With the financial uncertainties brought by COVID-19 on top of the loss of tax relief on mortgage interest for landlords, planning is needed to maximise buy-to-let profits more than ever in 2021.
House price growth in 2020 to 2025 will be lower than it was in the proceeding five year period too, it is predicted, leaving landlords to rely more heavily on rental income for profits rather than capital appreciation.
Regardless, buy-to-let remains a lucrative business. Hamptons Monthly Lettings Index showed average rents in Britain rose 4.4% in March 2021, with rents in areas outside of London leaping by an average of 6.8%.
Here are some top tips for maximising profits from buy-to-let properties in 2021:
- 1. Remortgage for a better rate
Remortgaging remains one of the major ways to keep costs of buy-to-lets down and yields high.
Failing to remortgage once discount, tracker or fixed rate deals end usually means seeing your mortgage shifted onto your provider’s standard rate – and that is rarely the best deal.
Keeping track of when your deal comes to an end and acting in good time to find a new deal and move across to it, is a key route to maximising profits whether you have one buy-to-let property or a portfolio.
- 2. Consider creating a company for your property interests
People who own buy-to-let properties rushed to create companies under which to manage them last year, probably due to the changes in buy-to-let tax relief on mortgage interest.
Companies can continue to offset mortgage interest against profits and switch to paying corporation tax.
It is best to seek financial advice before deciding on whether creating a company is the best idea for you. People with only one or two buy-to-let properties are often least likely to be better off under a company structure.
One of the things to consider is that companies may have to pay more for buy-to-let mortgages than individuals.
- 3. Look after good tenants
Looking for and vetting new tenants is a potentially time consuming and costly process especially if you have to enlist an estate agent’s help or face a period of your property being empty.
Ensuring you nurture and look after good tenants is one of the best ways to avoid those extra costs.
Tenants may face additional financial hardship in the current climate, but if they’ve always been reliable before it’s worth considering what support you can give them to stay. The Government has produced specific COVID-19 guidance for landlords and tenants, including information on where tenants can find financial assistance if they fall on hard times.
When considering rent increases, it’s worth ensuring they are justified and not likely to be the difference between you keeping or losing a reliable tenant. Similarly, making yourself a reliable landlord who deals with any property issues quickly, will help good tenants be more inclined to stay.
- 4. Review management costs
Carrying out a regular review of management costs is a wise plan to ensure you are not paying over the odds for estate agent services.
It’s also worth considering if you need all the services you are currently paying for within any deal you have. If you pay for repairs and maintenance, for example, consider if there is a more cost-effective way, perhaps either by hiring someone directly ad-hoc or on a retainer basis. You may also be capable of finding tenants yourself, reducing the need to pay estate agent fees. If you have reliable, long-term tenants you may feel comfortable not having the safety net of bridging payments when and if the property is empty.
If you have a number of properties, it might be possible to negotiate a better deal by offering the management of them to one firm as a package.
It is important to balance the increased risk of costs and hassle against savings achieved by removing or reducing the scope of a management contract.
- 5. Consider if the holiday market may be more lucrative
This year more than ever, with increasing scepticism about the safety and viability of foreign travel, there is going to be a lucrative market in self-contained holiday lets.
If you have a vacant property that could lend itself to short term holiday rentals rather than long term lets it could be worth considering a switch.
Rents for short term lets are typically higher, though they come with the added complications of needing to be managed on changeover days and less certainty over being fully occupied.
If your rental is in a particularly attractive part of the country it obviously helps to make this a more viable option.
Being flexible in your thoughts about how your property can be best used, staying on top of your costs and ensuring you nurture relationships with either long term or short term tenants will help maximise profits from buy-to-let properties in 2021 and beyond.