Investing in buy-to-let property is an excellent way to generate long-term returns. However, this type of investment also presents an opportunity for people looking to supplement their income now and boost their 'pension pot’ for the future.
If you want to maximise the income you’re able to generate from your buy-to-let property portfolio, then it’s important you understand the figures involved, have a robust plan and long-term strategy.
Our recent research report showed a striking and worrying lack of planning and financial understanding among buy-to-let investors. So, we’ve put together some quick tips for putting the right plan together.
Knowing what sort of property to buy, where to buy it and how much income will be generated will help you estimate your long-term return on investment and annual profit more accurately.
A good plan should consist of much more than many buy-to-let investors consider at present, including:
- Setting financial goals - Determining what you hope to gain from your buy-to-let portfolio. This could be capital growth, long-term income to supplement your retirement income or to provide a substitute income now.
- What property to buy and where – You should think about what kind of tenants you want, and whether the property type and location will suit the target market.
- How many properties will make up the portfolio? – How this will be achieved must be considered. For example, can you leverage any existing equity in your property through the use of mortgage funding?
- Voids and bad debt – There will usually be periods when the property is empty and not generating any rental income. These are is known as void periods and the National Landlords Association (NLA) recommends that all buy-to-let investors budget for at least two months a year when the property is empty – or when tenants fail to pay their rent. Most buy-to-let investors don’t factor this into their plans at all.
- Refurbishment and maintenance costs – These are inevitable if a property is to be attractive to potential tenants.
- Lettings management of the portfolio – You must decide whether you have the time and inclination to manage your portfolio or if you have the need and funds to pay a letting agent. The latter will of course impact your returns.
- Financial measurements and evaluation – Regular assessment of income and costs will enable you to calculate your return on investment and gross annual profit. It will also show how fluctuations in rent charged, fees payable and mortgage interest rates can affect these figures and whether any changes need to be made to your plan.
Advice on standard buy-to-let investment is limited, but probably best achieved through reading books on property investment and undertaking extensive property research.
However, if you want to maximise your income and capital growth from property with minimum risk, then Platinum Property Partners will be able to help you. Contact us for more information.
