Six tips to increase rental profits
Changes to mortgage tax relief could affect landlords’ ability to turn a rental profit. Landlords who pay a higher tax rate can currently claim 40% of their mortgage interest back (45% for incomes over £150,000), but by 2020 this will be reduced to a flat rate of 20%. It’s now more important than ever to know how to increase your margins.
That’s why online estate agent easyProperty has put together these six tips, to help keep your rental profitable.
1. Reduce admin costs to increase rental income
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2. Avoid an empty property
An empty rental costs money. Find good tenants and aim for long-term lets to keep void periods down. If it’s a short let, reduce turnaround time by getting ready to remarket your rental as quickly as possible.
3. Inspect the property now and then
It’s a good idea to inspect your property during a tenancy. Checking its condition lets you spot any damages early, so you can make repairs before they become a major problem. You’ll keep more of your rental income this way. Since the mortgage tax relief changes will make it harder to turn a profit, it’s important to reduce any costs caused by damage.
Most tenants look after properties, but sometimes accidents happen. For this reason, it’s vital to have an inventory check in and check out. This makes sure everything is accounted for, and lets you recover funds from the deposit for any damage.
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Have a professional, APIP-certified inventory clerk inspect your rental, and get an independent report detailing the outcome.
4. Review your rent
You can review your rent by booking a valuation with a letting agent. Also, check Rightmove and Zoopla to see how much similar properties in the area let for. This allows you to set a competitive price.
Charging too much rent — or too little — can be a problem. Potential tenants pass by properties that are too expensive, but if you undercharge you miss out on a fair rental income. Once the contract’s signed, it’s hard to increase rent. It’s best to have a rent review clause in your agreement, which lets you increase rent in line with inflation once a year. There’s been a lot of speculation that changes in mortgage tax relief will see landlords increasing rent. Before you do, it’s best to weigh up the odds. If raising the rent means your well-behaved tenants move out, will the extra rent offset against potential void periods?
For example, a £100 per month increase will fetch an extra £1,200 each year. But if you end up with a month’s void period, how long will it take to recuperate the loss? And that’s without the costs involved in reletting the property.
5. Organise taxes
Landlords can reduce the amount of tax paid on rental income by claiming allowable expenses. But it’s vital that you keep all your paperwork (including receipts) to justify your claim.
The type of let affects how much you can claim. With mortgage tax relief being reduced, it’s best to check Government websites to make sure you get back all you can. Or read our guide — ‘What expenses can you claim on buy-to-let property?’ — to find out more.
6. Keep up to date
Letting legals change often. It’s vital you keep up to date to let your property legally and stay protected. A fine for lack of compliance can hinder your chances of beating the mortgage tax relief changes.
Regularly checking Government websites means you’ll know about any changes you need to implement. Landlord mailing lists and blogs — like easyProperty’s — also keep you informed of any new legal regulations.
There you have it: six tips to help you beat the mortgage tax relief changes. Rent smart, and you’ll easily recover any loss made due to changes in mortgage tax relief. What’s not to like about that?