Buy-to-let landlords unsure of real gains
More than half of buy-to-let landlords fail to take inflation into account when calculating the monetary gains from their property, research from YouGov SixthSense has found.
This ‘monetary illusion’ means many landlords have unrealistic expectations on the returns they expect from investing in property. Only a quarter of landlords consider the effects that rising inflation.
The research found that;
- landlords received 4-6 per cent in rental returns between 2002 and 2006
- this fell to between 1-4 per cent since 2007
- the profit from capital gains has also fallen, with landlords seeing 15 per cent in capital gains before 2003
- this fell to 7-8 per cent between 2003 2006, and less than 4 per cent since 2007
- the number of buy-to-let landlords who view their property as a long term investment has fallen – from 52 per cent in 2008-9 to 37 per cent by 2012-13.
Many landlords fail to take into account key deductions from rental income when calculating their return on investment. While the majority (93 per cent) consider mortgage interest payments, only 68 per cent take into account letting agency fees, and 46 per cent budget for other management expenses.
Simon Mottram, YouGov’s financial services consulting director, said many buy-to-let landlords had ‘unrealistic expectations’ on the amount of money needed to invest into their properties, as well returns.
“The money illusion can mask a great deal of risk that people can put themselves in because of falling returns from increasing inflation as well as the cost of additional expenses. Potential buy-to-let landlords should go into property ownership with their eyes open, being aware of the costs and potential pitfalls as well as the possible gains.”