Following the publication of her latest report, commissioned by the TDS Charitable Foundation, property expert Kate Faulkner outlines what lessons landlords should take from it.
The TDS Charitable Foundation has commissioned me to research and write a series of reports looking into various aspects of the private rented sector (PRS).
In my latest report, the eighth one I’ve produced, I looked at the returns buy-to-let landlords can expect, and what can affect them.
The 35-page report advises landlords not to rely on natural property price growth, pointing to a slowdown in capital growth rates and rents rising behind inflation in many areas.
We found that many landlords are unaware of how well their investment is performing, both in terms of rental yields and projected return on capital investment. More than two thirds (68.2%) of landlords have made a conscious decision to invest in property over other financial assets and should, in theory, have an idea of how much they should expect to get back, yet one third of landlords admit to not knowing their net yield.
It’s hard to remember a time when making a profit as a buy-to-let landlord has been so tough. In the late 1990s and early 2000s, landlords could safely rely on the value of their property increasing dramatically, so making an income from rent was less important than the profit from selling property on.
While house prices are still rising in most areas, the rate has slowed and this is no longer a completely safe bet for any would-be investor. Stagnating household incomes is also limiting rental increases, leading many landlords to fall into financial difficulty over the lifespan of a rental investment.
Landlords need to carefully plan and manage their rental properties to get the most out of their investment. Often, people forget about the tax implications rental income can have on their overall budget, sometimes pushing the landlord into new income tax brackets or losing tax relief, leaving them out of pocket.
‘Amateur’ or part-time landlords often don’t allow for putting money aside for maintenance in their investment plans, but they really should. Letting a property that hasn’t been maintained or kept up to scratch legally, could land the owner with fines up to £30,000.
The financial implications and regulatory hoops that landlords have to jump through have made property investing much more complicated in the years since the crash and, as a result, landlords have had to become more professional in their approach.
It is no longer enough to simply buy a property and wait for its value to increase. Landlords have to work for it, and this is driving some away from investing. With rising costs, increasingly tight regulation and rents rising below inflation in many places, countless landlords could well leave the sector in the coming years.
An exodus of small portfolio landlords would be detrimental, especially for tenants, as it could lead to a drop in the supply of properties for rent.
It’s not all bad news, though. Landlords can and do still turn a profit, but only by taking a planned, professional approach to property investment. Would-be landlords should undertake serious and detailed research about any potential investment, calculate the financial implications, plan for desired returns, and formulate an exit strategy.
We’re likely to see further professionalisation of the industry over the coming years, particularly if purse-strings have to be tightened for small-scale or accidental landlords.
To read the full report, please visit: https://tdsfoundation.org.uk/programmes
While the TDS Charitable Foundation funds the reports, Kate retains editorial control and the opinions expressed in the report do not necessarily reflect the views of Tenancy Deposit Scheme (TDS) or the TDS Charitable Foundation.
About the Author
Kate Faulkner is a recognised property industry expert and runs Propertychecklists.co.uk, a consumer advice website providing insight and expertise. She also runs consultancy Designs on Property Ltd. which provides support to companies and organisations that want to communicate better to the public or to introduce new products and services to the property sector.
About TDS Charitable Foundation
The TDS Charitable Foundation is a charitable incorporated organisation and is registered as a CIO with the Charity Commission for England and Wales.
The TDS Charitable Foundation works to advance education about housing rights and obligations in general, and in particular about:
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