How is your portfolio performing?
If you’ve been a landlord for a number of years, how often do you review your portfolio to see how it’s performing? Here are five key figures worth monitoring on at least an annual basis:
This lets you see where your investment sits against the local and national averages, in terms of the rental income it generates as a proportion of the value. Take your annual rental income figure and divide it by the current property value and then times by 100, e.g.
Monthly rent £700 = £8,400 per annum
Property value £200,000
Gross yield = 4.2%
This figure should hold fairly steady, assuming rental income and the property value are both rising. If your gross yield is below the regional or national average figure, the actual monetary amount of capital growth should make up for it. This tends to be the case in London, where yields are the lowest in the country, but capital values means landlords usually benefit from good equity growth overtime.
Average monthly profit from rental income
Your monthly expenditure will naturally vary, but average it out over the year and track how it changes. Make sure you have included all regular expenditure and also made deductions for tax. Once you have a fairly accurate picture of the profit you’re making month on month, you can then budget and make sure the amount you take as income each month still leaves enough in the bank for periodical outgoings, such as redecoration and bigger maintenance jobs.
You can search on various property sites and the Land Registry to find out how house prices are performing in your postcode area and a good local agent should be happy to give you a free market appraisal. If your capital value doesn’t seem to be keeping up with local averages, you may need to spend money on making some improvements. Take advice from letting agents to find out where spending money might allow you to increase the rent and reduce void periods.
Loan to Value (LTV)
Since portfolio lending criteria changed last September, it’s been even more important for landlords with four or more properties to keep track of how much they’re borrowing in relation to the value of their properties. If that’s you and you’re looking to switch to a new buy to let product or make a new purchase, remember that your total borrowing cannot exceed 75% of the total portfolio value.
Even if you only have one or two properties, the lower the LTV, the better interest rates you should be able to secure. So, for example, if you bought at £168,000 with a 75% LTV interest-only mortgage 5 years ago and your property is now worth £214,500, your borrowing is now at just under 60% and it may be worth remortgaging to reduce your monthly payment. Our advisers can give you a no-obligation portfolio review, so please don't hesitate to get in touch.
Return on investment
This lets you see how having your money in property compares to having it in another form of financial investment or even another type of property. Take your annual profit figure and divide it by the amount of capital you have invested in the property – that’s the deposit, purchase fees and the cost of refurbishment and other improvements, e.g.
Purchase costs £5,000
Total invested £65,000
Annual rental profit £3,000
Annual capital growth £10,000
ROI = 20% (£13,000÷£65,000 x 100)
Looking at all these figures together, you’ll be able to see how much profit you’re making each month and year, how well your investment is performing against local and national averages, whether you could be making a saving on your mortgage and if you’re able to release some equity to reinvest. If you have any questions about the financing of your properties, our mortgage brokers are always here to help, so do get in touch.
Because we play by the book we want to tell you that…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.