Landlords are Buy to Let Paupers Despite Record Rents

15:12 PM, 28th November 2011, About 13 years ago 2

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Buy to let investments do not make landlords money even though tenants are paying record rents, according to a new study.

Financial experts reckon rents are languishing below pre-credit crisis levels when tax and inflation are taken in to account.

Poor rent returns and falling house prices are strangling the expansion of private rental homes, says the report by Reading University for the Residential Landlords Association (RLA).

Based on data from 200 landlords, the university found rents do not cover expenses when the true cost of investment is considered, including:

Refurbishment and borrowing costs,
Agents’ and legal fees
Voids and arrears
Energy and safety certificates
Repairs, depreciation and regulatory compliance

Landlord taxes averaging £1,000 a year are also more than on other types of property, said the report author Professor Michael Ball. Tumbling property prices over the past four years have resulted in negative yields for many landlords who would have had a better return investing their money elsewhere, he added.

Ball warns the likely outcome for tenants is higher rents resulting from too few rental properties. Professor Ball said: “There is much hype about the private rented sector at present, but the reality is that landlord returns are generally poor and with a weak economy are likely to stay that way.

“Investment in the past was driven by rising house prices, now there is a need to rethink taxation and regulation so that rental returns come to the fore at rent levels that are affordable for tenants.”
He is also calling for government reforms to cut tax and red tape to reduce pressure on rents.

RLA chairman Alan Ward said: “Professor Ball’s report demonstrates clearly that the private rented sector is taken for granted – the returns are only superficially rewarding because few landlords account for the cost of regulation and taxation.

“Only the lack of an alternative secure investment, and the curse of capital gains tax, prevents many landlords from dis-investing just when more people need private renting because of lack of access to the owner occupied and social rented sectors.”

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Tags: Buy to let, Capital Gains Tax, Investing, Landlord Regulation, Landlord Tax, Private Rented Sector, Rent Prices, Rental demand, Rental market, Tax

Comments

14:32 PM, 1st December 2011, About 13 years ago

This is right on the nail. After five years of property rental, starting with three flats and gradually growing to six flats and three houses, we are still in loss to the tune of around £7000. We borrowed the deposits from our own residential mortgage, and over the years the rents have almost repaid the deposits, so theoretically we have built up equity in the properties, but we would have to be able to sell them in order to realise this, and there is not much chance of that at the moment. After increasing in value for the first year or two, they have all fallen back to the same or less than we paid for them in the first place. Our only hope is to manage to keep them tenanted for as long as it takes for the market to pick up again.

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16:20 PM, 1st December 2011, About 13 years ago

I totally agree with the above article and can identify with the situation as I am an impoverished landlord. The trouble is I have a lot of houses so people often assume I have a lot of money. They don’t realise that the bills need to be paid! Everyone surely must realise the extent of the repairs, maintenance and mortgage costs on one property alone so multiply that by however many properties a landlord has and it comes to quite a tidy sum.

Tenants will often rip you off because they wrongly assume that if you could afford to buy so many houses to begin with then you must be rich and can afford to lose their rent money if they don’t pay it - they fail to see that you have had to borrow to buy just like anyone else!

As landlords we pay over the odds for our mortgages and we are ostracised by just about everyone. Such a shame the government doesn’t recognise the value of good landlords in providing accommodation for families in the lower income level. Instead we get bombarded with silly rules that hinder us and impoverish us even more.

I have just lost another two month’s rent due to daft LHA rules whereby the tenant has had the rent money paid directly to them. ‘I spent it on the house,’ the tenant tells me. We all know its been spent on fags and booze - well, he may have put a few pictures on the walls but whatever he has spent it on we all know the rent is supposed to go to the landlord so the mortgage can be paid. If the government insists on paying the housing allowance to the tenant why don’t they attempt to educate them in a bit of household budgeting first?

If the government are expecting people at the lower end of the social scale to be more responsible with money then they are wrong – unfortunately there will always be people who will never be responsible with money or prioritise payments. So that’s why the landlord should receive the rent cheque directly. It is taxpayer’s money being wasted as well as mine and every other buy to let landlord who has suffered a loss due to this daft legislation.

I have had to borrow money at extortionate rates to keep my head above water while my tenants get a free ride and an extra injection of cash to spend on whatever they like except the roof over their heads. I’m sure the idiot down in Westminster who introduced this silly law was not a landlord. I really would like to know who it was who first thought it up and perhaps he might like to accompany me when I attempt to collect the rent.

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