While it is no secret that the Conservative’s landslide election victory represented positive news for many in the UK property market, the level of growth in this particular sector must be seen to be believed. This is especially true in the buy-to-let market, where British landlords recouped a staggering £112 billion from capital gains and rental income last year.
This is part of a global trend, as rental incomes continue to rise alongside purchase price points. As a growing number of aspiring buyers are forced out of the traditional property market, the demand for rental homes continues to rise and this enables landlords to place a price premium on their assets. With a large supply of homes also available on the market, this creates a unique opportunity for buy-to-let landlords to cash in while the going is good. The growth in this market is likely to entice wealthy investors, although novices will need to think practically if they are to operate as compliant and profitable landlords. With this in mind, here are three steps that all aspiring landlords must take if they are to be successful:
1. Set Viable Metrics when Choosing a Location for Investment
It is interesting how we develop false perceptions of geographical regions around the world. While the Italian province of Venice in Italy is renowned as being home to the largest collection of waterways in Europe, for example, the UK city of Birmingham actually has more than 35 miles of water and the highest volume of canals. Such misconceptions offer an insight into how challenging it can be to select a viable location for investing in buy-to-let homes, and it is crucial that you establish relevant metrics as an investor.
The first of these should be your proposed rental yield, which is calculated on an annual basis by measuring an average house price against its yearly rental cost. This delivers an estimated yield, and this will reveal how much profit you can expect to make from your investment every single year. A recent report in the Telegraph suggested that Manchester, Kingston upon Hull and Blackpool offer the most value to private landlords in the UK, as each delivered an approximate rental yield above 7.35% during 2014.
In addition to this, you should also conduct research into any property developments that are likely to commence in specific areas over the coming years. This will give you an indication as to the long-term profitability of specific areas and their potential for future growth.
2. Protect your Investment with Insurance Coverage
Once you have identified and secured a viable property, the next step is to safeguard this and the money that has been invested into its procurement. While this may require significant investment, it can derive long-term profitability and reduce the potential maintenance costs in the future. The best way to protect your buy-to-let property is with relevant insurance coverage, which protects the building’s structure, its selected contents and lost revenue.
Ideally, you will find an insurance provider that can deliver comprehensive and multi-faceted coverage under the guise of a single policy. While most standard policies offer buildings and contents insurance alongside liability coverage, they will only cover lost rental revenue in instances where a property has been damaged by a fire or criminal damage. There are a select few that offer ‘rent guarantee protection’, which protects private landlords against tenants who are in arrears or deliberate defaulters.
HomeLet is one of the most prominent providers of this type of insurance, so this company provides the ideal starting point for landlords who are looking to safeguard their investment in an effective and affordable manner.
3. Understand your Requirements as a Private Landlord
In the quest to make money and drive profitability as a buy-to-let investor, it is easy to lose sight of the responsibilities shouldered by landlords. The most important of these is the need to safeguard your tenants’ safety, initially by ensuring that your property meets all current gas, electrical and fire safety regulations. This resource can help you to understand these individual requirements, while also providing practical assistance that can enable you to achieve compliance.
Aside from these fundamental requirements, there two additional compliance issues that landlords must remain aware of. Energy performance is the first of these, as it is now a legal requirement for landlords to provide tenants with an EPC (Energy Performance Certificate). This measures the efficiency of the property against several important consumption metrics, and landlords who fail to provide tenants with an up-to-date EPC certificate face a fine of up to £5000.
On a final note, it is crucial that all landlords manage their tenant’s deposits in a compliant manner. More specifically, you must register the full value of the deposit with one of three government authorised Tenancy Deposit Schemes within 30 days of receipt, while also pledging to return this according to the specified terms and conditions as and when required. Disputes must be recorded and adjudicated independently, and landlords who ignore this requirement will ultimately be fined.
By following these steps, you can achieve financial success as a private landlord while also remaining compliant with UK law. If you have any additional advice for our aspiring private landlords, please feel free to share this with us in the comments below.