An Introduction to Buy-to-Let Costs

To reduce your costs, understand what they are

In our last two articles, we examined the nature of rental income and how to maximise it. Buy-to-let investment is a business, and, like all businesses, there are costs of running a buy-to-let property. Maximising rental income is only part of the equation to maximise your buy-to-let profits. As well as maximising your rental income, you should aim to keep your costs as low as possible. This doesn’t mean cutting corners. It means being a sensible, strategic cost-cutter.

In this first of two articles, you’ll learn about the costs you may incur as a buy-to-let landlord. You will be much better prepared to reduce your costs and maximise your profitability.

Mandatory costs

There are some costs that you must pay. You can’t get out of them, because there are some things you must do by law – like ensure the electrical safety of your property, and gas safety:

·      Energy Performance Certificate (EPC)

Your property must have an EPC, which is valid for 10 years. The cost for an EPC averages around £90.

·      Gas Safety Certificate

Your gas appliances and fittings must be checked each year. This must be done by a Gas Safe registered engineer, who will issue you with the Gas Safe Certificate. The cost is around £90.

·      ICO registration

If you store tenants’ details electronically, you must register with the ICO (Information Commissioner’s Office), under the Data Protection (Charges and Information) Regulations 2018. This will cost you either £40 or £60, depending upon circumstances.

Non-mandatory costs

Other costs that you may incur as a landlord depend upon your individual circumstances. For example, you may or may not finance your investment with a mortgage. These are the costs that you can reduce, or perhaps even eliminate.

·      Mortgage interest

For most landlords, mortgage interest is the biggest cost. This is an expense, reducing your profitability. The exact cost depends upon the size of your buy-to-let mortgage and the interest rate that your lender charges. Mortgage interest is paid monthly.

·      Acquiring a tenant

Unless you let your property to a friend or family member, you will probably need to advertise your property to attract tenants. How much depends upon what route you take. You may advertise online, in newspapers, or use a letting agent or property manager to acquire tenants. Each time you change tenants, this cost will occur. According to official government figures, the average tenancy in the UK private rented sector (PRS) is 3.9 years. Therefore, expect this cost within every four years.

·      Void periods

Void periods usually occur between tenancies. If the average tenancy is 3.9 years, you should allow for a void period accordingly. The average void period is 21 days (though most of our vacant properties are tenanted much faster). The longer the void period, the more it will cost you. While your property is untenanted, you have no rent coming in. During a void period, you must still pay your costs, such as the mortgage interest. The cost of a void period varies, depending on how long it is and your exact costs.

·      Property management fees

Typically, property management fees are around 10% to 15% of gross rental income. Property managers offer a range of services. These include tenant vetting and acquisition, property inspections, repair and maintenance, chasing and collecting rent, tenancy documentation, and so on.

·      Landlord insurance

While it isn’t mandatory, landlord insurance is highly recommended. You insure your car, your home, your life, your pets… why wouldn’t you insure your buy-to-let property? Landlord insurance can cover a multitude of events and situations, including unpaid rent and property damage. The average cost is around £180 per year.

·      Repair and maintenance

You can’t avoid this cost, but how much the cost will depend upon your individual circumstances, your tenants, and your property. Common causes of repair and maintenance costs include faulty boilers and white goods, defective plumbing, and redecorating costs.

It is difficult to put an average on repair and maintenance costs. Some years you won’t spend a single penny. Other years it will seem like everything breaks down. Generally speaking, the older and larger a property is, the higher the repair and maintenance costs will be.

Other costs you may incur

Other costs that you may incur include legal fees to deal with a nightmare tenant (which is why it’s important to maintain a good landlord/tenant relationship and inspect the property regularly).

If you plan to furnish your buy-to-let property, you are likely to incur more wear and tear costs. However, furniture packs for landlords help properties command a higher rental price.

If you allow tenants to have pets (and many landlords won’t), you should be prepared for higher maintenance costs. Soiled carpets, chewed furniture and scratched paintwork are a few of the problems that pets can cause. However, most landlords will charge a premium to cover such possibilities.

In summary

Summing up, there are a lot of costs that may apply to you as a buy-to-let landlord. Looking at the list above, you might have the impression that it is too expensive to even consider investing. But it’s not. If it were, there wouldn’t be almost 5 million households living in the private rented sector.

If you invest in the right property at the right price, there is room to make a substantial profit from rental income and capital gain. With the right property and strategies to maximise rental income and reduce costs, your investment will change your life.

To learn more about profiting from buy-to-let investment, contact Gladfish today at +44 207 923 6100.


Ritesh Patel

Ritesh Patel
September 25, 2019

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