Advice for Landlords Dealing with Cost Increases in Rental Properties and HMOs
The current economic challenges, including rising interest rates and energy costs, are impacting landlords across the UK. To navigate these difficulties and maintain a profitable rental property business, consider the following advice:
1. Understanding Increased Costs
Before taking any action, it’s crucial to identify the areas where costs have increased:
- Energy Costs: With energy bills reaching record highs, landlords including energy costs in rent may face negative income.
- Refurb Costs: Materials and labor for property maintenance, painting, and development have seen a significant rise.
- Furnishing Costs: The expense of furnishing rental homes, from bed frames to cushions, has increased substantially.
- Other Utilities: Broadband, home insurance, and other essential utilities for landlords have also seen cost hikes.
2. Impact of Inflation on the Rental Market
Inflation, triggered by changes in interest rates, has had a profound effect on the rental market. Rising interest rates, reaching as high as 4.4%, make it challenging for landlords to maintain profitability without substantially increasing rents.
3. Dealing With Energy Cost Increases
For landlords covering energy costs within the rent, dealing with energy price hikes is crucial:
- Research Better Deals: Explore energy deals for potential savings and consider fixed-price contracts for stability.
4. Increasing Tenants’ Rent
While rent increases are often necessary, approach it with sensitivity:
- Notice for Renewal: Provide long-term tenants with a 3-month notice before renewing their tenancy with a rent increase.
- Consider Tenant’s Situation: Acknowledge that the cost of living has increased for everyone, and try to keep rent increases reasonable.
5. The Wrong Time to Increase Rent
Avoid increasing rent for the wrong reasons:
- Competitive Greed: Increasing rent solely to outdo competitors reflects poorly on your intentions.
- Void Costs Elsewhere: Avoid increasing rent on existing tenants to cover voids in other properties; focus on securing good, long-term tenants.
6. Make Savings Where Possible
To counterbalance cost increases, look for opportunities to reduce spending:
- DIY Maintenance: Consider handling small maintenance tasks yourself instead of relying on external services.
- Tenant Agreement: Propose to tenants that they agree to fix minor breakages themselves, which can be deducted from their initial deposits.
7. Consider Changing Strategy
If cost challenges persist, explore alternative property strategies:
- Conversion to HMO: Convert buy-to-let properties into HMOs to potentially boost profits.
- Serviced Accommodation: Explore the viability of converting properties into serviced accommodation for increased returns.
In conclusion, proactive management and strategic adjustments are essential for landlords facing cost increases. By understanding the specific areas of impact, exploring cost-saving measures, and considering alternative property strategies, landlords can navigate the challenges posed by the current economic climate.