Why the right technology can be a game changer for buy-to-let landlords

In a booming UK rental market, buy-to-let remains a highly competitive way to retain and grow your capital. In practice however, managing all the expenses, compliance and processes involved with running multiple buy-let-properties can be extremely time consuming. What’s more, without the right visibility across your portfolio it can be a struggle to even know how profitable your properties are.

Jodie McDermott explains how buy-to-let landlords can use the latest tools to save time on managing finances and make smarter profitability decisions, as well as how working closely with your adviser can improve your margins and long-term success.

The problem of buy-to-let profitability

In the fast-moving rental market, it pays to be able to make quick decisions about profitability. In the last year, landlords have had to deal with an uncertain economic environment, fluctuating interest rates and tenants who may have struggled to keep up payments.

Just like any business owner, landlords need to know which of their products (properties) are making money and which aren’t. Throughout the changes we’ve seen recently, it can be difficult to know the cost to income ratio for each property – some landlords may not even be aware if and where they’ve lost money until 12 months after the effect due to inadequate records.

Reliable systems that track money in and money out from your properties can provide proper financial visibility, but working manually can make this difficult.

What are the challenges of administering buy-to-let properties?

As any landlord knows, running a rental property can be a lot of work. There’s the process of finding, managing and retaining tenants, the need to maintain properties as well as the constantly shifting regulatory landscape.

In the rush to stay on top of all these responsibilities, it can be easy to lose track of financial performance.

Manually tracking the profitability of your buy-to-let rentals requires a range of information, particularly when it comes to expenses. Tracking income on your rental is a straightforward task - it’s just the combined monthly rental payments for each property. The hard part is comparing that to expense data to track how much you’re making.

If you aren’t able to effectively track and compare your costs to your income, you risk falling behind the market and not being able to make the right decisions at the right time for your properties.

Building appropriate financial systems

In order to make smart decisions in real time, it’s essential to bring your financial information into the now. However, With manual bookkeeping and accounting methods this just isn’t possible digital accounting systems however can provide real-time financial visibility.

Cloud accounting solutions such as Xero or Quickbooks can act as your central financial hub allowing you to connect to your bank feeds, track money in and out of your account and compare it with your outstanding payments and debts.

An expense management solution such as Dext, using a mobile app lets you take pictures of your receipts. What’s more, these apps are perfect for capturing even the smaller of receipts - like simple petrol costs when out inspecting properties - that will add up over time. An expense tool should also allow you to allocate spending by property to work out which ones are costing you the most.

Matching the tech to your needs and goals

While technology can be a huge help for buy-to-let landlords, the most important step is to match it to your needs and goals. When I sit down with a landlord to discuss their needs, I make sure I first understand what they want from their system.

Common reasons to move to a cloud accounting system for your portfolio include:

• Better detail: Using data attribution to track spend per property and drill down into the profitability to make smart decisions about rent levels, suppliers and occupancy.

• Saving time: Instead of spending hours tracking and entering receipt data, you can automate the manual work and focus on the insights you get from the data itself.

• Real time data: The data pulls through daily in most cases and therefore no reason to not allocate income and expenses on a daily basis. This allows you then to know the profit on a day to day basis, thus allowing quicker decision making

• Growth and expansion: By improving your visibility over what works and doesn’t you can make better decisions about how to grow your portfolio, what kind of tenants to pursue and which areas are the most profitable.

I recently took on a new client – a residential, self-employed landlord with six properties – who was looking to take his rental business to the next level. After sorting out some of the essentials, I focused on helping him get the right information.

As he was still working on spreadsheets, he wouldn’t see his overall financial picture until just before January. Even then, the information was all aggregated rather than split out by property. This meant that he couldn’t track his bottom line and see what was working.

By moving his records onto Xero, we created a system where we could both see all the relevant financial information at any time. This means that any time he has a question we can work together to find the answers. Furthermore, as long as he keeps submitting his expenses, he can log on any time and see which properties are making money.

This change in system has already helped us identify a property which was underperforming, despite its low purchase price, so now we can examine and adapt the strategy. That’s the power of technology-enabled visibility.

How can Haines Watts help?

Buy-to-let is still a huge opportunity, but and in a disrupted market it can help to be working with an experienced adviser.

At Haines Watts we’re a partner for your future, providing the insights, tools, technology and advice you need to reach your potential for your business to grow and succeed. We work with thousands of landlords to help them build systems that add value for their businesses.

Get in touch with us to talk through the needs of your buy-to-let business.