The eight hidden costs of investing in property in the UK

Don’t invest without including these costs in cash flow projections

Investing in property in the UK incurs several costs which the investor must allow for in their calculations. These are on top of mortgage interest payments. The mistake that many beginner investors make when assessing property investment opportunities is not allowing for all investment costs. It throws their cash flow projections out, and what they originally calculated as a cash flow positive buy-to-let is anything but.

In this article, you’ll learn about the common costs you’ll pay when investing in property, but which are easy to overlook in the excitement of the investment process.

1.      Research fees

Property research is imperative to investment success. You’ll need to ensure that you buy the best property in the best places to invest in property UK. To do this, you must assess the property fundamentals associated with a location – shops, schools, transport links, major employers and major investment.

Property research takes time, knowledge and experience. The more you do, the better you’ll get at it. You’ll need up-to-date data when compiling your location assessment. There are several databases and research firms that offer subscribers their research. Many of these charge for their services.

Of course, you could simply download Gladfish property research. It’s free, and we research 108 data points across 324 UK areas to uncover tomorrow’s property hotspots today.

2.      Building inspection

After you’ve had an offer accepted on a residential investment property, you should have the property inspected. Older properties tend to hide their faults. You may not have realised these on your first appraisal, and so it’s important to have a professional make an in-depth assessment.

Issues that might come to light may be small and inconsequential. However, they may also be major problems, perhaps structural in nature. The earlier you discover these, the more leeway you’ll have in further price negotiations.

A building inspection usually costs a few hundred pounds but could save thousands down the line.

3.      Property valuation costs

Before it extends financing to you to fund your investment, the bank or mortgage lender will carry out a property valuation. Some lenders may ask you to pay this fee, while others may add it on to the mortgage amount with any other charges (such as arrangement fees).

The lender will insist on a valuation. It wants to know that the property is worth enough to repay the loan should you default on the mortgage.

4.      Mortgage broker fees

Most buy-to-let mortgage brokers earn their money from the lender. You won’t have to pay them directly. However, make sure you ask before signing. The last thing you want is to be slapped with a bill you weren’t expecting.

5.      Stamp duty

Depending on the price of the property you are buying, you will need to pay stamp duty land tax (also known as stamp duty, or SDLT). If the property you are buying costs less than £40,000, there will be no stamp duty to pay. Above this price point, stamp duty on a second home or investment property rises to as much as 15% for properties valued over £1.5 million.

If you buy an off-plan property, you won’t have to pay stamp duty until the property is fully constructed and you complete on the deal. Some developers warp the stamp duty in with the purchase price, so it’s always worth asking if this is the case.

6.      Insurance

As a buy-to-let investor, you really should take out landlord insurance. It usually costs no more than two or three hundred pounds a year. The cover could include defaulted rental payments, damage caused by tenants, and public liability insurance. Do you need this? There is no legal obligation, but not having landlord insurance could cost thousands and more.

Consider the situation in which a tenant falls in his home. The fall is caused by a loose stair carpet, and you are deemed responsible. You’re taken to court and find yourself having to pay medical bills, and costs for the tenant’s ongoing disability and inability to work. And just for the final kick in the undercarriage, you must pay all the legal costs, too. You could be hit with tens or even hundreds of thousands of pounds.

So, my advice is to not let a property without landlord insurance in place.

7.      Solicitor’s fees

Whether you use a conveyancer or a solicitor to negotiate the legalities of a more complex property investment, you’ll have legal costs to consider.

Especially when purchasing off-plan property, you should use a solicitor. They will ensure the process is conducted legally, and that the contract is written to protect you as a well as the developer.

8.      Property management fees

Okay, so you’ve done the deal and completed on the property. Now you need to get it let, and then maintain it. You’ll need to vet the tenants, conduct property inspections, compose property inventories, and chase and collect the rent.

If you don’t want a second job of being a landlord, you’ll need to hire an investment property manager. They will do the day-to-day donkey work for you, allowing you to enjoy the fruits of investing in property. But this, of course, costs. Typically, you’ll be charged between 10% and 15% of your gross rental income.

The complete cash flow worksheet

When we help investors find the perfect property investment for them, we insist that a comprehensive cash flow worksheet is completed. It should ensure that there are no surprises in your finances and no financial roadblocks to achieving your investment objectives and lifestyle goals. Contact one of the Gladfish team today on +44 (0)207 923 6100 for more information.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
June 23, 2017

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