Too much and you run the risk of scaring off potential tenants, or not getting any at all. Too little, and that not inconsiderable investment of time and money could all be for nothing.
Whether you’re investing in a new property, re-listing an existing property, or re-mortgaging a house in order to enter the rental market, you need to maximise your income without falling out of favour with potential renters and staring at costly void periods.
The goal of being a landlord is two-fold; capital growth and rental income. Landlords have very little control over the former besides deciding when to enter the market, and how it’s priced for the area and condition. Landlords do, however, have some control over how much they charge and in turn, how much they could earn from the property, this is called rental yield. For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5 per cent yield. Your properties rental yield is subject to multiple factors including maintenance costs, renovations and interest payments if you purchased the property with a buy-to-let mortgage. So the above figures would only be the final sum if you owned the property outright and none of the rental income went towards paying the mortgage. There’s also new tax laws which make it significantly less desirable for landlords looking to offset the costs of their mortgage interest payments against tax on their rental income. A sticky topic which we covered last issue.
Residentiallandlord.com reported in July that London has seen rents rise by an average of 45% over the last ten-years, which is an annual rental growth of 4.5%. But London rental prices have also continued to outstrip wage growth, making it all the more important for landlords to price their properties effectively. Whilst capital growth has outstripped them both which in turn has had the effect of reducing rental yields further.
There has also been something of an exodus of foreign landlords in the capital recently, partly due to the additional 3% surcharge on Stamp Duty on second homes introduced in April 2016. This change naturally affects the supply and demand chain. There have also been anecdotal reports from the mortgage industry showing a large reduction in the number of buy-to-let mortgages applied for since these tax reforms. Suggesting there will be less rental property coming to the market in the future and indicating that rental prices may rise faster in the coming year.
Despite rental yields in Fulham being low (around 2-3%) the market has remained strong due to the popularity of the area and the fact that property owners prefer to hold on to coveted Fulham property, even if it just washes its face as a rental. Young professionals, couples and families all aspire to live in the leafy streets, so the right property at the right price is still a very wise investment if you focus on future capital gains. And if it’s a property purchased a while ago with signifcant retained capital it will undoubtably be giving you a great return on your initial money.
When it comes to renting out your property, you have to decide whether to use a single agency or multiple agencies to find your tenants. There are pros and cons with both, but one of the major myths is that by working with multiple agencies, your property will be put under the noses of more people. This isn’t strictly true as most tenants tend to look at just two websites that feature multiple listings from multiple agencies, and rarely do they go to a specific agency first.
Unlike selling, letting is a speedy business, or should be. The aim is to reduce any time that your property is vacant or ‘void’ and therefore not working for you. That said one of the biggest mistakes you can make is throwing in the wrong tenants without proper checks. The law is very protective of tenants and it can be a very costly mistake. Often a cheaper rent agreed quicker can earn you more than you’d lose when holding out for a higher price and accruing even a short void. Do your sums as this is a common mistake made regularly by landlords.
Finally, ensure your agent prices accurately and has a database of qualified tenants already on their books, and above all has a pro-active mentality.
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