Buy To Let benefits quantified - thank goodness for capital appreciation

Posted on Thursday, March 3, 2022

Agents tasked with persuading possible investors as to the benefit of buy to let have new ammunition, in the shape of figures showing profit margins for landlords.

Research by rental portal Rentd shows that a typical landlord makes £16,311 per year, if recent capital appreciation is combined with average rental income. 

For those starting out in the buy-to-let sector there are some initial costs to consider when investing - the most notable being the mortgage deposit of 25 per cent, equating to £64,750 on the current average buy to let price of £259,000. 

There’s also stamp duty averaging £10,720 on the average BTL unit, with other costs of letting agents adding up to a total of £76,787. 

However, once a BTL investment is up and running it pjs profitable in the current market, even taking into account interest (averaging at £8,159) maintenance costs (typically £2,590) along with agency fees (£1,392). 

In contrast to the outgoing costs, the average BTL is estimated to return £12,680 per annum in rental income - a yield of 4.93 per cent. 

This means that the average landlord is actually making a loss of nearly £400 when comparing rental income to the ongoing costs of owning a BTL property. 

However, over the last decade, the average rate of capital appreciation on a BTL property has sat at 6.45 per cent, meaning an increase in property value of £16,693 per year. 

This level of capital appreciation boosts the annual return on investment to £16,311, considerably higher than the same total return of £6,220 in 2019 and £5,150 in 2020.

Rentd founder Ahmed Gamal says: “A buy to let property can be a sizable investment and like any business, the key to success is fine tuning your portfolio to ensure that you cover the required ongoing costs while maximising your profit margins. 

“For many this means investing in areas with above average rental yields, or high demand urban hubs that provide a lower chance of long void periods, all while negotiating with their agent on fees to keep ongoing costs at a minimum.”

Via @LettingAgentToday