The UK property investment costs that foreign investors need to know

Understanding your property costs is essential to profitable investment

UK property is a popular choice for foreign investors. It offers participation in a strong and stable economy, decent yields, and property values that have doubled every 8 to 10 years on average historically. There’s a strong demand for homes that aren’t being satisfied by new house builds. Once you have decided to invest in UK property, one of the key things to do is ensure that the numbers stack up.

In this article, I explain what costs foreign investors must take into consideration when buying and renting our UK investment property.

Property management fees

You’ll need a reliable and professional property investment manager to look after your investment. They will:

  • Find tenants and vet them
  • Carry out property inspections, and advise on maintenance needs
  • Source maintenance professionals, and keep these costs to a minimum
  • Ensure that tenancy agreement is written to the letter of the law, and updated accordingly
  • Collect rent and pay it into your account

You should budget for between 10% and 20% of your rent as your property management charges.

Void periods

Most landlords suffer void periods. They mostly are unavoidable. A good investment property manager will help to keep these to a minimum, signing up a new tenant as soon as possible to keep void periods between tenancies as short as possible. However, during a void period, you will still need to pay your mortgage and other costs, which include:

  • Council tax, for which you are liable when the property is empty, though some local authorities may give a concession if your property is empty and unfurnished. (Here’s a great article that you should read to learn more about this: How to avoid the new council tax surcharge on empty properties’)
  • Utility bills, like the council tax, must be paid during void periods. Though there should be little to no use of electricity, water, and gas while a property is empty, you will still have to pay standing charges levied by suppliers to ensure that utilities are not disconnected, and the property is ready to be re-let.

Maintenance and repairs

If you are buying new build or off-plan property, one of the benefits is that property maintenance costs should be minimal or even zero. It could save thousands of pounds in repair and maintenance costs if you invest in existing property.

Annual service charges

Whether your property is occupied or not, any service charges and ground rent are payable by you. If you are investing in a property with a concierge service and a gym, common areas, and gardens, your service charge could be as much as £5 or more per square foot.

Income tax

Non-residents are taxed on their property investments in the UK. You may have to pay income tax on your rental returns in the UK and your home country, depending upon your tax status and your country’s tax agreement with the UK. However, most countries benefit from a double taxation treaty with the UK, so that most investors won’t suffer tax twice. You should check with your tax authority.

Your property manager should withhold 20% of your rental income as it is paid to them, though you may be able to avoid this if you register with the HMRC’s Non-Resident Landlord Scheme.

Furniture

Furnished properties are often easier to rent, and command a higher rental price. However, furniture suffers wear and tear, and you may need to replace every five years or so. It includes white goods such as fridges and washing machines. You should budget for replacement.

Other costs

You will also have other costs to consider throughout the life of your investment. For example, most buy-to-let properties must have Energy Performance Certificates and a Gas Safety Certificate at regular intervals. You will need to pay a registered and qualified technician to check your property and provide necessary certificates.

Making a sustainable investment

Your property investment doesn’t have to be cash flow positive from day one, but your costs must be sustainable. The higher your costs and lower your rental income, the more you may need to pay for the property to keep your investment afloat.

Thus, it is important to know and understand all the costs associated with investing in UK property. By doing so, you will be able to calculate your net rental yield, and decide whether the investment stacks up with the deposit you propose to pay.

Before you invest in property in the UK, contact one of the Gladfish team on +44 207 923 6100and ask about our two-year cash flow spreadsheet. It will help you conservatively define all your cost. With this done, you are more likely to make a successful investment today and provide for your future tomorrow.

Live with passion

Brett Alegre-Wood

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