June 5

A third of buy-to-let landlords will do this in 2017 – should you?

How you can cut costs to increase profits

When your buy-to-let portfolio is faced with higher taxes, there are a limited number of options available to maintain or grow profits. One in five landlords is set to raise rents. However, some landlords may find it very difficult, or even impossible to do so. More than a third of landlords plan to cut costs.
Should you try to cut your costs? How could you do this?
In this article, we discuss how to cut costs to maximise your buy-to-let portfolio profits.

How much do landlords spend on operating their buy-to-let portfolios?

According to research by Kent Reliance, landlords contribute a whopping £15.9 billion to the economy. It is before financing costs. Landlords supply work to tradesmen, builders and cleaners. They spend almost £1 billion on insurance and another £900 million on utilities. 57% of landlords employ letting agents or investment property managers and spend £4.7 billion doing so.
If you add in mortgage costs, which amount to more than £10 billion, landlords’ costs across the UK total more than £25 billion.
The average spends on a buy-to-let property is £3,632 per year (before tax and mortgage interest).

How do you split your operational spending?

So, how are you likely to spend that £3,632 on each property? According to the averages worked out by Kent Reliance, the highest costs paid by the average landlord are:

  • £1,025 on maintenance and repairs
  • £870 on letting agent fees
  • £374 on ground rent and service charges
  • £181 on landlord insurance
  • £121 on solicitors and accountants

Void periods cost another £652 per year.

What costs could you cut?

There are several ways in which you can reduce your costs, and you should consider all of the following:

Review your investment property management fees

Examine how much you are paying your current investment property manager. If it’s 15% to 20% of your gross rental, then you may need to look elsewhere. However, don’t forget to weigh up cost against benefits. Ask yourself what you receive for your money. Does your current property manager live up to your expectations?
If you are thinking about changing investment property managers, also consider their contacts with local tradespeople, and the number and quality of tenants they have on their books.
If you decide to cut out the property management cost completely by becoming a DIY landlord, how will that affect you? You could find your costs rise instead of fall. Ask yourself:

A rogue tenant could cost you a fortune. Extended void periods could destroy any savings you make by dumping your investment property manager.
Given the benefits of using an investment property manager, it’s not surprising that few landlords currently using a property manager are considering going DIY. Only one in ten landlords have identified property management fees as an area for cost cutting. Those landlords who are paying property management fees at the high end of the range expected to cut their fees by 28%.

Maintenance and repair fees

Almost one in five landlords will be targeting maintenance and repairs to cut costs. To do this, you should:

  • Make sure your tenant is properly vetted, including background checks with former landlords
  • Make sure all appliances are under warranty or repair insurance
  • Always have maintenance carried out by professionals – if you attempt to make a repair yourself and it goes wrong, you could find the repair bill goes through the roof
  • Make certain that you benefit from the best tradespeople at the best price
  • Conduct regular property inspections, and undertake any maintenance work needed immediately

Those landlords considering action to reduce maintenance costs expect to cut their bills by as much as 21%.

Review your mortgage

Mortgage interest rates are at all-time lows, even though it is more difficult to obtain a buy-to-let mortgage today. One in ten property investors has identified their mortgage as a safe bet to reduce their ongoing costs.
Take advantage of the benefits of using a buy-to-let mortgage broker, and discover whether you could cut your mortgage interest costs. Those landlords considering this course of action expect to reduce their mortgage payments by around 15%.
The average outstanding buy-to-let mortgage balance is £119,000. A 1% reduction in the mortgage interest rate paid on this would save £1,190 per year.

Review your landlord insurance

The average landlord insurance premium paid is only £181. If you have an expensive policy, costing £250 or more, it will be worth reviewing for cost and benefit. Could you get the same cover for less? Probably.

Review all your costs every year

The changes to UK property taxes charged to property investors have concentrated the attention of many landlords on costs. The need to review your rent and costs has never been more urgent. Then you should review every year, as you should review the rent you charge, too.
Contact Ezytrac today on  +44  1522  503  717  and we’ll discuss the strategies being used by landlords like you to reduce costs and maximise rental income profits.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA



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