Hello readers,
Following my last article looking at predictions for the rental market in 2025, I thought I’d put together some of my top tips for investors looking to continue expanding their portfolio in the coming months.
The past few years have certainly taught investors several critical lessons about resilience and adaptability that will serve to strengthen investor positions, and I have fed some of these into my tips below.
Cash flow is king (don’t over leverage)
One of the golden rules of property investment remains unchanged: cash flow is king. While borrowing can enable significant investments, over-leveraging is a risky strategy, especially in challenging economic times.
In 2025, many lenders are expected to reduce interest rates slightly (hopefully), but this does not eliminate the need for caution.
Keeping a good buffer for unexpected costs such as maintenance, legal fees, non-payment of rent, or gaps in tenancy is essential to ensure stability.
Whilst some level of cash is important, the point is understandably that you don’t want to have too much so it can erode with inflation.
A good rule of thumb is to have reserves equal to 3 – 6 months mortgage costs and bear in mind that a good rule of thumb is around 1% of the property value set aside for annual maintenance.
Rent reviews
This point is often overlooked and I read an interesting post on LinkedIn the other day that asked the question ‘is not raising rents really helpful to tenants?’.
Certainly, it can be more expensive to get new tenants than keep existing tenants, however neglecting rent increases can have a serious, detrimental effect.
If you don’t do regular (annual) rent reviews things such as increased mortgage costs and unexpected maintenance can cause big issues if rents don’t keep up and making a big rent increase to catch up is difficult.
In addition, tenants could find they are stuck should they need to move due to the landlord needing to regain possession as the market rent is out of their reach.
My advice is to carry out annual rent reviews and keep the rent for existing tenants just under the market rate. This way you will keep up with tenants finding the tenancy attractive as it’s better for them to stay than more (but not such that it could be a huge issue for them to move).
Look for the deals
Smart investors know that the best returns often come from the best deals, however with increased stamp duty this is now even more important.
My advice for 2025 is that investors should have an even stronger focus on properties that offer value, such as those requiring light refurbishment or those located in up-and-coming neighbourhoods.
It will be interesting to see if there’s an increased interest over the coming year in off-market deals, auctions, and repossessed properties.
Think long term
I’m always talking about how property is not a ‘get rich quick scheme’ and should be viewed as an excellent, stable way to build wealth over the long-term. By this, I mean decades rather than years.
It’s been a challenging few years, with rapidly increasing house prices, house price drops coupled with increased legislation, but the market has historically adapted, and I don’t doubt it will continue to go so.
To illustrate this, a terraced house in Medway was worth £131k in October 2004 and today the value is £271k. That’s a 107% increase and if you look below, you will see how the drop since January 2023 will soon show as a market fluctuation.
Bear in mind the green agenda
The final point is in relation to the green agenda. I’m sure you will be sick of hearing about the drive for rental properties to be EPC grade C by 2030 with no policy confirmed as yet.
I will be covering this in detail soon and whilst I do not think that EPC grade C is necessarily going to happen, I don’t doubt that there will be some degree of increased legislation for rental stock to improve.
If you are expanding, you will want to consider the impact of potential future upgrades (whatever they may be) and for your existing investments, my recommendation is to have some degree of cash buffer should legislation quickly be passed.
I trust that these points are helpful and if you have any questions about your plans for 2025, the best way to get in touch is by emailing hasan@home-share.co.uk.
Here’s to a great 2025!
Hasan
