It’s not been the best year for buy-to-let landlords, with tax increases and stamp duty hikes, along with increased regulation. It may not seem like a great investment and some landlords are selling up. However, demand for rental properties is growing faster than the supply of homes. So it’s still a worthwhile investment, if you know where to look. Researching the government’s English Housing Survey, along with other reports, suggests there are 4.5 million privately-rented homes in the UK. That represents one in five UK households. Estate agency, Knight Frank, predicts this will rise to 24% by 2021.
With demand already high and growing, there are ways that landlords can maximise profits. Landlords with larger portfolios with buy-to-let mortgages could look into setting themselves up as a company, Although they will pay corporation tax on their profits and capital gains tax if they sell, they could still save money. For instance, many companies are not taxed on the share of the appreciation which is due to inflation, which could save thousands. Obviously, you will need to ask your accountant or independent financial advisor whether this is the best option for you.
It is also worth looking at investing in high-yield areas. Many of these are in the north of England, where property prices are also much lower than the south-east or London. The best returns are in districts with good employment rates and transport links or in areas with a large student population. According to financial site, Totally Money, the top hotspots are in Liverpool, with the postcodes L7, L6 and L15, Plymouth postcode district PL4, Cleveland TD1 and Preston PR1. These all have yields of more than 10%. Places to avoid as they are offering yields of less than 2% are Bournemouth BH13 and 14, London N2, N6 and NW11, Birmingham B70 and B15, Slough SL1, Exeter EX8, and Bromley BR7.
If your property is suitable and is in an area where there is high demand from young renters or students, then you could consider turning it into a Home of Multiple Occupation. These deliver better monthly returns from a greater number of tenants than if rented as a single property. An HMO is one which is rented by at least three people who are not from the same household and who share facilities such as the bathroom or kitchen. Although there are strict licensing and safety regulations governing HMOs, this is often regarded as the most profitable buy-to-let investment.
It is also worth considering whether some properties are suitable for short-term lets. Letting out a property on Airbnb -or Airbnb style – for a few days now and then will mean an income will still be coming in when you are between tenants. The rent per day is higher than for longer-term lets but, obviously, there are increased costs with cleaning or providing fresh linen. There is generally a maximum limit – usually 90 days a year – that homes can be used for short-term letting before they need planning permission.