Is becoming a landlord still worth it?

Nikka Sulton

Is becoming a landlord still worth it?

Is becoming a landlord still worth it? Interested in investing in rental properties in 2023? To maximize your return on investment, consider locations with the highest rental yields. Rental yield, calculated as the annual rental income divided by the property’s value, is a key metric. Higher rental yield means better returns. In this blog, we’ll reveal the top UK rental yield hotspots for 2023 and offer tips for spotting great investment opportunities.

Is renting houses still a worthwhile investment?

Advantages of buy-to-let:

Rental income potential, though it varies by location (e.g., Liverpool, Glasgow, and Leicester offer yields as high as 8%).
Possibility of capital growth as property values increase.
Option to obtain insurance for rental income loss, damage, and legal costs.

Disadvantages of buy-to-let:

Higher tax liability compared to previous years, impacting profits.
Risk of no income if the property remains unoccupied without proper insurance.
Potential capital reduction if property prices decline, especially with interest-only mortgages.
Expenses to consider, including stamp duty, insurance, and maintenance costs.
Landlord responsibilities can be substantial and require careful consideration.
Some individuals use buy-to-let for retirement income, withdrawing substantial sums from their pension funds.

This assessment helps investors weigh the pros and cons of buy-to-let investments based on their specific goals and financial circumstances, accounting for tax changes and market conditions.

How do I get started with buy-to-let?

Becoming a landlord involves several practical steps, devoid of flowery language. Here’s a straightforward breakdown as of September 2023:

Step 1 – Financial Preparation:

Consult a financial adviser to determine your investment amount and expected returns.
Engage with a mortgage broker to secure a favorable deal or mortgage in principle for swift property offers.

Step 2 – Property Acquisition:

The process of finding and acquiring a rental property may vary in duration but should be allocated several months.

Step 3 – Insurance Coverage:

Alongside buildings insurance, consider safeguarding against unexpected expenses like tenant injuries, property damage, and rental income loss.

Step 4 – Tenant Selection:

Choose between using a letting agency or private tenant selection, depending on your preferred level of involvement.
Even when renting to acquaintances, ensure a legally binding tenancy contract is in place to avoid potential disputes.

Step 5 – Ongoing Management:

Continuously review your mortgage terms as they expire and perform necessary property maintenance.
Optimize your buy-to-let income for tax efficiency with the assistance of an accountant.

This guide outlines the practical steps involved in becoming a landlord, emphasizing the importance of financial preparation, insurance, tenant selection, ongoing management, and tax considerations.

Top 7 Areas With the Best Rental ROI in the UK

These areas are:

1. Yorkshire

Yorkshire boasts two districts in the top 10.
Average annual return: 9.9%.
Average property asking price: £280,000.

2. Cardiff

Cardiff has two districts in the top 25.
Average annual return: 8.6%.
Average property asking price: £173,000.

3. Southampton

Southampton reports an average annual ROI of 8.6%.
Average property asking price: £214,000.

4. Newcastle Upon Tyne

Newcastle features three postcode districts in the top 25.
Average annual return: 8.5%.
Average property asking price: £166,000.

5. Swansea

Swansea has two districts in the top 25.
Average annual ROI: 8.5%.
Average property asking price: £203,000.

6. Leeds

Leeds boasts two districts in the top 25.
Average annual return: 8.2%.
Average property asking price: £179,000.

7. Glasgow

Glasgow offers a decent annual return of 7.7%.
Lowest average property asking price among top performers: £115,000.
Glasgow has two districts in the top 25.

What about the Renters (Reform) Bill – is it bad news for landlords?

Renters Reform Bill Impact on Landlords:

The majority of landlords who already manage their properties professionally and care for their tenants well should not be significantly affected by the Renters Reform Bill, provided its contents don’t change significantly. Our landlord research indicates that 40% of landlords surveyed stated that the bill would not alter their property investment approach, while 33% said it would, with 27% still undecided.

Renters Reform Bill Highlights:

There will be a fee for signing up to the Ombudsman and the new portal, but the government assures it will be “proportionate and good value.”
The removal of Section 21 evictions is not expected to make a significant difference for most landlords. Section 8 grounds for eviction will remain an option.

Decision-Making Steps for Landlords:

If you’re uncertain about holding onto your rental property or selling it, consider these steps:

1. Check Your Cashflow: Examine your ongoing expenses and ensure your property or portfolio remains profitable.

2. Know Property’s Current Value: Assess recent capital growth, which may offset any loss in income or monthly profit. Get an accurate market valuation from your local branch.

3. Calculate Break-Even Point: Consider mortgage rates reaching 7-8% and evaluate if you’d still make an acceptable profit or could handle losses until rates fall.

4. Explore Refinancing: If your property’s value has risen significantly, refinancing at a lower loan-to-value ratio (LTV) may secure a better interest rate, potentially reducing mortgage costs.

5. Evaluate Investment Objectives: Ensure the property aligns with your investment goals. If it covers its own costs and meets your objectives, selling may not be necessary.

Local property market variations can be substantial, so consulting with local experts, like your branch’s team, is advisable to understand your immediate area’s dynamics and rental market prospects in the coming months.