According to lettings platform, Howsy, the introduction of Government legislation as well as other costs associated with investments has caused the profitability of the buy-to-let sector to be squeezed over the last few years.
It began by looking at the initial start-up costs paid out through stamp duty and agency fees to find a tenant – this amounted to a cost to the average landlord of £7,475.
It then took into account the average void period of 23.75 days, which equated to a loss of £535 a year.
On top of this mortgage interest resulted in the average landlord paying out £6,921 in a 12 month period.
If you also consider the costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 – landlords are already down by £11,147 per year.
Howsy added, in a worst-case scenario, there may be some UK landlords who may find themselves forced to stump up for additional unforeseen costs, such as the legal process to evict a tenant.
Incoming cash
Howsy said, based on an average annual rental income of £8,112 divided by the average buy-to-let property cost of £183,278, the average yield available was 4.4%, which is an annual sum of £8,119.
Added to this, over the last 10 years, the capital appreciation of bricks and mortar has increased by an average of 2.85% per year, which is £5,223. As such, buy-to-let landlords are gaining a return of £13,343 on their investment.
But, taking start up costs and unforeseen events out of the equation, once the average UK landlord has paid the ongoing costs associated with a buy-to-let property each year, they’re left with a profit of just £2,140, Howsy explained.
Advice to landlords
Calum Brannan, founder and CEO of Howsy, said investing in area with high yield was one way to boost profit, but he advised shopping around for mortgage rates and agents.
“Today, the sector is ripe with alternative platforms and so you don’t have to be at the mercy of the traditional letting agent and the high fees they charge,” he said.
“The new age of letting platform not only costs less where fees are concerned but many platforms, like Howsy, are now offering comprehensive packages designed with security and peace of mind as the motivation, not profit.
“These packages provide the traditional service aspects with the addition of guaranteed rent and also cover the cost of repairs and maintenance for one small monthly fee.
“All of this can contribute to lower void periods, no rental arrears and an all-round happier experience for tenant and landlord which can be as valuable as the additional income.”
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