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2 Mar

Ten ways to maximise the value of your Buy to Let

Posted 2/03/2016 by: Reeds Rains

As a landlord, you should be looking to maximise the value of your property from two perspectives: its capital value and the level of income returns it generates for you - ideally outperforming the market average on both. To do this, you need to make best use of the space you have, ensure the property is maintained in good condition, and minimise running costs. 

At Reeds Rains, we are always happy to advise landlords on how they can maximise the value of their Buy to Lets and our lettings experts work hard to ensure the portfolios they manage on behalf of landlords are as profitable as possible. Here are our top ten tips on the steps you can take to maximise the value of your own properties.

1. Treat your Buy to Let as a business

This is the overriding principle that should govern your investment in Buy to Let. It means carrying out research (with our help) on the local property sales and lettings markets so that you know where your property sits within that market. You have to understand and be able to calculate key measures, including gross and net yields, gross and net return on investment (ROI) and gross and net profit – those will allow you to compare your property with others in the market.

Keeping a careful track of income and expenditure and ensure you take good legal, financial and property tax advice are also must dos. If you can do all of this, and follow the other nine tips below, you should certainly be maximising the value of your property.

2. Appeal to as many people as possible

In terms of rental income, your priority is going to be ensuring the property is appealing to your target tenants, however, don’t lose sight of the fact that you’re likely to need or want to sell at some point. So make sure that the market value is retained by not making the property too ‘niche’. For example, converting a house into separate bedsits means it may be hard to sell to anyone other than another investor who’s also looking to let bedsits. If you were to operate it as an HMO instead, that means it should be easy for a buyer to see it as a family home and not too costly to return it to that state. 

3. Add valuable square footage

Before you commit to buying a property, you should be thinking about whether it offers the opportunity for extension – even if you are not considering doing anything at the moment. The best way to increase a property’s value is by adding habitable space through extending, or conversion of garaging, lofts, or other areas, but to maximise the value and return on the capital you will invest in the project, you must make sure you’re adding useful space. 

Extra bedrooms tend to be the most profitable, followed by reception or entertaining rooms that don’t already exist, but speak to your local Reeds Rains office to make sure your plans won’t result in you exceeding the ‘ceiling’ for prices in the area. 

4. Let in the right way for local demand

Different areas and even different streets within an area can be appealing to different tenants. Ideally, you will have research or expert help on the rental demand before you bought your property but demand can change over time, so it is something you should revisit annually with us. 

The best way to achieve this comes back to the second point about appealing to as many people as you can: ensure the accommodation is as flexible as possible, to allow you to switch from one tenant type to another easily and cost-effectively. If you end up trying to let to one type of tenant when demand is low, the result can be longer void periods, when the property is empty, and that can lead to having to reduce rent just to attract the few tenants that are out there. On the other hand, if you try to ensure you’re always offering the type of let that’s in high demand, you should be able to keep voids to a minimum and charge good levels of rent. 

5. Make sure you’re charging the right level of rent

The key here is to keep your rent in line with both local wages and inflation. Many landlords are reluctant to increase rent to existing tenants, but with inflation having grown over recent years at an average of 3% per year, if you haven’t put your rents up, you have effectively been reducing the value of your own rental profits. 

While wages are still not yet increasing at pre-credit crunch levels, the Bank of England’s latest forecast is that they will go up by 3% this year, while inflation is expected to grow by just 2.2%.* That means you should be able to legitimately increase your rents by up to 3%, keeping them affordable for tenants and maintaining the value of your rental profits. 

If you are in any doubt as to what you could and should be charging, just speak to one of our team, who will be happy to advise you.

6. Maintain the property well

This is where you have to spend money to make money. The consequences of not keeping up with maintenance can be much more damaging to your finances than paying for regular updates and repairs. A tired-looking property will usually see its market value drop and be far less appealing to tenants than others on the market, not to mention that the tenants you do get won’t stay long if there are constant faults and issues that aren’t attended to.

So put together a maintenance schedule to ensure the interior and exterior of the property is checked and repaired as necessary, and when things do go wrong, put them right as quickly as possible. If we manage your property, we will advise you when things need doing and will usually agree an amount below which we won’t trouble you - for example, anything costing under £100 we will simply go ahead and mend or update. 

Remember that with the new laws around retaliatory evictions in England, you will be unable to enforce a Section 21 if it was served after your tenant reported a problem that you didn’t repair - not to mention that if you fix things quickly, tenants tend to stay longer and treat your property better. That should also mean fewer overall repairs, fewer voids and your rent always paid on time. As the saying goes: look after your property and it will look after you.

7. Ensure the décor is current

In the past, PRS tenants were broadly seen as short-term, with renting considered more of a temporary ‘stop-gap’ between leaving home and buying. However, today’s tenants are more likely to want a real home that they can settle in for a while, so they want the property to be up to date and reflect modern home trends. As with maintenance, this will cost money, but we would say it’s money well spent, which you should be able to quickly recover through good levels of rent and minimal void periods. 

8. Minimise your ongoing costs

Your biggest monthly cost is likely to be your mortgage, so it’s a good idea to review this once or twice a year with a good broker, such as Reeds Rains financial services, who can make sure you’re always on the right deal for your circumstances and that you aren’t paying more than you need to. New deals are always coming to the market and even a quarter of a percent change in rates can make a significant difference to your profits and therefore the ongoing value of your investment.

For example, if you have a 75% mortgage on a £250,000 property, at an interest-only rate of 5.5%, that’s a monthly payment of £860. If you can transfer onto a rate of 5.25%, the payment drops to £820, giving you an extra £480 per annum. At a rate of 5%, it drops to £781, giving an annual saving of £948. You can book a free, no-obligation appointment with one of our in-house mortgage advisors to see what deals are currently available and might be more suitable for you.

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And then just keep an eye on all your other costs – utilities, services and administration. Remember that the cheapest is rarely the best, but they should all be revisited regularly to ensure you’re not missing out on new rates or cost-effective offerings.

9. Make sure you have the right insurance

In many ways, maximising your property’s value is about minimising potential risks that could financially damage your investment, and making sure both you and your property are properly covered against losses. 

As a minimum, you should have specialist landlord insurance that covers you against malicious damage by your tenants and public liability insurance in case someone is injured in your property. Make sure there’s adequate coverage against flooding and consider taking out rent guarantee insurance**, such as we offer ourselves. Protecting your property is one thing; protecting your income is another, and if you end up with a non-paying tenant who refuses to leave the property, it can be a long and expensive process to get them out. 

10. Use cost-effective letting and management services

In many areas of life and business, there is a fine balance between cost and value, and letting is no different. If you are focused on keeping ongoing costs to a minimum, you could easily end up with an agent service that looks cheap on the surface, but actually has hidden costs and extra charges which, when you add them up, make it more expensive than other agents who quote an ‘all-in-one’ price. You could also find that the service is not as good as you might have hoped and you suffer from longer than average void periods and lower-quality tenants, both of which will hurt your income.

* http://www.bbc.co.uk/news/business-35493474

** Terms and conditions apply. This information if a summary only. You will receive a full policy document upon application, which will set out the terms, conditions and limitations of this product.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Our initial mortgage consultation is free. We will charge a fee between £349 and £699 on application. The amount we will charge is dependent on the amount of research and administration required.