Increasing the Profitability of your Rental Property; Adding Value & Reducing Costs
Maximising financial return is a key target for any investment, property being no exception. With an economic backdrop of slowing London rent growth, many Landlords are seeking now more than ever to maximise rental income, to ensure the profitability of their property investments.
Simply increasing the rent is not suitable for some landlords, especially in the present climate, in which this could in fact lead to a longer vacancy rate and lower returns over the year. Below we highlight the key tactics for buy-to-let investors to maintain their rental yield during a slow market, and increase it in a buoyant one.
1. Minimise your Costs
Profitability is as much about cost reduction as it is about increasing income. It’s always worthwhile to start by taking control of the costs associated with your property investment, firstly by making a simple account of all relevant monthly outgoings, so that you know which of the following areas you should prioritise.
Find 0% Commission
Typically anywhere from ten to fifteen percent of your rental income, managing agent commission rates account for a significant monthly cost on your property’s balance sheet. Agents offering services without commission started with the likes of online estate agents, and were previously only available to sellers.
With us, however, landlords can now receive a full managing agency service for their residential lettings at 0% monthly commission. This means that for every £1000 of rental income, that’s another £100-£150 every month back onto the bottom line.
Limit your vacancy period/void period/Let your property quickly
Every day that your property is vacant between tenants represents missed revenue. Unless you have essential maintenance or upgrades planned, having an empty non-income-generating asset is a frustration for many landlords. After all, your monthly costs do not stop mounting up simply because you’re between tenants.
Fortunately there are a number of tactics available to landlords for ensuring their investment works for them throughout the year:
- Guarantee your rent. We offer guaranteed rental income at the valuation we provide – no matter if your property is empty.
- Cap your vacancy period. We guarantee to let your property within 21 days of bringing it to the market. We’re so confident we’ll do so, that we’ll pay you £1000 if we don’t. No questions asked. Find out more.
- Target the right tenants. It’s hard to know how long a prospective tenant plans to stay in your property, but long-term lets are always preferable when seeking to minimise void periods. On the whole, we know that certain groups lay their roots for longer than others. This is why we only target professional tenants with our thorough referencing and background checks.
- Start planning early. Ask your tenants a couple of months in advance of their tenancy renewal if they have any plans to move on. Whilst some may not know for sure, this allows you to gauge the possibility of needing to find their replacement ahead of time. If they’re planning to leave, engage your letting agent as early as possible to minimise the vacancy.
Guarantee your Rent
No matter how hard you try to ensure your tenants are reliable and come with good references, anybody can find themselves caught short on the rent once in a while. Whilst this income usually comes through in the end, the lack of consistency and cash flow can be a frustration for many buy-to-let investors.
That’s why we guarantee the rent at appraisal value for our landlord clients, every month without fail. This way we can guarantee your cash flow, and await the outstanding amount on our own terms.
Find the best deal
Insurance products and mortgages are unavoidable costs for all responsible landlords, but they are by no means fixed overheads. Financial products are by their very nature highly competitive, so more often than not you can find a better deal by shopping around.
Comparison websites are a great place to start when looking for a better deal from your insurance or mortgage provider, but it’s worth remembering that they don’t all show the same offers, so using a few different sites is always worthwhile.
It should also be noted that some insurance providers will offer their best rates when you go directly to them, but these are often positioned at the premium end of the market to begin with.
Stay above board
Industries are changing at an ever increasing rate, even the typically slow-to-innovate property sector. Technological advancements, as well as broad based societal changes, can often lead to changes in legislation.
As a professional property investor it’s always recommended to keep abreast of the latest news and changes to whichever area of the industry you work in, avoiding any risks of fines from unintentional legal slip-ups.
2. Maximise rental income from your property
With your associated costs pared back successfully, we look towards the inherent value of your property itself on the rental market. The range of improvements you can make to your property, and the extra benefits you can offer with tenancy, are numerous. Selecting those which will improve your ROI most effectively is a matter of budget, time and target market.
Large-scale investment into your property, such as extending the footprint, can be great where there is significant upside in the local rental market, and when your investment is intended as long-term. Those looking for a medium investment term, and for properties already at the premium end of the local market rate, should instead look towards smaller improvements or tenancy benefits.
All the while, your ideal target tenants should be top of mind. If you’re looking to fill your property with students, high end fixtures may not be such a priority. Similarly if your letting is for retirement purposes, including that Netflix subscription with the rent might not be the finishing touch that will secure your tenant.
Below we look at the quick wins and major projects you can undertake to maximise the rental value of your real estate.
Let Each Room Separately
An entire property’s rental value is rarely greater than the sum of its parts. The combined value of letting each room in a shared house separately almost always results in a higher total monthly income.
Furthermore when letting individual rooms, in the event that one of your tenants leaves, you’ll not be left with a totally vacant property and will continue to receive rent from the remaining occupants. Filling this room with a new tenant is often quicker and easier than filling the entire property at once, too.
Splitting your asset into individual income generating compartments now goes beyond just bedrooms, too.
Those seeking to squeeze all of the extra value that their property has to offer can look towards the increasingly popular sharing economy, where letting out amenities such as garages, parking spaces, sheds and even loft storage space to the general public on a short-term basis is ever more common.
Review your Rent
As we’ve discussed, increasing the rent often isn’t the answer, particularly for those whose property is already let at the top end of the local market. If you’ve been fortunate enough to hold long term tenants in your property, however, any increases in price over the years will typically have been below the broader market rate in the same period.
It’s worth considering a market appraisal of your property’s rental value to see if you’ve got scope to raise your rent; either in line with market rates for a vacant property, or at a higher yet still favourable rate for existing occupants.
Rent isn’t the only overhead for your tenants to factor in to their monthly accommodation budget. Bills from gas and electricity, to internet, water, and home entertainment subscriptions all make up part of the sum that can be spent on living in a private rented home.
By including some of these overheads within the price of renting your property, you’ll make potential tenants feel that they’re getting a good deal and, by accounting for some of their monthly overheads, you’re freeing up some of their income to go towards a slightly higher rental value.
The extras you include with your tenancy will depend on the type of occupants you’re hoping to attract, be they professionals, families, students or retirees. Here are some common added benefits used to entice potential tenants:
- Inclusive utility bills;
- Broadband/fibre internet;
- Entertainment subscriptions (Netflix, Sky, Spotify etc.);
- Laundry or dry cleaning collection and delivery;
- Food delivery subscriptions or online supermarket vouchers.
- ‘Pet friendly’ policies.
Clean & Tidy
It goes without saying that any property on the market should be thoroughly cleaned prior to any viewings or even photographers visiting. Think beyond the usual day-to-day cleaning tasks; it’s usually worth investing in a professional cleaning service who will undertake a ‘deep clean’ of your property, giving it a new lease of life to impress potential new tenants.
This will go a long way to justifying the higher rental value of your property, and may even lead to tenants feel like they’re getting a good deal, a win-win all round.
You may not have visited your property for some time, especially after a long tenancy or over a long physical distance. Take a look at the condition of the walls and floors, fixtures and fittings, any damp, mould or mildew, and consider giving some TLC to any areas which are looking tired.
Much like a good spring clean, you’ll make a far better first impression both in listings photos and during physical viewings when your property looks its best.
You’ll also want to ensure everything is functional and works as it is intended, run a quick audit of the following areas in advance of anybody viewing your property:
- Door/window handles & locks;
- Light bulbs;
- Kitchen & bathroom fixtures;
- Any furniture;
- Toilet flush;
Finally, inform your tenants of any maintenance arrangements you have in place – to whom they should report issues, and how access to tradespeople may be granted to the property.
Finally, if you’re intending to hold on to your investment for the long term, you may look to undertake some large improvement projects for a more significant boost to your property’s overall value as well as maximise rental income.
Kitchens and bathrooms are a good place to start. Newly modernised fixtures and appliances are an important selling point for many tenants, and will usually facilitate a higher rate of rent, especially where your previous fittings old or tired.
Always bear in mind, however, that there is an upper limit to the value which can be created from new kitchens and bathrooms. For lettings properties we typically find that mid-range is best for creating value, as the extra money spent on luxurious high end items almost never results in a better return than quality fittings on the middle shelf.
The ultimate way of adding to the value of real estate is by adding physical space. Do you have room to add an extra bedroom, an en suite, roof terrace, garage or annex? Have others in the postcode area done the same? If so, there may be scope to make some further investment into your buy-to-let.
Always keep abreast of ceiling prices in the local area and ensure that anything you spend will be less than the potential upside for your property’s value. If you make the most of letting your property on a room-by-room basis, or letting out amenities in the sharing economy as discussed above, then you’ll reap the greatest rewards from extending your property.
Need a managing agent with a like-minded approach to keeping landlords’ costs under control? Get in touch.