area typically achieve. Once again, it is not worth buying a property in a cheap area and turning it into an ultra-luxurious home. No matter how fancy a property is on the inside, its location will naturally limit its potential income.
Operate as a limited company
It is important to get your tax affairs in order if you want to maximise your investment. A great way to do this is to operate as a limited company, rather than as an individual. First-time landlords can make the mistake of failing to separate their personal and professional finances, which actually makes everything extremely complicated.
Operating as a limited company ‘allows you to offset your expenses against your profit, and it also gives you the option to have someone else manage elements of the property management’. Of course, this isn’t necessarily going to be the perfect solution for every investor, so it’s worth discussing the matter with an independent financial adviser.
Get multiple quotes
This is something that you need to apply to everything that you do as a first-time landlord. Relying on one quote from a supplier or provider can leave you spending far more than you need to. It is a much better idea to go to multiple providers and compare their prices.
You can apply this to everything from the mortgage that you take out on the property, to choosing management agents and getting work done on the property.
Look for other opportunities
One of the most effective ways to maximise your profits as a landlord is to have more than one property. We’re not just talking in terms of the fact that obviously, your income will be higher if you have two rented properties, but rather that aspects of being a landlord are scalable. Additionally, now could be the perfect time to invest in property.
You don’t necessarily need to limit yourself to local areas. Some parts of the country actually offer more enticing opportunities than others, for example, Manchester has seen over 20% price growth over the course of the last five years.
In conclusion
Maximising your first property investment means understanding your market, getting the right price for services, finding the right opportunities and getting your tax affairs in order. This might sound simple but often trips up first-time landlords.
