Advice for Landlords Dealing with Cost Increases in Rental Properties and HMOs
The cost of living crisis has hit the whole of the UK by force. The aftermath of the pandemic has delivered the economic struggle that was expected, but unfortunately for a lot of landlords, the impact of these changes is costing them their rental property business.
Interest rates are at their highest, energy costs have skyrocketed and the costs of rising rental payments are leaving tenants worried as to how they will get through the months. The rental increases across the country are an unfortunate result of the running costs increasing of properties, and landlords are not benefiting from these increases in the slightest. Many landlords are rushing to sell due to their profits not being sustainable if they wish to have a living wage, but the smartest of landlords know exactly how to profit from these economic environments.
If you are looking for ways to make it through the difficult months ahead, take a look at the following suggestions to monitor your costs and avoid your profits being eaten into as much as possible:
What Costs Have Increased?
First of all, it is important to come to terms with what has increased. If you are still calculating your costs per property using calculations from a year ago, it is time to get up to date. Here is a list of common costs landlords will face which have likely increased within the last year:
- Energy Costs – Energy bills have skyrocketed to record heights, meaning that landlords who include the cost of energy within the rent will be getting negative income.
- Refurb Costs – For landlords who like to maintain, paint and develop their rental and HMO properties, you will experience a much higher cost of materials. This will also include the increase in the cost of hiring people to carry out the refurbishments.
- Furnishing costs – Assuming that landlords are offering furnished homes to rent, the cost of new furniture will be a lot more than it was 5 years ago. From new bed frames to cushion sets, all landlords will be experiencing the hiked prices.
- Other Utilities – Utilities such as broadband, home insurance, and other necessary costs for landlords will have increased with everything else.
Why Inflation Has Affected The Rental Market
The main reason why inflation has affected the market is due to the major changes in interest rates during the pandemic, to the inflated rate today. Whilst everyone was making the most of the low-interest rates during the pandemic, we had a quick reality check when they rose to an all-time high of 4.0%, and they are expected to reach as high as 4.4% by July 2023. This affects everyone, and for landlords who are trying to profit from their rental properties without charging tenants extortionate prices, this is proving to be difficult.
Dealing With Energy Cost Increases
The cost of energy has been the biggest killer for landlords who are facing cost increases, taking away from any profits that they hope to keep for themselves. If you are a landlord that includes the energy within the rent, which is usually the case for HMO properties, you need to spend time researching for better deals. Of course, you may be in a difficult position if you are in contact, but get up to date with all your properties and check to see if you have fallen out of a contract. Shop around with different providers and see if any new deals allow for a fixed price for the duration of the contract.
Increasing Tenants Rent
Rent increases come as a given as inflation increases, however, there is a right way and a wrong way to do it. Assuming that you have long-term tenants who are reliable and always pay their rent on time, it would be valuable to allow them some breathing space to ease into these increases. After all, you have to consider that the cost of living has increased for everyone, and technically even your tenants are in the same boat as you.
When your tenant’s tenancies are coming to an end, give them 3 months’ notice that if they wish to renew their tenancy they will be faced with a cost increase. For valuable tenants, you should keep the rent increase still below market value as it will save them from moving elsewhere and cost you tenant-finding fees. This fixed-term agreement for the rent protects both you and the tenant, and they would feel much safer having this included.
The Wrong Time To Increase Rent
Bad landlords make the mistake of taking advantage of their tenants during periods such as these. As said, there are good reasons and bad reasons to inflict a rent increase. Take a look at the bad reasons for increasing rent that you should steer clear form if they are your driving force:
- You want to earn more than competitors – this generally stems from greed and wanting better profits from your competitors. If you are increasing rent just to have more money for yourself, you are doing it for the wrong reason.
- To pay for voids elsewhere – if you are experiencing voids in your other properties, this should not prompt you to boost the rents on your tenanted properties. This might cost you even more voids when unhappy tenants leave due to not being able to afford the rent. Instead work towards getting good, long-term tenants.
Make Savings Where Possible
If you are trying to tackle cost increases, aside from raising the rents you should aim to reduce your spending elsewhere. For example, maintenance likely takes up a margin of your revenue. Perhaps you hire a maintenance company to call out when there are faults in your properties to save you time. Instead, you should be completing small maintenance tasks yourself to save money, such as fixing broken appliances and changing light bulbs.
Also, you might ask your tenants before they enter their agreement to agree to fix any breakages themselves. This of course can be taken from their initial deposits to cover the costs, but if damage exceeds this amount they should be held accountable to save you from spending.
Consider Changing Strategy
Finally, if you are struggling to keep up with the costs of your HMO and buy-to-let properties, you might consider changing the strategies within these properties. HMO properties are likely the most expensive, but also they can get you the best profits renting out individual rooms. If you have buy-to-let properties that are falling behind on profits, consider converting them into HMOs or even serviced accommodation if the property is fit for that purpose.