HOW LANDLORDS CAN CUT COSTS
The days of 10% yields are now all but a distant memory for landlords.
Interest rates are still moving upwards and seem destined to hit 6% by the end of the year.
So what can landlords do to drive up margins & help cashflow. The answer is to cut costs and here are six ways for landlords to do this.
1. Buy cheap – landlords need to be tough negotiators
There is still money to be made in the property market whether landlords buy at property auctions or they find a residential investment property in the local estate agents or over the internet, check out www.propertysnake.co.uk an interesting reduced price property portal and no relation to www.propertyhawk.co.uk.
The secret for landlords to always drive a hard bargain. Landords should view 50 residential investment properties, put in 50 ‘ridiculous offers’; 49 will be rejected but the chances are one will succeed. Then a landlord will get a buy-to-let bargain. That way a landlords rent will reflect the value say of a £200,000 property but if a landlord has managed to secure a 15% discount their costs will only be that of a £170,000 residential investment property.
2. Get the best finance deal
The biggest cost to any landlord is their mortgage. If a landlord can cut this by even a 0.5% that will work out as a cost saving of £62.50 per month on a £150,000 buy-to-let mortgage.
For a landlord to ensure their mortgage is competitive they need to keep checking their rate against the best BTL mortgage rates currently available.
Landlords should never, ever pay the mortgage companies standard variable rate, the chances are you will be paying 1-2% above what you need to. Most landlords can save at least 0.5% on their interest rate if they shopped around for Property Hawks best BTL mortgage rates.
3. Save on managing fees by DIY Landlording
How ever landlords look at it if they get in a letting agent its going to cost. For the full management of a landlords property this is likely to be between 8-12% of a landlords’ rent. For many landlords this can represent 20% of their annual costs. By landlords DIY, they can boost their profits and cashflow immediately. This gives landlords greater scope to perhaps swap to a repayment mortgage.
In this way landlords will gradually cut their loan repayments because of their reducing mortgage balance.
If landlords think that managing their investment property themself is a daunting prospect then they shouldn’t. Property Hawk has all the information within the Landlords Bible to guide a landlord through the process. It also has easy to use free landlord software within the Property Manager to keep track of a landlords day to day finances together with a free Tenancy Agreement for landlords to download and use.
All this is available for FREE to landlords. This saves a landlord £15 for the book, £10 for the Assured Shorthold Tenancy Agreement, £100 for the property management software. In total £125.
4. Landlords must avoid the void
Experienced landlords dread the void. This is the term given to a landlords residential investment property when it is empty. At all costs landlords should avoid this. Many novice landlords who have been told by a letting agent often desperate for business that their buy-to-let property is worth £750 pcm, will then end up with it empty for 3 months only to then have to let it for £600 anyway. Far better is for landlords to have it let at the outset for a realistic rent. Once a void is experienced then a landlord will never get this money back. The average void for a buy-to-let property is probably about one month per annum. If a landlord can cut this to zero then this is about the equivalent of cutting their annual costs by 10%.
5. Competitive insurance
It is very easy for a landlord to over pay for their buy-to-let insurance. Often buy-to-let mortgage companies will try and sell landlords their own insurance product. Never buy this. Buy-to-let mortgage companies rely on the apathy of the average consumer not to check out the best deals through a specialist landlords insurance broker which enables them to charge inflated prices. Landlords should make sure they get a number of quotes and know what landlord insurance product they are getting before they buy.
6. Don’t pay tax
A well prepared landlord should pay little or no tax. Not because they are criminals but because landlords need to be shrewd businessmen as well as good property investors. Tax avoidance is not illegal; it’s what the billionaires do. Landlords should be fully informed about their landlord tax allowances and keep up to date records to ensure that they don’t have to pay out unnecessarily.
Avoiding tax could save hundreds if not thousands of pounds per annum to a landlord. This money can then be re-invested by a landlord in growing their buy-to-let portfolio or cutting their costs further by paying down their debt.