For anyone striving to run their own business, managing the cashflow and sticking to a carefully formulated budget are likely to be high-priority objectives.
Almost everyone these days may need to tighten their belts a little and landlords are no exception. Making a successful and profitable business from your buy to let investment is almost certain to rely at least in part on reducing your overheads. Here are some tips on how you may perhaps be able to make a few savings.
Money, money, money
Probably like no other business, when you are a landlord it is worth doing your sums – again and again.
This starts from the word go when you are choosing your property or properties and determining the rental yields, calculating your expenses, and casting around for a buy to let mortgage.
Choosing a property
When buying your property, you may need to spend a bit of time researching the area and the type of tenants you are likely to attract to that location – vacant properties, with no sitting tenants, will cost you money.
The better you can fit in with prevailing market conditions then the more likely you may be to find suitable tenants for your property. For example, offering a property as ideal for a young family in an area with no parks or schools nearby may not provide you with the results you expect – no matter how well presented or attractive the property actually is.
Don’t just head for the local estate agent when trying to find a suitable property – you might also want to check out local property auctions, as these are often a major source for some real savings.
We have produced a detailed guide to Finding your next investment property.
Of course, you will want to maximise your rental yield, but remember that tenants in your area are only going to be prepared to pay the going market rent.
Don’t be unrealistically greedy, therefore, but pitch the rent at a level you know you are likely to sustain – or you may find yourself with more, and longer, expensive voids than you might otherwise have.
Buy to let interest rates are typically higher than residential rates. Bear this in mind when you compare the buy to let mortgages available and take into account the fact that you are likely to get a better rate if you have a bigger deposit to put down.
Rates, terms and conditions will also vary according to the lender’s assessment of the risks involved in your buy to let investment.
As ever – but especially during times when mortgage markets are in a state of flux – keep your buy to let mortgage under constant and careful review and be on the lookout for alternative deals which might save you money. When doing so, do factor in any penalties you may face when swapping mortgage products.
This is an essential that is also worth keeping under constant review. Things change – sometimes quite rapidly and a policy you purchased a year ago might now not look quite as cutting edge as other options in the marketplace.
Think twice about paying for contents insurance if you are letting property on an unfurnished basis. You may need to be clear that any items that you regard as being fixtures and fittings are, in fact, fully covered on your buildings policy. Overall, however, the savings may be significant.
Consider property portfolio insurance cover if you have several properties. It might end up saving you serious sums of money as opposed to purchasing individual policies for each property.
Compare different policies to find the one most appropriate to your particular needs and circumstances at a competitive market rate. Help with your search on that score is ever available here at Cover4LetProperty, of course.
Letting agents and property management
Carefully do your sums on the fees charged by letting agents and property management companies. True, they will take a percentage of your rent, but they may have access to lower-cost services for things such as cleaning and maintenance than you do.
So, shop around for the most reliable and professional lettings agent who is well-placed to advise on achievable rent levels for your particular type of property in your area – it is in their interest, too, to maximise your rental income and keep voids to the minimum.
You may cut the costs of letting agent fees entirely, of course, if you are prepared to put in the hard work of selecting, reference-checking, drawing up and signing the tenancy agreements.
For more on this subject, browse our detailed Guide to choosing a letting agent.
Managing other overhead expenses
There is a host of areas where you might make ongoing savings on your overhead expenses:
- regularly review your utility service providers. The tariffs for things such as gas, electricity and telecommunications are, unfortunately, occasionally chaotic. Even so, they are changing frequently, and you may find that there are now much more cost-effective options out there in these areas than the last time you looked;
- you have certain legal responsibilities for ensuring the safety of your tenants with respect to the gas and electrical supplies and appliances in any let property – and that means having them inspected regularly;
- by combining both gas and electrical safety inspections at the same time, with just one visit by a suitably-qualified team, you may minimise disruption for yourself and your tenants – and save money into the bargain.
- check your bank account or accounts. Although competition between banks is perhaps not as fierce as it once was for your business, even so, there may be significant differences between them in terms of rates and facilities offered etc. Remember that it’s also worth looking at any bank charges you are paying and see how they would compare against another banking services provider;
- indeed, if you haven’t already done so, switch from cheques and cash-based rent dealings with your tenants to e-banking type transactions. Using cheques involves paperwork, the possibility of a cheque being lost before it reaches your bank, delays in clearance and of course, the occasional bounced payment. Cash is certainly risky in terms of loss, theft, discrepancies, and disputes. The majority of tenants today should have bank accounts and it will be typically lower cost and more efficient for you to ask them to pay the rent through that method;
- look for trade discount opportunities in DIY outlets for decorating products and so on. At one time reserved strictly for the building trade, these are now sometimes more liberally interpreted as applying to anyone purchasing significant volumes regularly. If you have several properties and are regularly improving, maintaining, and decorating them, you may be eligible for some discounts of this type and it might save you some significant cash;
- keep your décor neutral – people have widely varying tastes when it comes to décor and it may be better for this to be bland and inoffensive rather than a statement about how many primary colours you can have in the one room. If your tenants want to brighten things up a bit, they can do this with their own possessions and their own taste (and own money). More important for letting success is to ensure that your property is clean, freshly decorated and well maintained;
- buy second hand rather than new furniture. It’s a myth that new flat-pack items are always cheaper than quality furniture. Second-hand quality furniture if often available at a pittance from auctions and it might last a lot longer than the modern flat-pack equivalent;
- although times are tight in terms of grants from national and local government, nevertheless, there might remain a few options available in areas such as energy-saving and refurbishments. Do some research and make some enquiries – it costs nothing and may save you considerable sums of money;
- make sure you know about all of the tax allowances you may claim to help reduce your tax liability. These could include your costs for letting agents and the like and for purchasing replacement furnishing for your letting property. The HRMC website is a useful source of information on this.
Saving money on your buy to let investment
Some landlords believe that a successful letting business is largely about getting the highest possible rates for a property.
However, it can equally be as much about controlling costs – and that’s why some of the above steps might prove to be important. Saving money on the essential expenses you need to make in your buy to let business may take careful forethought and planning but is likely to go a long way in helping you turn a profit. Fortunately, there are a number of ways in which you may achieve those savings.