Significant Buy to Let Profits Still Possible But Only Long Term

Landlords would be forgiven for feeling as though they have been hit from all quarters in recent months. Various tax and regulation changes have seen income drop for many landlords, with some exiting the buy-to-let market altogether. Others have decided to switch to a limited company setup to protect their income, to further ensure their business is still viable.

But there has been some good news for landlords, as well as those who might be considering moving into this market. Kent Reliance has looked at the costs and profits associated with renting out a property over 25 years. The bank discovered it was possible to attain an average net profit of over £265,500 over that period. Adjusted for inflation, the average profit was still found to be around £162,000.

How the figures stack up
The research assumed a 30% deposit worth £73,908 would be placed on a property as per the example. Considering all associated costs and taxes due over the 25-year period, the profit would still be around £265,650.

For the purposes of the research, Kent Reliance assumed the value of the property would rise by just 1% per year. This would see the average property value increase to around £515,000. They considered income, outgoings, capital gains, tax, and all other elements, and came to the figure of £265,650 in profit. Once inflation is considered, the average landlord would make £6,475 profit per year.

How do individual areas stack up?
This is another crucial point. The figures above apply to an average rental property in Great Britain. London is top of the heap, as expected, with the 25-year profit worth £307,887 in today’s money. In sharp contrast, the north-east of England is bottom, with a 25-year profit of £70,709 in today’s money.

Averages won’t apply to everyone
“Averages are useful when you’re trying to gain an overall picture of the marketplace,” said Darren Pescod, CEO of The Mortgage Broker Limited. “But it would be wise to take these figures as a starting point, to work out how they apply in an individual scenario. Not all landlords are planning to hold onto a property for 25 years. It also assumes there will be no further changes in tax laws or the current regulations.

“Another point highlighted in the research is the estimate of how high rental income and the value of the property will go during the 25-year period. Clearly, the best profits will come in the long term. However, it is wise to crunch your own numbers if you are intending on diving into the rental market.”

This research will undoubtedly come as good news for many beleaguered landlords. Yet with huge variations from area to area, and the uncertainty of future figures and values, many will still feel the sun has set on the private buy-to-let market, at least in some areas. As a spokesperson for the research stated, “it is a long-term business endeavour” and one that should be viewed as such.

Published on 6 April 2020

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