Should you be achieving £163K profit per property?

Do you think you could be netting £163k profits per property? Research says you can…

There’s been plenty of doom and gloom in the news recently about new legislation tax changes and general air of down-in-the-dumps-ness… so, research announcing that landlords should hope to realise over £160k from their rental properties is a breath of fresh air for many!

But what is the research based on?

The report, put together by Kent Reliance a specialist lender and part of OneSavings bank, suggests that over the course of a 25-year investment, ending in an eventual sale of the asset, a property should represent a profit of £162,000, or £6,475 a year.

This is working on the assumption that the landlord is paying basic rate tax, has put a 30% deposit of £72,908 down on a property worth £265,500.

So, how does the rental income on such a property stack up?

The report states that the rental income delivered by the property over the course of 25 years is a total of £369,495. If the landlord didn’t plan to sell the property, therefore paying no capital gains at the end of the 25 years, this income would cover the outgoings, as well as providing a profit of £65,500.

What if you choose to sell at the end of your 25 years?

The report assumes that house prices and rental yields raise on average 1% a year, meaning that the £265,000 property would increase in value to almost £516,000, providing gross capital gains of £269,000, on top of the rental income that has been realised throughout the term.

However, should you choose to sell the property, this would be pure profit. There’s always the tax man to consider.

It’s not all about profit though, are there any calculations for expenses?

Certainly are. The report assumes that the overall cost over the 25 years that a landlord will have t stump up comes in at an eye-watering £373,000 (this is taking into account buying, running and eventually selling the property though, so when you take the initial purchase price off, it’s not QUITE as scary!)

Tax, unsurprisingly, is one of the heftiest cost. Our typical base rate landlord will contribute over £99,000 to HMRC’s coffers, with £60,000 in capital gains tax, £39,000 in income tax and nearly £10k in stamp duty.

Mortgage finance comes in at costing £157,000, with maintenance and running costs (excluding any improvements) adding another £72,000.

The buy-to-let market is undergoing a sea change. Regulatory and taxation changes have altered the market dynamic, reducing its attractiveness to amateur landlords, and increasing the tax bills of higher rate investors. In spite of rising costs, there are still healthy returns to be found in property for committed investors. However, the days of speculation are gone. It is a long-term business endeavour, requiring commitment and expertise. Investors must be prepared to undertake business and tax planning, understand the risks as well as the rewards, and, most importantly, the responsibilities they have towards their tenants.

Sales and Marketing Director of OneSavings Bank, John Eastgate

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