While January is a great time to be making financial resolutions, with many over-spending at Christmas, it’s sometimes best to concentrate on making the most of what you already have.
For 2.5m people owning £1.4 trillion of buy-to-let, investment property is the best place to start. It comprises an enormous part of personal wealth, it requires time commitments that are akin to a part-time job, and the outlook for individual landlords is increasingly uncertain.
With that in mind, we’ve put together five tips for landlords to consider as they think about how to optimise their buy-to-let holdings in 2019.
1. Manage your mortgage
Mortgage payments may represent a significant part of your costs, and this will increase in a rising interest rate environment.
But there are great deals in the market, including fixed-rate options. Alongside traditional brokers, tech-powered online mortgage offerings like Trussle and Habito are able to help you sort through the huge range of deals on offer.
2. Review your managers
Many landlords make do with “rack rates” from high street agents for the management of their properties.
While you may have got the best offer when you bought the property, it is worth reviewing contracts periodically, with regard to both costs and service. If you have multiple properties, you should be able to secure significant discounts.
Also consider whether they are providing you and your tenants with a good service. Unhappy tenants mean voids, and voids significantly reduce returns, particularly if your properties are mortgaged.
3. Look at your profit and loss.
Do you really know how much you are earning, after mortgage costs, wear and tear, property management, and voids?
Most landlords focus on the rents they receive, not the bottom line. The answer might surprise you – 61 per cent admit that they underestimated costs last year.
4. Beware tax changes.
Once you’ve got to a clear-eyed view of the economics of your properties, you have to consider your personal tax situation. For example, mortgage relief is being phased out, and there have been changes to “wear and tear” allowances that may erode returns.
Some portfolio landlords are using limited companies to optimise their tax position, but this will only make sense for larger portfolios, given the overheads involved.
You need to consider if it justifies the amount of time (and risk) involved with running your portfolio.
5. Plan your strategy.
Property is a long-term asset class, and involves considerable costs, effort, and time, so you should be deliberate with regard to the future.
It might be prudent to reallocate your property exposure to different regions of the country (areas like Manchester and Birmingham have delivered strong returns on price and rental income). It may be that you want to gradually decrease your allocation to property compared to other asset classes.
You’ll also want to take a long-term view of your tax position, potentially with advice. With many young people struggling to get on the property ladder, advice can be particularly important when thinking about how to allocate investments between generations.
Whatever you decide, you need to be paying attention. The government and the market are making it increasingly hard to be an “armchair” landlord.
Without due consideration, you could be sleepwalking into investments that cost you money as well as time, while thoughtful landlords reap the benefits of their care and attention.