A Landlord Takes Stock
As we roll into autumn it’s always a good time for a landlord to take stock of their rental business.
I’m fully let & with the latest news on first time buyers and rental increases I’m starting to turn my thoughts to increasing rents for several of my buy-to-let properties as their tenancies expire. Not by a huge amount; perhaps 5% or so.
I’ve not even thought about increasing rents over the last couple years during the down turn. Instead I’ve focused on keeping my portfolio fully let and guarding myself against non payment of rent and minimising rental voids.
I have tried several times over the last 6 months to expand my residential investment portfolio. Firstly, by buying a repossessed property that turned out to have a irresolvable problem with the title and an absent landlord. I could have brought it cash but then would of been locked into years of wrangling with the land registry, freeholder and potentially mounting legal bills, I finally decided to walk away.
The second property; another repossession looked a good buy until I got the details of the service charges. Looking at the net rent and the way the service charge was rising I decided I didn’t want to be locked into working to rent out a property just to pay an ever rising service charge.
Again I’ve walked away and need to speak to the conveyancer today to tie up the loose ends.
My investment appraisal process
I’m still looking actively at buying another rental property this year; but the rental figures have got to be right. I’m targeting a net rental yield of above 8%.
Net rental yield is the relationship between rent after taking off ground rent and service charge & the purchase price. In calculating the actual investment returns which is equally; if not more important than the net rental yield; I also include any legal costs and refurbishment costs in the purchase price. This is because what a landlord needs to do is be able to measure the actual cash production through rent; in relation to the costs of generating it.
If you purchase a property for letting; the chances are that you will at least need to re-carpet it and in my case I generally want to put in a new kitchen and bathroom to ensure that you attract decent tenants from the outset. My targeted investment yield on new buy-to-let investment is around 8%. At that kind of level I am comfortable that should interest rates suddenly jump to 5 or 6% in the future I will be able to fully fund any buy-to-let mortgage.
Looking at the figures this kind of investment yield will also generate free cashflow on a 75% interest only mortgage of 50%. In other words after paying the mortgage costs I would get to keep over 50% of the net rent as free cashflow or rental profit before income tax.
I’m in NO rush
I am as they say; in no rush to buy. This is because I don’t believe that house prices will be going up in my part of the world in the next couple of years. London may be different but in the East Midlands and most other parts of the UK; I think that the spending cuts & restricted mortgage availability will dampen house prices and force many potential purchasers to curtail their buying intentions. With a glut of houses on the market, the forces of demand and supply will only serve to depress prices.
Therefore, I’m buying on income and only if I can buy for a good income will I put my toes back into the property investment waters. As I said to one of the very helpful and enthusiastic sales staff in the estate agent I was buying my recent repossession off. "I’m not buying just for the sake of it…..I’ve got plenty of property already. I’ll only buy if I can make a decent profit".
Too many landlords in the boom got locked into the bravado of ‘maxing out’ their property portfolio, without considering how profitable it was, how they were going to manage their expending residential portfolio and god forbid the fact that house prices "might go down". A lesson there for all of us is that making good investment decisions is about balancing the upside and the downside risks & this applies to residential investment as well as any other type of investment.
The downturn has been a useful jolt for me to reconsider how I maximised the income from my rental portfolio. During the last couple of years; I’ve discovered the income generating potential from letting out garages separately. Since first testing the waters for letting out my garages by placing a speculative advert on Gumtree. I’ve been amazed by the demand for garages in suburban locations where off street parking is often restricted.
I have just had notice served on me by one of the tenants of my garage who was using it to store a trailer and other gardening equipment in his landscape gardening business. He has decided after a year of going it alone to go back to his old job working for a large company. I don’t blame him. I know from personal experience that running your own business is a lot tougher than the cosseted world of working for a large organisation where most things are taken care for you.
On my garage, I’ve just advertised it and I’m hoping to even secure a small rental increase. Landlords that want to market a parking space or garage more professionally could also try the services of Parklet.
Parklet act as a letting agent for garages and parking spaces. It’s unbelievable that some parking spaces in central London can command rentals as much as £575 per month.
Even the average rental according to Parklet is £121. Not bad if the space or garage was just going to remain unused.
“All quiet on the western front”
Even if it is “all quiet at the western front” there is plenty to do managing my rental business. As we have just had month end I need to check that all my tenants have paid up and then update my account data with Property Hawk property management software.
In addition, with winter on its way & as we approach Christmas the next big job for any landlord rears its head. That is the job of doing my tax return.
The deadline for paper based returns is 31st October and for Internet filing a landlord gets a bit longer until the 31st January. This year I’m going to have to be particularly attentive to ensure that all my expenses have been claimed in order to reduce my potential income tax liability after a year of low mortgage rates and low voids my rental profits will be significant.
The other ongoing project is my tussle with the planners. After a minor victory on a development site I own; I have what I consider to be half a planning permission. My motto all along is ‘Illegitimi non carborundum’ – don’t let the buggers grind you down; so on with the next application & ‘total victory’ I hope.
The thing is being a landlord is that quiet periods don’t last; it’s only a matter of time before the next job beckons…..in fact that’s the phone going now. Could that be one of my tenants…….
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