Is there any point in being a BTL investor?

We’re used to hearing about the benefits of the landlord life.

It’s a popular belief that being a landlord means decent rental yields paired with historically low borrowing costs paired with outsourced tenant and property management, making it a relatively easy way to create wealth.

Landlords have been able to generate a predictable income at attractive margins. But is this still possible?

Typically, landlords deal a number of challenges, from managing tenants to keeping up with maintenance and battling with vacancies.

In recent years and even in the past few months, the headwinds and headaches facing landlords have increased and have driven many to ask the question: is the landlord life still worth it? And if it is, what do landlords need to do?

One of the most significant challenges for landlords is rental income leakage.

This happens when management fees, letting fees, vacancies, and maintenance costs eat into a landlord’s margins.

According to in-house research by Keyzy, landlords are experiencing rental income leakage of up to 35%.

This loss can have a significant impact on a landlord’s financial stability, making it more challenging to maintain profitability (i.e., to generate enough income to pay mortgage interest), and for many, to be able to stay in the game at all.

The most recent challenge is the large increase in landlords’ funding costs in the current interest rate environment.

At the time or writing this, the Bank of England has raised the base rate to 5.25% after 14 consecutive increases, making it far more expensive to borrow money than just a year ago.

This increase in funding costs has put significant pressure on landlords looking to re-finance, or who have already taken the unwelcome leap into the new normal.

Property management fees are now harder for agents and property management specialists to justify, resulting in many landlords opting for self-management.

As pressure increases on landlords’ margins, increasing management fees has driven this trend towards the “do-it-yourself” option.

Self-management is time-consuming, but many landlords are willing to invest their time to save money and stay afloat.

However, it’s not just cost increases hitting landlords’ wallets. Looming regulations requiring costly Energy Performance Certificate (EPC) upgrades are on the horizon.

EPC regulations are part of the government’s effort to reduce carbon emissions, but they can come at a high cost.

These regulations require landlords to invest in energy-efficient upgrades to their properties such as solar water heating or double glazing.

In March 2023, the Department for Energy Security & Net Zero announced that the previously proposed deadline of 2025 for newly-let rentals to achieve an energy performance rating of at least C, and a deadline of 2028 for all other rented properties, would be extended to 2028 for all rental properties.

These hefty costs have been delayed for now, but landlords are already eyeing their exit from the rental market by the time it comes into full effect.

Lastly, the chaotic mortgage market has made it challenging for landlords to sell their properties, even if they have decided that it’s time to exit their investment properties.

The “mini budget” of September 2022 and the uncertainty caused by consecutive interest rate increases has disrupted and reduced mortgage availability in the UK.

Many are looking to sell their properties due to the challenges of being a landlord, but they are struggling to find buyers.

With fewer prospective buy-to-let (BTL) landlords as potential buyers and fewer mortgageable customers out there, this is not a great time to sell.

Those choosing not to sell for now are needing to increase rents to cover their costs and in turn are putting pressure on the already strained rental market.

Despite these challenges, there is hope for landlords. Innovative solutions are emerging that can help landlords future-proof their properties and secure their financial future by allowing them to maximise their rental income and reduce maintenance costs.

Landlords have new services and tools at their disposal, such as comprehensive tenant vetting based on Open Banking and credit profiling.

These ensure that landlords are opening their properties up to trusted tenants who could commit to multi-year leases, saving landlords time and money by reducing the need for multiple letting cycles with property vacancies and duplicative listing fees each year.

Innovative lease structures can create a unique relationship between a landlord and their long-term tenants whereby a future price is agreed for the tenants to purchase the property from their landlord.

In such a scenario, the landlord is guaranteed to have no rental leakage, meaning that there are no vacancies, no letting or inventory fees, no property management fees and no maintenance fees.

This maximises the income for the landlord while ensuring an attractive exit price in 4-8 years’ time, making it a potential option for landlords looking to maintain profitability.

Is it worth it to be a landlord anymore? Being a landlord is challenging within traditional models, but with new options such as Keyzy for Landlords emerging, landlords can overcome these challenges and thrive in the industry by future-proofing their investments and achieve financial security, all while simplifying their landlord experience.