Last updated Dec 13, 2023 and written by Jennifer Howden

Starting a property rental business: is it worth it?

In recent years, it’s been tougher for property rental businesses in the UK. With changes in legislation and lending criteria being tightened, regulations becoming less generous and rental yields have fallen — but can lessors still have good earning opportunities despite these challenges? Here, we’ll take you through the cases for and against pursuing a property rental business.

Why start a property rental business?

Ultimately, starting a property business is a great financial opportunity. In April 2023 the data shows that the average rental price for a new tenancy is £1,199 per month. This suggests that there is still a thriving rental market where the average UK landlord has eight properties in their portfolio and generates an income of £61,000 per property. 

That’s relatively small compared to how much larger property rental companies can expect to pocket. A good example is The Parklane Group, who started letting properties in Leeds in the 1970s, and today manage over 3,500 bed-spaces with a portfolio worth over £100 million.

What’s more, property rental is a relatively low-risk business — especially when considering the potentially high rewards. Properties are usually less likely to depreciate in value compared with other business assets. Average property value increased by 6.9% from 2022 to 2023 — significantly higher than the average annual rate of inflation.

What other benefits are there?

Founding a property rental business can mean very different things to different people, especially based on the number of properties involved.

Some landlords rent out one or two properties as a sideline while working a separate job. There’ll be a significant amount of work to take on at certain times — especially during tenant changeover — but for much of the year, the work should be relatively light-duty. However, taking a year-round view, renting out on a small scale is a great way to earn money at the expense of relatively little time and effort.

Others take their property rental business further by adding numerous properties to their portfolios: employing staff, setting up offices, and forming a company. This approach can bring still-greater financial rewards, notwithstanding the immense challenge and fulfilment that comes with building a large business.

What are the challenges facing property rental companies?

In 2023, starting a property rental company remains attractive. However, be aware that recent regulations have made property rental less profitable for most landlords and companies.   

Since April 2020, you can no longer deduct any of your mortgage expenses from your rental income to reduce your tax bill. Instead, now you receive a tax-credit based on 20% of your mortgage interest payments. 

Secondly, buy to let mortgages are subject to a higher interest rate, and in many cases higher deposits (20-25%). The best buy to let deals are usually available to investors with a deposit of 40% and above, not a lot of people have that startup capital available. It may be important to consider if you are willing to put down a larger deposit to help keep your rates lower. 

For some property-owners looking to go into property rental, location can also be an issue. The annual rental yield on a property’s value tends to vary geographically, with differences both between cities and within them. As a general rule of thumb, though, university towns and cities often give the best yields.

Getting your property set up right could make all the difference

One of the most important parts of running your own rental property company is actually setting it up. Doing this well will affect the success of your company, and will ultimately guide you when navigating the property rental market.

You’ll need to nail the basic economics of your trade. Is the annual yield on your properties high enough to cover costs and turn a profit? How can you balance that equation in your favour? These questions need answering before you start trading.

Are you set up in a financially advantageous way? If you’re operating on a small scale, the money you take home at the end of the year will likely be higher if you set up as an individual landlord. On the other hand, if you’re going to rent out four properties or more, setting up as a limited company is more likely to be profitable.

The benefit of operating as a limited company increases with every additional property leased out after the four properties. As a limited company you can save on income tax and your company is a separate legal entity to yourself. 

With this in mind, setting up as a limited company isn’t the only process you’ll need to pursue when you set up a property company. Whether you need a registered address or accounting, we can help take the strain off these tasks