Landlords - Buy cheap, buy twice! How to master the balance between rental property value and return
Even if you're an accidental landlord, you still want the investment to pay, don't you?
At least to cover the expenses; otherwise, why keep the property?
Surely it would be easier to just sell the property rather than have the responsibility of maintaining it if it's not generating an income?
Imagine paying for insurance and mortgage payments all year. Then add on a few repairs here and there and some of the other property-related fees on top. Not to mention the tax payment.
By the end of the year, you realise the total costs were higher than the incoming revenue.
You've actually paid for the privilege of owning the property.
This is not the aim of property investing.
All landlords should be looking at their property investment as a business. The expenses should be less than the overall income generated.
Of course, when investing in property, you do also benefit from capital appreciation - the property's value increasing over time.
But, it's far from ideal if you're making a loss each month. If your investment solely relies on the rising market, it's vulnerable to external conditions entirely out of your control.
What's IN your control, to some extent, are the expenses.
You must tread carefully, though. If you cut too many corners to make a profit, you could harm your tenancy and investment. It’s all about balance.
Profit is not the be-all and end-all. The aim is to make some, but not necessarily loads of profit.
If you get too greedy, it could end up costing you more in the long run!
For example, you could fit the cheapest bathroom suite possible, but the taps might start to wear out in a year. Then you have the cost of replacing the taps. Do you rebuy the cheapest option? So they'll need doing again next year? Or do you replace them with a slightly better quality fitting? The new taps will last much longer, but you have spent more money. Wouldn't it have been more cost-effective to buy the better taps in the first place? Or is this tap replacement becoming an annual expense that you have to include in your budget now?
Over time, cheap quality fittings will undoubtedly become a false economy. Not to mention disgruntled tenants if they have to repeatedly report issues.
Imagine you have a boiler that's passed its best. The tenant reports a failure, and you try to have it repaired. The repair lasts a few months, and then the tenant is without heating again. So you fix something else, which lasts another few months.
You have sunk so much into keeping that boiler going that you could have just put in a new one.
And your tenant is just waiting for it to go wrong again.
It won't be long before the uncertainty of whether they have heating or not is enough to push your tenant into moving out.
And what about furniture? Buy the cheapest possible options for furnishing the property, and it will look and feel cheap. And it probably won't last. You'll need to replace items more frequently, which will increase your annual maintenance spend and, therefore, affect your profit.
There are, of course, some things that can be shopped around for. Tiles, for example, don't need to be the highest of quality (and expense) to be fit for purpose. The same applies to kitchen worktops and other fittings. In these areas, it's possible to reduce some costs, improving your profit margin.
However, furniture will not last the test of time if it's of the cheapest quality. And often cheaper furniture, or if you purchase second hand, can be below the required fire standards for a rental property, so bear this in mind. You must ensure that the furnishings meet safety regulations if they're being put into a rental property.
So, shop around and look carefully at areas where you can save money and where you really should spend a little more to get a higher quality product and finish. You need to find the balance between overspending and being frugal.
If you have any questions about your property investment, contact our expert lettings team today.