Being a buy-to-let landlord has been a dream of mine, pretty much ever since Homes Under The Hammer first came into my life!
However, with the continual rising costs added onto the bills of buy-to-let landlords, it’s something I would need to give careful consideration to when the time comes.
I’m here to make money, not lose it.
I have two friends who rent out properties and neither speak very highly of it, mainly down to problem tenants.
I might add they both are also very financially secure and are driving around in £50k cars – can’t be all that bad can it?
The world of property letting can be an extremely lucrative business, you just need to be aware it doesn’t come without its issues and added costs.
But, when it comes to investing, bricks and mortar are still right up there with the best options.
Here is a list of the hidden costs of being a landlord so you can make your own mind up before dipping your toe in buy-to-let properties.
Letting agent fees
High-street letting agents
A high-street letting agent will start their fee at around 8% of the rental price for a pretty basic service.
Keep your eye out for agents that offer a ‘No Let, no fee’ policy, that way there is no charge to you if they fail to find you a tenant.
Full management services cost on average 15% of the monthly rent – that’s a pretty large slice of your pie.
Pricing differs widely between agents, so be sure to check exactly what your money is covering in terms of their service.
Always keep your eye out for any additional costs.
Online letting agents
These types of agent usually charge a set fee for their service, generally in the region of £50.
As with the high-street agents, there will be varying levels of service that they provide.
Ranging from the simple stuff like finding tenants, referencing and signing contracts, to a fully managed service throughout the duration of the let.
Do it yourself
This will certainly save you money, but be prepared to lose your time.
Most of the work is initially finding and referencing potential tenants, keep them happy after that and you can sit back and chill.
Finding your tenants
Before you can rent out a property you need to find the tenants – DOH!
Your letting agent may do this for you, depending on what service you’re paying for.
If you’ve decided to source them yourself, you could use services such as spareroom.co.uk or Gumtree.
Standard home insurance policies don’t cover the same risks as a landlord insurance policy.
When you’re ready to let your property you will need to ensure you have specialist cover in place.
The most basic is buildings cover, but there are a lot of options you will want to consider by speaking to an expert such as HomeLet.
If you are letting your property furnished then you should definitely have contents cover.
I would strongly advise you also cover yourself for loss of rent as you just never know what is coming around the corner.
Landlord safety check and maintenance
Maintaining your property to keep it in good working order is a cost you can’t escape from as a landlord.
Some maintenance jobs such as looking after the garden, the tenant might be responsible for, however it is the responsibility of the landlord for keeping the building safe and in good repair.
Regular checks on the building can help to stop small problems such as cracked walls and leaks, from ending up as big, expensive problems further down the line.
You are also legally obliged to complete annual safety checks on gas and electric appliances, which generally cost between £40 and £100.
Once a tenant leaves your property you will need to get it back into the best possible state for your new tenant.
If it has been left in a poor state, you may be able to use some of your tenants deposit to help cover some of the costs.
However, more often than not, expect to pick up the tab for cleaning and redecorating yourself.
As great as your property may be, you’re not always guaranteed to have your property occupied 12 months of the year, every year.
There’s a lot of competition out there and your property could lay empty at times until you find the right tenant.
It is important to have enough emergency funds to fill any void periods.
It’s also worth noting that you will be responsible for covering the utility bills whilst your property lays empty.
To cover yourself against times when your tenant can’t pay the rent, you can purchase rent guarantee insurance and you will still receive the payment.
It costs a little extra, but it’ll be well worth it if anything was to go wrong.
Again, I’d recommend you speak with an expert such as HomeLet.
Buy-to-let mortgages come with higher interest rates and fees, plus you’ll be expected to cough up a much bigger chunk of cash for your deposit compared to personal mortgage.
If you decide that you want to let out your own home instead of buying a new property, you must inform your mortgage provider and may be moved to a higher interest rate.
Seek financial advice and make sure your figures all add up.
If you decide you want to go ahead don’t just assume your current provider is offering the best deal, it may not be the case so shop around.
Legal fees and admin charges
When you rent out a property you can expect to pay several small charges that seem cheap at first glance but soon add up!
- Tenancy agreements
- Registering with a deposit protection scheme
- Obtaining an energy certificate
- Utilities, for e.g. water and ground rent
- Security measures
- Setting up a limited company
Landlords income tax
There’s no such thing as a free lunch, and every penny of profit you make is subject to taxes.
You are only taxed on any profit you make, the costs of maintaining and managing a property comes under expenses – so keep ALL your receipts for any work you have done.
Consider employing an accountant, while it is another cost added to your list, it could end up saving you money in the long run.
As you can see, there is a lot to consider, so make sure you always do your research and speak to a professional!
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