Is renting out properties a profitable business in the UK?

With recent legislation changes and the tightening of lending criteria, managing a property rental business may not be as easy as it once was. But that doesn’t mean it’s not still a good way to earn an income, provided you understand the costs involved and budget for the challenges you may face. 

In this article, discover the pros and cons of establishing a rental business in the United Kingdom to decide whether it will be profitable for you. For more inspiration, check out an online rental website such as https://rentola.co.uk, which lists everything from London apartments to rental terraces in Southampton. It offers a good insight into the potential returns for private landlords, with the option to filter by location, property type and number of bedrooms. 

The pros and cons of starting a rental business in the UK

When you consider that the average cost of a tenancy in the UK is around £1,200 per calendar month, the returns for property investors can be great. However, this all depends on the initial price of the property and the ongoing mortgage repayments, as well as renovations and maintenance costs. 

Unlike other business assets, properties are unlikely to depreciate in value, considering the current trends. Between 2022 and 2023, the UK property market grew by an average of 7%, which is higher than the average annual rate of inflation. 

While there are periods of the year that are busy for landlords, such as tenant changeovers, renting out properties can be a relatively “passive” means of making money. For little time and effort, you can earn a stable income that sets you up for a financially sound future. That being said, properties with ongoing maintenance issues can quickly become a headache, as can demanding or troublesome tenants. 

Some rental businesses comprise a single house or apartment while others manage dozens of properties with the help of dedicated staff. Generally speaking, the larger the operation, the more challenges and stresses that come with it, alongside greater financial rewards.

Short vs long-term rental property businesses

In times gone by, most people rented out their properties for long-term periods (usually 12 months or more). But in recent years, there has been a surge in the short-term rental property market with travellers looking for staycations or more of a local experience. Adding to that is a rise in digital nomads looking to stay in London (or other UK destinations) for as little as a month as they work and explore the city.

Engaging in the short-term rental business can be highly profitable as landlords can ask for a much higher weekly or monthly rate. It also means they have access to the property whenever they desire, rather than it being occupied throughout the year. This flexibility is highly appealing to property owners who want to make extra income from their space when they are away on holidays or for work. 

While the pros of the short-term rental business are many, it also comes with its drawbacks. There are greater costs associated with managing a property when tenants are constantly changing, particularly when it comes to cleaning. It requires more time and effort in terms of communicating with and vetting potential tenants, as well as addressing any concerns they might have. 

Short-term rentals are also much more subject to seasonal fluctuations and demand, so while it might be profitable at some times of the year, at others it may lay empty. In addition, rules and regulations surrounding short-term rentals are constantly changing to meet the long-term housing needs of local residents. 

Long-term rental businesses appeal to many landlords because of their lower operational costs and stability, with a consistent monthly income that isn’t subject to seasonal demand. They also require you to do fewer administrative tasks, meaning they aren’t as time-consuming to manage. On the flip side, the income growth tends to be slower and you can’t adjust rental rates in response to interest rate hikes or market fluctuations. 

Getting it right from the get-go

Establishing a rental property business in the UK can be successful, provided you get it set up right in the first place. Do some calculations to ensure the annual income is enough to cover any potential costs and bring in a profit that makes it worth your time and energy. By being realistic about your earnings before you invest, there’s less chance you’ll be forced to sell your property down the track. 

Rather than having to bring in expensive tradespeople at short notice every time something goes wrong, take the time to establish a low-maintenance property at the start. This might mean investing in good-quality appliances or fitting the property out with durable interiors that will withstand the daily demands of tenants. Remember, the more appealing the property is to tenants, the higher the monthly rate you can charge, so your investment won’t go unrewarded. 

09/11/2023