Over the last few months, landlords have seen their profits eroded with the chancellors’ recent tax measures and it is becoming much harder to make money in the buy-to-let market. While increased financial pressures are driving some investors out of the market, there is still money to be made in the long term if landlords make the right investment decisions.
If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term.
Landlords should review their existing portfolio to see if they can boost rental income and protect profits by attracting a different market.
Buy-to-let landlords, in my opinion, will often find the best returns in urban areas, with a concentration of students and young professionals.
Landlords should also consider changing a house into an HMO as the yields can be very high.
The great advantage of HMOs is that the rent does not need to rise because the profitability of multiple tenants is much higher than comparable, standard buy-to-let property. Usually, landlords rent a property on the basis that one person or household is responsible for paying the rent, even though there may be a family of five residing in the property.
It is also worth buy-to-let investors considering setting up a limited company and using this structure to hold their properties. This will enable landlords to continue deducting mortgage interest when they are calculating profits. Landlords can also benefit from just 20% corporation tax, instead of income tax of up to 45%.
Landlords need to do a serious portfolio review and work out how the tax changes affect them and what options there are to save, or make more money. For example, remortgaging to get a better deal or renovating some old stock - these costs will be tax deductible. Alternatively, landlords could consider selling some properties or increasing the rent.
Peter Armistead is a director of Armistead Property.
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