Every investment comes with a mixture of both short-term and ongoing costs, and property is no exception.
When it comes to renting out properties, it’s important to budget and plan ahead for both the expected and the unexpected.
Whether you’re a first-time landlord, or you’re planning on expanding your property portfolio, here’s how to budget accordingly.
Related: Hidden costs of being a landlord
Keep track of the mortgage
Mortgage repayments are one of the biggest expenses for most landlords, so it’s important to seek out the best possible deal.
Payments may be fixed for several years, which makes budgeting simpler, but if your mortgage is variable, you should find out how much any future interest rate hikes will cost you.
It’s also important to bear in mind that most buy-to-let mortgages are interest-only. This means you pay the interest each month, but not the capital amount. At the end of the mortgage term, you repay the original loan in full so it’s important that you have a separate pot to fund this.
Get free, no-obligation advice from a mortgage broker
Set a budget
You’ll need to establish a comprehensive budget before you can invest in a property, as this will be the foundation for all your decisions.
Start by outlining your income and expenses, considering mortgage payments, property maintenance, insurance, and potential void periods. A well-defined budget will give you the clarity you need for sustainable financial growth.
Related: Top tips to thrive as a first-time landlord
Factor in contingencies
The property market is dynamic, and unexpected challenges may arise. Building a financial buffer for unforeseen circumstances is a prudent move.
Whether it's unexpected maintenance issues or a temporary dip in property value, having contingency funds ensures you can weather storms without jeopardising your financial stability.
Leverage tax efficiency
Understanding the tax implications of property ownership is fundamental to maximising your returns. Stay abreast of the latest tax regulations and consider consulting a tax professional to optimise your tax strategy.
Explore allowable expenses, tax relief options, and other incentives that can contribute to your financial well-being.
Diversify your portfolio
While it's tempting to concentrate your investments in a specific location or property type, diversification is a great way to maximise your income.
A well-diversified property portfolio can provide stability and safeguard your investments during market fluctuations. Explore different property types, locations, and investment strategies to create a resilient portfolio.
Review and adjust regularly
Financial planning is an ongoing process, not a one-time task. Regularly review your budget, assess your financial goals, and make adjustments based on market trends and personal circumstances. Stay informed about changes in the property market, interest rates, and economic indicators to make informed decisions that align with your financial objectives.
Consider professional advice
Navigating the world of property investment can be overwhelming. Seeking professional advice from financial advisers and the property experts at Parkers can provide valuable insights and ensure you make informed decisions aligned with your financial goals.
Thinking of investing in a buy-to-let? Contact Parkers’ expert lettings team today
