Buy-to-let properties have long been a popular choice for investors. The physical element of an actual house or flat gives them something tangible as opposed to many other investment types like stocks and bonds. But while they might feel like a safer bet, nothing is guaranteed in the investment world. Maximising returns is just as important as any other investment. Here, we’ve put together some potential ways you may be able to maximise returns on your buy-to-let property, including how tools like property ROI calculator, can help.
Comparing property types: HMOs vs. single let vs. holiday let vs MUFB
When you’re ready to test the buy-to-let markets, one of the first decisions you’ll face is the type of property to invest in. Traditional single properties, houses in multiple occupation (HMOs), holiday lets and multi-unit blocks (where you own every apartment in one building) are all buy-to-let mortgage options.
Ultimately, it comes down to your budget and appetite for risk. All property types have their unique pros and cons, whether it’s higher rental yields in HMO that comes with increased management. Or less hassle in a traditional single-let property but potentially lower returns.
Whichever property type you choose, you’ll need to factor in all the pros and cons as well other fundamental aspects, like location, transport and demand. In the UK, average rent is £1,229 per month.
Location, location, location: identifying potential areas
Location is right at the top of the list when it comes to maximising your buy-to-let property. It not only determines the amount of rental income you can command but also influences the property’s capital growth potential (how much the home increases in value over a given period).
Up-and-coming areas, or those currently under the focus of regeneration, can offer significant upside potential. Investors that identify a neighbourhood with potential often look out for signs of development, like new infrastructure projects, growing employment opportunities or improving local amenities. These factors tend to attract renters and can positively impact property values over time.
It’s also worth using a rental yield calculator to get a better understanding of what rent you might achieve in an area. Bear in mind, calculators provide an estimated figure and shouldn’t be taken as an absolute or definitive value.
Tenants hold the key for long and short-term returns
Of course, an area has a lot to say in the type of tenants you may be able to attract. Everyone is different, and there’s no set rule, but in general, cities tend to attract single professionals while areas in the suburban or rural locations are more popular with families. For instance, you’re probably more likely to attract a single professional tenant with a one-bedroom apartment in the city than you are to a small house in the countryside.
Having a steady stream of rental income is the lifeblood of any buy-to-let investment, and attracting and retaining reliable tenants is a key part of this. That’s why you’ll need to think about how to competitively price your property, while also ensuring it’s in a good state of repair. Once renters move in, you should be responsive to their requests – this can go a long way in reducing void periods and securing a steady, regular rental income.
Rental income
See how much you could earn from renting out the property you are considering to buy
Efficient property management
Self-management vs. hiring professionals
Managing a rental property efficiently is another aspect that can affect your returns. Self-managing a buy-to-let can potentially save you the cost of hiring a property management company, but it also requires time and effort.
This is where being responsive becomes so important: if you’re the tenant’s primary point of call, you’ll need to provide an excellent service, and replying quickly to repair and maintenance requests is part and parcel of being a landlord. Good relationships often lead to happier tenants, which will likely increase the likelihood of them staying longer.
There is always the opportunity to place the day-to-day running of the property in someone else’s hand. Professional property managers can take care of everything from renewing tenancy agreements to handling maintenance issues, albeit for a fee. On the plus side, you can claim back any property management and letting agent fees against your tax.
Tax considerations in buy-to-let investments
As a buy-to-let investor, you’ll need to consider tax implications. Rental income is subject to income tax just like any form of employment. Plus, should you decide to sell your property further down the line and make a profit, there’s every chance you will need to pay capital gains tax (CGT). All of this can impact your returns.
Some investors opt to invest through a limited company, which can offer tax benefits if you’re a higher-rate tax payer. But going down this route also comes with its own set of complexities. As tax laws can change, it’s advisable to seek professional tax advice tailored to your circumstances when it comes to your tax responsibilities in relation to buy-to-let investing.
How to calculate property ROI
Annual ROI (Return on Investment): This is calculated by taking the annual profit from the property, dividing it by the total cash investment, and then multiplying by 100 to get a percentage.
Formula: (Annual Profit / Cash Investment) * 100
Annual Yield: This is calculated by taking the annual income from the property, dividing it by the asset value (or purchase price), and then multiplying by 100 to get a percentage.
Formula: (Annual Income / Asset Value) * 100
Cash Investment: This is typically the sum of all the cash you’ve invested into the property. This can include the down payment, closing costs, renovation costs, and any other upfront costs you’ve paid.
Annual Profit: This is calculated by taking the annual income from the property and subtracting the annual expenses.
Property ROI calculator
Formula: Annual Income – Annual Expenses
Monthly income | £1,800 |
Monthly expenditure | £850 |
Asset value | £650,000 |
Cash investment | £250,000 |
Investment summary
Annual ROI | 4.80% |
Annual yield | 3.42% |
Cash investment | £250,000 |
Annual profit | £12,000 |
Other ways to maximise returns on buy-to-let
Increasing rental income
Staying updated on market trends and adjusting rental rates accordingly is one way to boost rental income. Offering furnished properties could attract a wider tenant pool and justify higher rents. Also, subject to local rules, short-term rentals might be an option to tap into the holiday let or business traveller market, potentially providing an additional income stream. Keep in mind, each approach requires careful consideration to ensure it aligns with your investment goals and property management capacity.
Rental income
See how much you could earn from renting out the property you are considering to buy
Reducing expenses and maximising profits
As a landlord, you may look for options to save on expenses. This might include using an online letting agent as opposed to a more expensive high-street option or even marketing the property yourself. Again, taking a DIY approach to property management can also save in the long run. However, it’s worth weighting these options against hiring professionals. It may be the case that hiring a letting agent and property manager saves a significant amount of time and stress, especially if you have more than one buy-to-let property.
Renovations and upgrades
Strategically planning renovations, like kitchen or bathroom upgrades, can help increase a property’s value without breaking the bank. Keeping the exterior attractive, enhancing landscaping and ensuring your property is a positive standout in the neighbourhood are also beneficial. Aim to stay updated on current design trends, and tenant preferences also helps for making informed renovation decisions. Keeping something neutral is often the best way to go when trying to appeal to a broad range of renters.
Stay up to date with the latest trends
Keeping up with market trends and insights means you can stay on top of any news that may help maximise returns. Regularly tune into property news to monitor market trends, rental demand and economic indicators that could influence your investment. Networking with other buy-to-let investors through seminars, conferences and online groups can provide valuable insights. Additionally, utilising online resources like property investment forums, industry websites and research reports can help you gather market insights.
Final thoughts: to the max
Maximising returns on buy-to-let properties involves strategic decision-making. And while there’s no certainty in any investment, being thorough and researching every aspect of the market to make an informed decision play a major role in making the right choices. Do that, and you’ll give yourself the best chance of success.
Rental income
See how much you could earn from renting out the property you are considering to buy
