As more and more landlords are faced with the prospect of rising interest rates and cuts on tax relief, property investors are looking for more innovative ways to increase their rental cash flow. We have compiled a list of some creative and some more obvious suggestions to help landlords increase the return on their investments and avoid having to sell your property quickly due to void periods.
- Increase the Rent
This seems an obvious one but it is amazing how common it is for tenants to pay the same rent for years. Some landlords seem to be afraid of raising the rent for fear of the tenant leaving. However, as long as you are increasing the rent in line with the local rental market you should limit the possibility of creating any problems. An annual rental increase of around 2.5-5% is not unreasonable, particularly if you are willing to give something to the tenant in return, such as allowing them to sign a 12 month tenancy. This provides them with the assurance that although you are increasing the rent, they have the security of knowing that the property will not be sold.
- Reduce or Eliminate Your Mortgage Debt
It is common for investors to grow their property portfolio by purchasing properties on interest only buy-to-let mortgages. This keeps the monthly payments low. However most investors reach a point where they are unable to purchase more properties on finance. In order to increase rental cash flow, aim to try and have at least one of your properties, perhaps one that is consistently a good performer on a repayment mortgage. Take advantage of periods when your property or portfolio is tenanted and make regular overpayments to reduce your mortgage. Where possible, aim to try and pay off at least one of the mortgages of your property portfolio. This will massively increase the cash flow for that property, it may help your borrowing situation and it will also provide a healthy cash return if you sell it in future. You could even re-finance in future if required.
- Furnish the Property
By letting a property as furnished you can ask for a higher market rent. You can furnish an entire property relatively inexpensively, only take care that the products you are providing meet the minimum fire and safety standards and are of decent quality to avoid needing to pay to replace them too often. For those landlords concerned with damages, make sure that an extremely comprehensive inventory is taken before and after each tenancy and provide photographic evidence of every listed item. It is not unreasonable to ask for a slightly higher deposit for a furnished property from a tenant as well which will further protect you should the tenant damage or remove any items from the property.
- Reduce Other Expenses
This is another slightly obvious one but a good idea nonetheless. Look at the mortgage products and insurance premiums for your properties and see if switching to a different rate or provider can save you money. If you do not already have all your properties with the same insurance company, consider switching to one provider. Often you will be given discounts on your premiums by choosing to have all your properties with one company. However, don’t be afraid to compare prices, just like car insurance certain providers will charge more than others for certain property types and locations so shop around. This will take some time but the money you could save in the long run will help increase your cash flow so it is well worth the effort. If you are considering adding or purchasing your first buy-to-let property it may be worth avoiding purchasing leasehold properties, particularly apartments. The ground rent and service charges for these properties can be substantial and these charges remain the responsibility of the landlord, even when the property is let. Even those that have reasonable rates at the beginning when you are considering purchasing will be subject to increases by the management companies. Any increased the management company make will be mandatory so outside of your control. If you are considering purchasing a leasehold property consider carefully the return that these properties offer and what affect future increases in the management charges could have on your cash flow.
- Allow Pets
This is a huge one. We know that many landlords are averse to allowing tenants to have pets in their properties due to the damage they can sometimes cause. However, more than 50% of us have pets. That is a large percentage of your customer base that you are losing just by refusing to allow pets. If the majority of landlords in an area are all refusing to allow pets, by marketing your property as pets considered you will be opening the property up to a much wider audience. This should result in an increase in the number of enquiries and should limit the void periods between tenancies, increasing your return. You can also negotiate with the tenants. Caged animals tend to cause very little damage to properties so do not cause much cause for concern. It is mainly cats and dogs that landlords are concerned with as they can scratch, chew and cause odours. If your tenant has a cat or dog, you may be able to negotiate with the tenant. You could agree more frequent visits to the property to make sure that it is being maintained, you may be able to agree a slightly higher rent and you could request that the tenant pays an additional pet deposit, in excess of the usual required deposit. This would go towards any damages that the pet might cause. Since pet owners rental choices are so very limited it is surprising what they will agree to if it means that they can take their pets with them.
Obviously we all need to make judgements on what actions will produce the desired results but if you can consider implementing any of the above suggestions than you should be able to increase the cash flow of your rental properties while still protecting your properties.