Belvoir News Article
03 May 2011 - Profit in your pocket - Maximise your rental return, with these top tips
Maximising your annual rental return and achieving a good profit on your investment involves more than merely increasing the amount of rent you’re asking for with the hope that your tenant will agree to pay it.
Yes, rental properties are in high demand, but no, that doesn’t mean premium profits are guaranteed without planning ahead to make sure your investment property achieves its full potential...
The perfect property
Investing in the right property is the initial step in making a successful profit.
Research the local area to make sure that there is sufficient demand for the type of property you are looking to buy, plus make sure the purchase price allows for a good rental return and potential capital growth on resale.
Ask yourself the following questions:
• Is there a high demand for this type of rental property?
• Will the achievable rent cover the mortgage?
• Is the property likely to go up in value?
• Is there room for negotiation on the price?
In a market currently flooded with properties for sale and few buyers financially able to commit (plus many homeowners unable to move as they can’t sell their own properties), it is likely you will be in a strong position to negotiate.
Your local Belvoir office will be able to advise you on purchasing a buy-to-let property and this advice will be impartial and completely free.
Perception power
Making your asset more attractive to potential tenants by raising its perceived value can help add a premium to your monthly profit.
“Perceived value is an important concept for landlords to understand,” says Harpreet Garcha, proprietor of Belvoir Kettering. “It describes the amount that your tenants believe the property to be worth, as opposed to the amount that has actually been spent on it.
“You can increase the rent your property will fetch by taking steps to raise its perceived value. Making cosmetic changes and fitting new appliances are often cost effective ways of doing this.
“If you think of luxury properties, you think about lots of light and space. This is therefore what you want to achieve in your own rental. Freshen up paintwork with bright neutrals and choose blinds or curtains that will let in as much light as possible.
Light-coloured fittings also add to this effect. Going for this look is cheap to achieve and will be easy to maintain.
“Most tenants will expect to see a standard range of appliances in every property; a washing machine, fridge-freezer, oven and hobs are the minimum. Additional appliances can be used as selling points for the property. Very few budget or midrange offerings will include a dishwasher, for example. The increase in rent that this appliance will command is likely to be significantly larger than its cost over the course of a couple of years.
“Remember that you can also often write off the depreciation that these assets will suffer against tax – making them even cheaper over time.” And don’t forget to upgrade the bathroom too. Maximum impact can be made with very little initial outlay...
“The bathroom is a ‘deal breaker’ for many tenants,” says Harpreet. “While you are unlikely to be able to increase the size of your bathroom without undertaking major structural work, you can take some relatively cheap steps to improve its quality and its perceived value.
“The colour scheme is of paramount importance in a rental bathroom. Don’t be lured into bold design statements here; stick with functional white. Make sure there is enough storage space – and, above all, ensure that it is spotlessly clean for viewings. “If the bathroom is relatively old, think about ways that you can bring it up to date.
Fitting a new showerhead is often a good idea; this can often make the water flow much more powerfully at very little cost. Larger showerheads often look more impressive and luxurious so it may be worth investing in just one item like this. “Smaller things to take care of include making sure that the washers on all of the taps are properly fitted in order to prevent drips, that the waterproof sealant is new around the edges of the sink and bath or shower, and that the tiles are mould free.
Finally, think about any affordable extras that you might be able to include. A towel rack fitted over the radiator, for example, may seem like a tiny addition – but it will increase the property’s perceived value.”
Protect your profit
Getting the right tenant is essential. A troublesome tenant who doesn’t pay on time (or doesn’t pay at all!) or leaves your property in a bad condition is going to severely damage your profit margin.
In-depth credit checks and references are vital to finding that right person, so make sure you do your homework before you agree for a tenant to move in. If you use the services of a property management agent they will be able to do this for you.
“Ensure that credit checks and references are carried out either by an agent or a recognised company,” says Lee Shuell, proprietor of Belvoir Oldham. “And make sure that these are received back prior to the move in.
“Also make sure that an employment check is completed – some tenants may exaggerate their length of service, and whether a position is permanent or temporary.
Ask the agent to obtain copies of the last three monthly wage slips if possible too.”
Major Mahil, proprietor of Belvoir Birmingham Central, agrees and adds, “Research is key to getting the right tenant. We offer landlords peace of mind by checking the potential tenant is in full-time employment, over 18 and also earning 2.5 x the annual rent before they are considered for the property. We also carry out credit checks via Experian and a company called Credit Safe.”
And, don’t forget to invest in good specialist insurance in order to cover any accidental or malicious damage caused by your tenant during their occupation of your property too.
Picking your price
However much you boost your asset’s perceived value most properties have a ceiling price they can achieve – dependent upon their size and location – so it’s very important to pitch your monthly rental price just right. Overpriced properties often equal empty properties... and, of course, empty properties can quickly eat away at potential profit.
“In terms of the rental valuation this is a very important factor in owning a buy-to-let,” says Major Mahil. “If the rental valuation is too high it may leave the landlord with an empty property – and a void in the property for a long period of time could leave the landlord with financial problems.
“When we value properties our business model and structure is based on key research.
We assess tenant demand in that area, plus prepare a report of similar properties that have been let within the last 3-6 months (the report is produced from a number of property portals we use). We also take comparables of properties within a mile or so radius that are to let with a competitor too.”
“The final valuation can depend on the time of the year – in the summer there is an increase in demand for rental property so more rental can be achieved and obviously near to the winter landlord’s may need to consider a slight reduction due to this.”
Always be realistic about what your property can achieve and, if possible, get a professional valuation from a good property management agent, such as Belvoir, in order to help your property fulfil its maximum potential.
Maximising your profit – at-a-glance
• Increase the perceived value of the property to tenants
• Buy the property at a good price
• Get expert advice on what you can realistically charge
• Avoid periods of ‘void’
• Ensure your tenant’s reliability by doing credit checks prior to the tenancy
• Keep on top of small maintenance issues so they don’t become big ones
• Don’t price your property out of the market
• Get a specialist insurance to cover any damages caused
• Employ a property management agency to help you find the right tenant and market the property for you
Belvoir Lettings Camden 02071 997733
www.belvoirlettings.com/camden
camden@belvoirlettings.com
