A buy to let (BTL) business is exactly the same as any other business in one very important respect - the better you maximise your profits, the healthier and more successful the business is likely to be.
For the landlord, therefore, this is likely to be a simple equation of maximising your rental income and minimising the on-going costs of running your business. It may be helpful to look at each side of this equation:
Maximising rental income
- in order to maximise the income you receive from your tenants it is important to know what they want - in other words, effective market research is likely to reveal the potential for attracting and retaining tenants, together with the prevailing market rent in your area;
- clearly, rental income is only on stream when you have tenants in place - the shorter the turnaround time between former tenants leaving and new ones taking up residence, the more likely you are to maintain a constant income stream;
- some vacancies may be inevitable, however, if the building becomes uninhabitable following a major accident such as a fire or flood - if you have taken the sensible precaution of arranging landlord insurance, you may find that this pays some compensation for lost rental income caused by an insured event (at UKinsuranceNET we are happy to advise on this element of cover);
- at UKinsuranceNET we are also able to advise you about the unoccupied property insurance you are likely to need if your let property is left vacant for any period of 30-45 consecutive days or more - not so much a question of maximising your income, rather protecting yourself against a potentially considerable loss;
- it may prove to little avail if you are successfully maximising your rental income only to see a significant proportion of it being paid to a letting agent;
- the website This is Money , offers a number of tips on how you might avoid many of these costs by taking on the role yourself;
- a further guide on cost savings is offered by the Telegraph newspaper in respect of your tax liabilities as a landlord;
- although your capital payments are not tax-deductible, many running expenses, including the interest you may be paying on any mortgage, typically are;
- the fees and costs associated with setting up your mortgage or other lending are also tax-deductible;
- in those cases where you have assumed responsibility for paying items usually taken on by your tenants - such as utilities or council tax, for instance - you may also be able to claim these against the tax you pay;
- the service charges and any ground maintenance payable where the let property is in a block of flats are also deductible;
- indeed, your costs in maintaining the property in a good state of repair may also be claimed against tax - although this allowance is strictly for maintenance and does not extend to the cost of renovations, refurbishment or extensions;
- an allowance is also made by HM Customs & Revenue for the wear and tear of any of your furniture used by your tenants - at the time of writing, this allowance is equivalent to 10% of the rent you charge; and
- when choosing your landlord insurance, you might also want to bear in mind that you may claim the cost of the premiums against your income tax.
Keeping ahead in your buy to let business, therefore, is not simply a question of maximising your rental income, but also one of minimising your on-going costs - many of which are tax-deductible.