Why cash flow isn't king anymore

Hi there,

This is Chubby Wallet. The newsletter that teaches you how to profit from property trends before they go mainstream..

Here's what’s in store..

• Market update - why cash flow isn’t king anymore

• Property auctions - Q1 summary

• HMRC crackdown on landlords

• Renter’s reform update (2)

• How a waitress turned $1000 to a billion dollar empire

The big question in every landlord’s mind: Is UK Property investment still worth it?

The short answer is: Yes,

But it's no longer easy money. The game has changed significantly.

Why is this so

• Higher borrowing costs: Mortgage rates are now around 5-6%+, similar to pre-2008 levels, ending the era of cheap borrowing seen after the financial crisis.

• Increased tax burden: Changes introduced by George Osborne mean portfolio landlords, especially those using limited companies, face higher costs (effectively adding ~1% to mortgage rates).

• Yield squeeze (location dependent): Gross rental yields vary drastically. London and the South struggle with low yields (4-5%), making leveraged investments difficult. The North, Midlands, and Wales offer higher yields (7-8%+), which can still work with current borrowing costs.

• Slower capital growth: While not the main focus here, Propenomix reports that rapid capital growth can no longer be relied upon everywhere to compensate for low yields or negative cash flow.

The Bottom Line: The "buy, hold passively, and get rich" strategy is over.

How to make property investing work today

• Think long-term (10+ Years): Short-term holds (e.g., 5 years) offer potentially low returns (~3.6% in the example) that might not beat safer investments like government bonds.

• Location is crucial (follow the money): Focus on areas with higher rental yields (7%+) like the North, Midlands, and Wales, where the numbers can still stack up despite higher mortgage rates.

• Buy smart / add value: Don't pay retail prices. Aim to buy at a discount (10-20% below market value) or find properties where you can add value through refurbishment.

• Be an active manager: Passive investing is out. Success now requires active asset management – finding deals, overseeing refurbs, managing tenants effectively, optimizing rents, and potentially exploring grants. 

The trade-offs

• Cash flow vs growth: Cash flow is much tighter now. Unlike pre-2008 where landlords might subsidize properties hoping for capital growth, positive cash flow is more critical, though long-term growth remains a key part of the return.

• Effort: Active asset management requires more effort and strategic thinking than before.

• Risk: Ongoing risks include interest rate changes, regulatory updates, and geopolitical uncertainty.

The formula for success

• Long-term holds (10+ years)

• Target high-yield geographic locations

• Buy below market value or add value

• Active, hands-on management

Future outlook

Baseline unlevered return (without mortgage leverage) is forecast to be around 6-7% (assuming 3-4% capital growth + 2-3% rent increases) according to Adam Lawrence

So, investors will need to decide if this is enough or if they'll use leverage and active strategies to aim higher.

The best opportunities in the next decade might move away from traditional hotspots like London and towards niche areas like social housing, HMOs (Houses in Multiple Occupation), or potentially regions like Scotland and Northern Ireland.

In Q1, UK property auctions saw 5.6% more lots offered compared to March 2024 according to EIG Auctions, yet sales fell 0.5% year-on-year as success rates dropped to 68.2%.

Why it matters now

The property auction market serves as a real-time barometer for investor sentiment and regional property trends.

With £479.6 million raised in March (up 1.4% YoY) despite fewer successful sales, there’s clear evidence of prices holding up even as transaction volumes decrease.

In March, the success rate was 68.2% down from ~73% last year. However, the total amount raised Q1 2025 increased by 5.1% despite falling volumes.

Residential continues to power the auction market with lots offered up 7.8% and capital raised increasing 4.8% in March. 

This sector's performance suggests underlying demand remains intact despite broader market uncertainty.

Commercial properties under pressure

Warning signs continue for commercial property, with fewer lots making it to auction and a 9.5% drop in total value raised.

This mirrors the ongoing repricing in the commercial sector as investors adjust to higher financing costs and changing work patterns.

Regional winners and losers

The auction results reveal a divided property landscape across the UK:

• South-west surge: The clear regional champion, with lots sold jumping 16.3% and value raised soaring 25.4%, driven primarily by strong residential demand.

• London resilience: The capital showed surprising strength with 15% more lots offered and 8.4% higher capital raised, though commercial property sales edged lower.

• North-east nosedive: The region faced the steepest declines, with sold lots plummeting 40% and total value down 26.8%—reflecting both limited supply and muted buyer interest.

• Scotland's value shift: Improved sale rates paired with lower total values suggest a pivot toward more affordable properties reaching the auction block.

In summary

The first quarter of 2025 paints a picture of selective buying amid ample opportunity

Lots offered rose marginally by 1.7%. Lots sold declined by 2.4%. Total raised increased by 5.1%.

These contrasting metrics reveal buyers who are more discerning but willing to pay premiums for the right properties.

Final thoughts

This quarter's auction results prepared by EIG suggests a trend where capital is becoming increasingly discriminating.

With the Bank of England signaling potential rate cuts later this year, current buyer hesitancy may eventually give way to more aggressive bidding as financing costs ease up.

HMRC is tightening its grip on the property sector with tax changes and compliance crackdowns according to Property Reporter.

Landlords and property owners who've enjoyed certain tax benefits are about to feel the squeeze—with digital filing requirements and higher stamp duties underway.

With property contributing significantly to the UK's "tax gap" (the difference between taxes owed and collected), authorities are determined to collect what they're due.

Breakdown of the tax changes

• Stamp duty hikes: First-time buyer relief threshold drops from £425k to £300k in April 2025. A new 2% rate kicks in for purchases between £125,001-£250,000, while the additional property surcharge jumps from 3% to 5%.

• Holiday letting benefits vanish: Furnished holiday lettings (FHL) will lose their special tax status in April 2025. Gone are the exemptions from finance cost restrictions, capital allowances advantages, and pension relief benefits that made these investments attractive.

• Digital tax filing expansion: The Making Tax Digital (MTD) program—which requires digital record-keeping and quarterly tax returns—is rolling out to smaller landlords in stages:

Who's impacted

• Small landlords: Hit hardest by the combination of MTD compliance costs and lost tax benefits, especially those with furnished holiday properties.

• Property Investors: Higher stamp duty makes property flipping and portfolio expansion significantly more expensive.

• Tax Professionals: Investors needing help with MTD compliance and restructuring advice should seek these professionals.

• HMRC: They stand to gain an estimated hundreds of millions in additional tax revenue.

The compliance crackdown

HMRC isn't just changing rules—it's actively hunting down non-compliance using sophisticated tools:

Their CONNECT system cross-references Land Registry data with tax filings "Nudge letters" targeting suspected under-reporters are increasing.

Property management agents are being forced to share landlord income data

Non-compliance can trigger charges of 30-70% of unpaid tax.

The bigger picture

This property tax offensive mirrors global trends of governments targeting real estate for revenue.

With UK housing remaining in short supply and buy-to-let investors already squeezed by previous reforms, these changes could push out smaller landlords in favour of big firms with resources to handle complex tax compliance.

The question is - will these measures finally cool the UK market or simply change who owns it? one thing is clear: the days of casual property investing with minimal tax oversight are coming to an end.

The infamous Section 21 “no fault” eviction—is officially on life support. And the plug is being pulled very soon.

There’s still a brief window to act before the rules change forever.

Let’s break it down…

What’s changing?

On “commencement day” (tbd, but likely late 2025), all assured short hold tenancies will be auto-upgraded to the new “Section 4A assured tenancies.”

No more new ASTs, and no more Section 21 notices after that date. It’s what the government is calling a “big bang” transition.

From that point forward, all tenancies are on new terms. If you haven’t served a Section 21 notice before the deadline, you’ll have to rely on actual grounds for possession (think: rent arrears, anti-social behaviour, etc.).

Transition rules

Let’s say you want to serve notice before the law changes. Here’s the process:

• You must serve a valid Form 6A Section 21 notice before Commencement Day (ideally by 4:30 PM the day before).

• Can’t serve it within the first 4 months of a tenancy.

• Must give tenants at least 2 months’ notice.

• If they don’t leave, you’ve got 6 months to apply to court.

BUT—here’s the twist:

If you’ve served a notice early (say, 3 months ahead of the fixed term ending), then your deadline to apply for possession is whichever comes first:

• 4 months from the expiry of the notice, OR

• 3 months after Commencement Day.

The legislation is still in flight, so consult an eviction specialist or solicitor for advice

Market catalysts to watch

This change doesn’t exist in a vacuum. Here’s what’s moving around it:

• Lending rates: Higher mortgage rates are already squeezing margins. If you can’t regain possession quickly, your stress-tested spreadsheet starts bleeding.

• Demographic shifts: Millennials and Gen Zs are renting longer. That’s good for long-term demand—but expect more tenant rights lobbying.

• Government pressure: With housing high on the political agenda, expect further pro-tenant reforms regardless of who wins the next election.

So what’s the play?

If you’ve got problem tenants or want to regain control of a unit, the time to act is now. Not next quarter. Not “after summer.” Now.

Here’s a checklist:

• Review all ASTs.: Anything shaky or nearing the end of term? Flag it.

• Decide if you want vacant possession. If yes, trigger your Section 21 while you still can.

• Get legal support—regulated legal support.

• Run the numbers. Post-commencement, factor in slower possession and higher legal cost into your cashflow models.

The silver lining

• Convert units to longer-term, higher-yield lets like HMOs or supported living.

• Leverage tenancy agreements with robust clauses under the new system.

• Focus on better tenant screening and building relationships—reducing the odds you’ll need to evict in the first place.

The landlords who win won’t be the ones moaning on forums—they’ll be the ones adapting fast, managing risk , and squeezing out efficiencies. 

From waitress to Real Estate wonder

Before Barbara Corcoran was a real estate mogul, she was a D-student-turned-waitress who had gone through 20 jobs by age 23.

Her big break came with a borrowed $1,000 from a boyfriend which she turned into a $66m exit.

Scaling the empire

What started with $1,000 turned into a $66 million payday when she sold her firm in 2001. But Barbara wasn’t done.

She took her street smarts and flair for showbiz to ABC’s Shark Tank, where she became one of the original Sharks.

Since then, she’s made 130+ deals, including turning a $50,000 bet on a wearable blanket (The Comfy) into a $468 million win.

She made her money by being strategic. When others panicked, she stood firm. Or, as she tells it:

So what can we learn from Barbara?

• Bet on yourself: If someone says you can’t do it, thank them for the fuel.

• Use what you’ve got: Play to your strengths—even if they’re weird.

• Create pressure to perform: She didn’t play it safe. She took on debt, hired before she was ready, and built systems she had to grow into.

• Laugh while you grind: Business can be brutal, but Barbara always made space for fun

• Make the deal then figure it out: Strategy matters. But so does swagger. Sometimes you leap before you’re ready—and land running.

Barbara is proof that your starting line doesn’t dictate your finish.

Whether you're pitching to an investor or just thinking of buying your first deal, take a page from Barbara: Show up scrappy and learn fast.

That's it for this week folks. Each week we'll cover strategies, updates and insights to help you succeed in real estate. We love this stuff!

If you Have questions or just want to chat, We want to hear it.

See you next time in your inbox!

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