London’s landlords are facing significant challenges to maintain their net income, as both regulation and market volatility increase. Home Made's data from over 2,000 landlords’ survey reveals that 1 in 3 landlords could increase their net income by up to 40%. You can read below how to change this based on my personal experience working with thousands of landlords in recent years.
1. All rental expenses are tax deductible
Our data indicates that 42% of landlords do not deduct the full allowable rental expenses off their rental income, with 27% of landlords not deducting any expenses, thus impacting the net rental income.
Allowable rental expenses are not taxed as long as these expenses are "wholly and exclusively for the purposes of renting out the property". Multiple types of expenses are covered under this definition, such as:
- General maintenance and repairs to the property (home improvements are not included)
- Water rates, council tax, gas, and electricity (where utilities are included in the rent)
- Costs of services (including wages, gardeners, cleaners)
- Letting agent fees and management fees
- Accountant's fees
You can find out more on gov.uk
2. The same property has a different value in different seasons – and you can control it
You can sometimes control the time of the year your property is expected to be vacant, which has a significant implication on your rental income, by as much as 30%.
For example, if you have new tenants moving into the property in December, and the high yield time of the year for your property is to be marketed in April, you can request that the initial contract will be 16 months long (ending in April the following year), so your property has the best chances to achieve the best rental income.
Furthermore, knowing the right time of the year could sometimes be counter-intuitive and requires deep market understanding. For example, the summer might not always carry the yield that landlords expect.
In many areas in London (especially new-built areas) many similar specifications flats are available in the market at the same time, creating a competition that drives rental prices down.
For example, Canary Wharf's 1 bedrooms highest rental yield change occurs in April-May (driven by bonus pay-offs and lower volumes of rental properties available), and lowers throughout summer. On the other side, Wimbledon's price spike occurs in June, and keeps its momentum throughout the family season (three-month period).
3. Short-lets vs. long-lets – not the returns landlords were hoping for
Short-lettings such as AirBnB have become popular in central London, as landlords eye the high daily rate achievable by short-term tourists.
However, the higher income is followed by high maintenance costs, as well as additional asset risks. For the reasons below almost 20% of landlords abandon short-lets after the first year:
- Wear-and-tear damages, are 3 times higher for short-lets than for long lets. On average, short-let properties go through the move-in/move-out process 40 times a year compared with long-lets. This creates the need for continuous repainting, replacement of appliances, furniture and utensils. Some damages, such as water-damage and heating and boiler repairs are only identifiable over a long period of time.
- Short-let guests do not go through any character checks process to assess whether they could have a negative impact on the property – with a minority of the guests being of shady characters. For these reasons, building insurance and mortgage terms oppose this type of let and having a short term contract may violate their terms.
- Marketing costs are increasing, and short-let void periods are long. Landlords seeking a fixed income may find that in some seasons it is harder to find guests at all.
4. New styles of agencies offer an advantage
The only options landlords faced was to either work with traditional high street agencies that typically charge 8%-12% yearly with a renewal fee priced at 50% of the initial fee, or a DIY alternative such as Gumtree where landlords did not manage to get their full rental potential.
For these reasons, Hybrid agencies offer what both agency worlds lack, and fill a gap in the rental market. Home Made is the largest hybrid agency in London, offering all the services landlords expect from traditional agencies for a low, fixed fee with no renewal charges. Due to its fee structure, and proprietary technology, Home Made is able to achieve a 10% higher rental yield for their landlords (fees are equivalent to 2.5% of the yearly rental income). If you would like to talk with an expert London landlord advisor about your property needs, and rental income, you can reach us here.