How Are Property Owners Keeping Buy-to-let Profitable?

Changes to the Buy-to-let Market

There is no denying that the buy-to-let market has been subject to persistent change over the past few years, and these changes have certainly been daunting for property owners looking to make profitable investments. So much so that FJP Investments found that 68% of investors believed that the option had become ‘far less attractive’.

This follows several changes to the taxation of property, where since 2016, owners have been liable to pay an additional 3% tax on buy-to-let purchases. This, combined with the Capital Gains Tax required to be paid on second homes and buy-to-let property, has impacted the perceived profitability of becoming a proprietor.

In June 2022, several amendments were also made to the legislation surrounding rented property, primarily the Renters Reform Bill, which stipulated updated regulations for property owners to uphold, such as increased responsibility for their tenants’ surroundings.

While these Government initiatives support the opinion that the objective is to make homeownership more attractive than renting, there is still much opportunity for those who want to invest in property and provide renters with a roof over their heads amidst a housing and cost-of-living crisis. With this, demand for rental homes isn’t disappearing, as evidenced by The Guardian, which reported that people searching for rented property was 76% higher at the start of this year than during the same period between 2018 and 2021.

Although any investment can come with its risks, there is still a lot to be said for considering a buy-to-let property, and with the correct attitude and commitment to making a profit, it can be a lucrative venture.

How Can Buy-to-let Still be Profitable?

The most recent data available shows increasing revenue growth on buy-to-let property.

The average property was worth £258,900 in March 2021, which is a 5.6% increase on the previous year, according to money.co.uk, a comparison website. However, a buy-to-let investor shouldn’t be steadfast on speedy returns. It can take a while for a property to accumulate the profit that warrants the upfront investment required, especially as buy-to-let mortgages require significant deposits – on average, a quarter of the property’s worth. Therefore, those who are realistic about the potential timeline and are willing to purchase a quality property in a high-demand area are likely to reap the rewards.

It doesn’t end there, though, there are many things a dedicated property owner can do to boost the likelihood of healthy returns and ensure that their buy-to-let venture is profitable.

Choose the Area Wisely

To drive down the cost of property, it may be tempting to invest in less desirable locations. However, it’s important to keep in mind that although the initial outlay of fees may be inexpensive, recouping the costs could be difficult.

This could jeopardise the opportunity to regain profit on the eventual sale and create an inconsistent cash flow, given that there could be void periods where the property lays empty due to lack of demand. To remedy this, research the areas that have consistent employment growth, reliable transport links, and forecasted regeneration projects taking place. These are likely to appeal most to renters and will generate the largest returns.

Invest in Maintenance

To ensure maximum profit, owners should be prepared to invest in the regular upkeep of their property. Not only will this make certain that the space appeals to potential tenants, who will expect and are legally required to live in homes free from hazards, but it will mean that the property is in prime condition when it's time to sell.

With this in mind, it is wise for property owners to reserve emergency funds to repair damages and wear and tear. Furthermore, it is also important for owners to understand that significant updates to a property may be required over an extended period of time too. Equally, if proprietors are offering furnished property to increase rental prices, they will need to replace any appliances or furniture that breaks.

Consider Short-Term Lets

ARLA Propertymark reports that 25% of property owners feel short-term lettings offer greater profits than long-term. The most cited reason for the boost in shorter leases is the changes that have come from the Renter’s Reform Bill, given that the regulations that apply to short-term lets are much less restrictive. The second most popular reason is the flexibility it allows owners.

With Airbnb bookings increasing by 55% from 2020 to 2021, it is clear that the popularity of these kinds of lettings is soaring, enabling owners to make a meaningful profit while waiting for their purchases to gain value over time.

Is Buy-to-let Worth the Hassle?

Although buy-to-let may not be ideal for those who want to cash in and quickly cash out again, it can provide a considerable return on investment. However, it does take more involvement than is usually perceived. If investors endeavour to dedicate time, research, and money to their purchases, there is profit to be made in the long run. While there is always the option to enlist property management teams to deal with day-to-day requirements, this comes at a further cost and decisions about the property will still ultimately lie with the homeowner.

Noting research from Hamptons, the average property owner in England and Wales records a total gross income of £203,000 on a property before taxes and costs, which is a considerable profit, even more so if an investor can begin to build a portfolio. While it remains a risk, those who create a livelihood by buying and selling property could stand to reap the rewards over time, which is arguably worth it if research and maintenance are given the time and resources needed.

Are There Alternatives to Property Ownership?

Although the opportunities for property owners looking to let are extensive, there are alternative ways to enjoy the fruits of investment without the commitment of managing the rental process. Property bonds, otherwise known as loan notes, for example, are a great way for self-certified investors to take advantage of the UK’s robust property market and generate strong returns.

Investors achieve these rewards by lending capital to a property development company in exchange for a fixed rate of interest over a fixed period. This offers the security of an investment in property whilst ensuring attractive returns.

Hunter Jones Group has established a proven track record for delivering diligently researched and structured alternative property investment opportunities which provide above-average returns.

For more information, get in touch: https://www.hunterjonesgroup.com/contact