There are over 2.7 million landlords in the UK right now and almost 4.5 million private renters, but with mortgage rates rising quickly, and many tenants struggling to afford rent during the cost of living crisis, is it still profitable to be a landlord?
So is being a landlord worth it? Yes, in short, being a landlord is worth it. Although there are some drawbacks, like rising mortgage rates and time-consuming property management, you will also get the benefit of:
- A consistent monthly income
- Long-term financial security
- Appreciation of property value
- Tax deductions & benefits
Read on to find out how much a landlord makes in 2023, as well as the pros and cons that owning a rental property brings.
The Benefits Of Being a Landlord
Being a landlord is a great way to gain an extra source of income alongside a day job, but that isn’t the only benefit:
Probably the biggest benefit to becoming a landlord is the consistent income that you get each month. If you enlist the help of a property manager to handle the day-to-day admin and repairs, this income is entirely passive.
There is no ceiling to how much you can earn. Sure, one rental flat might help to top up your savings, but multiple flats and HMOs could equate to a generous full-time income. People always need somewhere to live. It is very unlikely that your investment property will remain vacant for more than a few months, so you can safely assume that rent will be paid consistently.
If you’d like to learn more about HMOs and why they are a great property type to invest in, read our recent blog:
Long-Term Financial Security
With extra income comes financial security, as long as you invest it carefully. Not only will your home appreciate in value over time, but you could use the extra monthly income to:
- Buy another investment property
- Cover your taxes, travel, and other expenses
- Top up your retirement fund
- Add to your savings
- Pay off previous debts and loans
- Treat yourself to something nice
If you have specific financial goals that you are currently working towards, why not get in touch with our property accountancy team? We can assess your current portfolio and help you plan a journey to success.
Appreciation of Property Value
Appreciation is how much the value of your property increases over time. Property is one of the only assets that have consistently performed, even during times of economic uncertainty. It is important to note that this is over the long term, so you have to give your property time to ride the ups and downs that are the property market.
When your rental property increases in value since your purchase, you could sell it to make a profit, or you could raise your rent prices per the property value increase.
You will have to pay tax on your rental income as a landlord, but it is important to note that you can gain tax relief from any expenses associated with your property. This includes:
- Mortgage interest
- Repairs & maintenance (such as replacing a boiler or carpet, for example)
- Decorating & gardening (including painting, furniture etc)
- Accountancy fees
- Professional services (like handymen, cleaners, and electricians)
- Depreciation from general wear and tear
Accountants with a property specialism can ensure that you aren’t paying more tax than you need to. At Valor Properties we have an in-house accountancy team that can help you manage your expenses and complete any legal forms at the end of each tax year. Visit our Accountants For Property Investors page to find out more.
The Drawbacks Of Being a Landlord
Being a landlord and property investor isn’t all sunshine and roses, and quite frankly – it isn’t for everyone. Below, we delve into the negatives of being a landlord and how you can protect yourselves from each:
Being a Landlord is Not a ‘Get Rich Quick’ Scheme
Contrary to popular belief, being a landlord doesn’t guarantee a return of thousands of pounds straight away. It takes time to find the right properties, build your portfolio, and create a consistent stream of cash into your pocket.
It is also important to note that your money is locked in when you invest in property. You can’t sell quickly to release your funds so you must plan to keep your investment for the long term.
Rising Mortgage Rates
Base interest rates rose from a staggeringly low 0.10% in March 20220 to a whopping 5% in June 2023. Following this, many banks have increased their mortgage rates, which has particularly affected buy-to-let investors. Average BTL mortgage rates have more than doubled since October 2021 according to ThisisMoney.
Higher mortgage rates will eat into your profits as a landlord, so you need to be choosy about how much of a loan you choose to take on.
If you are a cash buyer, you don’t need to worry about mortgage rates, particularly with falling house prices – in fact, right now would be a great time to invest and become a landlord!
If you have multiple investment properties, being a landlord could easily turn into a full-time job. You are responsible for the marketing of your property, finding tenants, creating agreements and contracts, all of the administration, as well as the general maintenance and repairs needed for your property.
If you don’t have the time to manage your properties day-to-day, or perhaps you simply don’t want to, you could enlist the help of a property management company like Valor. They’ll handle:
- Marketing your property
- Repairs & maintenance
- Tenancy agreements
- Tenant background checks
- Rent collection
- Legal health & safety compliance
- And much more!
Legal Issues & Responsibilities
Landlords are required to fulfil several legal requirements in order to keep themselves and their tenants safe. This covers a wide area including energy performance, right-to-rent checks, fire safety, and much more. Just some of the laws and legislations that you need to be familiar with include:
- Renters Reform Bill of 2022
- Housing Act of 2004
- Landlord and Tenant Act of 1985
- Minimum Energy Efficiency Standards (MEES) for England and Wales
Failure to meet the regulations set by the government could result in fines or imprisonment in the worst-case scenario. We’d recommend working with a property management company that will have the knowledge and practical experience to help you meet each of these requirements.
Being a Landlord in 2023
Times are tough for both private renters and landlords at the moment. Rising energy bills, and higher mortgage rates, coupled with fewer people able to afford large homes are making it tough for many landlords right now.
On the plus side, property prices are continuing to grow despite the uncertain financial climate, and with standard rental prices increasing, there are many opportunities arising for budding property investors.
If you are completely new to property investing, and you don’t know where to start, why not read our most recent blog: Property Investing For Beginners: Your Complete Guide
How Much Do Landlords Make?
According to the English Private Landlord Survey from The Ministry of Housing, Communities and Local Government (MHCLG), landlords in the UK make £15,000 per year on average before costs are deducted (i.e. in gross revenue). However, it is essential to note that this is just an average, and many dedicated property investors make much more – there isn’t a limit to how much you can earn.
Your earning potential depends on:
- How much money you already have saved to put into the property
- How much time you have to spend on maintenance, admin, and everything else associated with running a property
- How much risk you are willing to take on
- How much you will outsource, as this will eat into your profits
If you aren’t sure, take comfort in knowing that when you invest with Valor Properties, you’re guaranteed a 15% minimum ROI annually – a promise that you won’t find elsewhere!
Start Investing in Property With Valor Properties
Property investments offer a lucrative opportunity for many, whether you are an accidental landlord or a seasoned investor with an extensive portfolio, investing is a great way to make passive income.
We offer a complete turnkey solution, managing everything from property sourcing, to refurbishment, advertising, tenants, maintenance, accounting, and much more – ensuring a great investment on your ROI without the need for lots of time investment.
Book a free, no-obligation consultation with one of our property investment strategists, who’ll get your investment journey started on the right foot.