Property tips: maximising total return

Ensuring the best possible return on investment is the name of the game for many buy-to-let landlords. There are many factors to consider to achieve the best possible total returns: capital growth, costs, rents, arrears and voids.

Here's is ludlowthompson's guide to achieving the highest possible total returns by maximising the performance of each of these strands to the investment: 

Capital Growth

London is benefitting from high capital growth.  According to land registry data, the annual rate of capital growth in London was 5.0% in June 2012, about twice the rate of inflation.

Stephen Ludlow, Chairman of ludlowthompson, comments: "House prices in London have continued to rise over the last year, bucking a national trend of stagnation and decline.  The areas most likely to benefit from the highest capital growth are located near major infrastructure improvements and areas that are likely to gentrify in the coming decade."

High rents

London buy-to-let investors benefit from London’s busy jobs market and shortage of properties, which keep rents high.  Aligning tenancy terms with seasonal demand so that the investor is replacing the tenants when demand is highest (typically the Summer and in January) increases the likelihood of maximising rents.

Costs

Costs are an important factor in managing a buy-to-let portfolio. These can include repair and maintenance, letting fees, service charges and other one off payments – such as replacing broken furniture.

Total running costs for buy-to-let investments managed by ludlowthompson have been running at an average of 22% of rental income for the last three years.  This means that property with a gross yield of 6.3% would provide a net yield of 4.9%. 

Stephen Ludlow comments: "One way to reduce running costs it to provide the rental property unfurnished.  However, this may make the property less attractive to younger renters so it should only be done as part of an overall strategy to target older renters."

Arrears

Landlords can minimise arrears by letting through a reputable agent with robust and thorough reference checking procedures in place.  Through ludlowthompson’s managed lettings service, agents can offer:

• Thorough tenant referencing checks.
• Automated systems in place to catch late rent payment before it escalates into a major problem.
• Extensive experience of using the full set of legal tools to enforce rent payment.

Voids

Stephen Ludlow says: "Having plenty of notice for when a current tenant is planning to leave means the landlord can line up a new tenancy with as short a void period as possible. It’s always best to clarify this with your tenants, or ask your agent to do so."

"Many tenants are now looking for longer lets in the first place. If you are able to agree a two or three year tenancy, that is two or three years where there will be zero void periods."


ludlowthompson is launching a quarterly buy-to-let bulletin, to provide investors in London buy-to-let a one-stop-shop with all the information they need to assess the current market.