3 WAYS TO MASSIVELY BOOST YOUR BUY TO LET INCOME

Buy to let done the traditional way can be a great investment with strong yields - but there are an increasing number of clients using innovative ways to massively increase their income.

In this article I look at how some clients are squeezing sometimes double the income, or more from their buy to let investments.

THE TRADITIONAL WAY

First lets look at how the vast majority of property investors operate. They buy a property, usually using a buy to let mortgage, let it out and that is basically that. They charge the market rent - pay their interest only mortgage and make a very healthy profit in most cases.

Of course what makes property great is not only the fact that you get a monthly income - you also get the capital growth in the asset. Below you will see a typical scenario for a buy to let purchase.

So here is a pretty standard example with a 25% deposit and a 75% buy to let mortgage. As you can see the client gets a pre tax profit of ￡470 per month. When you think about it there are not many investments where you could put in ￡47,000 and get a return of 1% per month! PLUS any capital growth on the property as well.

So how can you drastically increase your income from effectively the same asset?

METHOD ONE - LETTING TO SOCIAL HOUSING PROVIDERS

This is where instead of letting to, for example, a family - you turn your property over to a 'social housing provider'. These are typically providers that have contracts to house asylum seekers, transitioning ex prisoners, vulnerable people and so on.

Usually you sign into a multi year contract where the property is guaranteed to be returned to you in the same condition, and your rent is also guaranteed whether the property is fully used or not.

The real nugget here is that you would get a much higher rent than you would letting to the open market. You would usually get a 'per room' rate which is significantly above market rate. The example below illustrates a typical example....

A couple of points to note! First because of the tenancy type you will be restricted in which lenders will accept it. Therefore rates are a bit higher than the norm. You also have to get comfortable with the fact that the property will be used by clients you would not usually accept!

But look at the returns - they have doubled!

METHOD TWO - SERVICED ACCOMODATION

This is basically a methodology that has grown out of the boom in Air BnB. There has been a huge increase in clients buying property, usually in larger Town and City locations, and offering room rentals per night on a 'serviced accommodation' basis. Things such as linen are included along with basic amenities.

The plus side is that you can get incredible returns if occupancy is high as the per night rates will be much higher than a standard or even social housing rental. The risk is that occupancy is not guaranteed...however with per night rates you do not need the occupancy rates to be particularly high to generate a good return.

This is a much more hands on kind of letting. Cleaning after each use, provision of linen and basic amenities and of course paying all of the bills such as electric and water all need to be taken care of.

Returns can be stratospheric...or for example during the Covid Pandemic non existent so its a riskier strategy. Again financing is more difficult and expensive than it is on a standard let - for obvious reasons!

METHOD THREE - THE HMO

HMO stands for House of Multiple Occupancy and it is another type of letting that has boomed over the last 10 to 15 years. Back in time it was normal for many different tenants to occupy 'rooms' in houses. These declined in popularity as council housing and home ownership became more easily accessible after the second world war.

In recent times with enormous pressure on housing and also increasing mobility of workers the HMO has seen its popularity rise again.

These days HMO's have to be licensed, follow strict guidelines and are in general much better places to live than they ever used to be. The principle remains the same - with letting of individual rooms with some shared facilities such as communal rooms and kitchens.

Again this is a more hands on type of letting than a standard let BUT does come with potentially much higher returns!

The commonality with the previous two methods is using each room almost as a rental asset in its own right to generate returns. As you can see the returns can be fantastic and well worth the effort for those inclined to take the HMO route.

With HMO's financing is actually pretty straightforward and there are a large selection of both lenders and products to choose from at competitive rates.

SUMMARISING

Of course I have only touched very lightly on each of the three methods and there is much more to each than I can explain in a quick snapshot like this.

If you are interested in finding out more about how you can get involved in these types of investments and in particular how you finance them please feel free to get in touch!

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Call on 07740 284270 or email me at [email protected]