Investing in a buy-to-let property can be a great way to earn some extra income but it’s usually not as straight forward as securing a buy-to-let mortgage and getting tenants in to cover repayments (with hopefully extra on top of that for you too). There are various costs that are easily incurred in managing a rented property, year upon year. Before any significant property investment is made, it’s good to go in with your eyes wide open and after doing the maths, helping to ensure you’ll still be in profit. Here’s a list of the most likely costs that can be incurred as a landlord.
The biggest cost for most landlords will be your mortgage repayment. Many landlords will have taken out a buy-to-let mortgage and plan to use rent payments to pay against their monthly mortgage repayments. Those initially looking into becoming a landlord should consider that larger deposits are often required to obtain a buy-to-let mortgage and that interest rates can be higher. All landlords should remember that their property might not have paying tenants 12 months a year and gaps between old and new tenants will require mortgage payments to be covered by other means.
Letting agent fees
Leading on from the previous point, finding new tenants as fast as possible is key, keeping rent money coming in in order to cover mortgage costs. One of the most effective ways to advertise your property is through a well-respected letting agent who can manage all the marketing and viewing of your property for you, getting you the right tenant in and fast saving you time, effort and money.
Now a serious consideration for landlords since changes were brought in earlier this year, many landlords will be paying more in tax since tax relief is being slashed increasingly and will eventually only be offered at the basic rate of 20% by 2020. In the 2017 – 18 tax year, 25% of financial costs will be subject to the new tax relief criteria, increasing to 50% the following year and 75% in 2019 – 20 before fully implementing from the 2020 tax year onwards. You can read more about this in our previous post on the topic here.
Taking out insurance is a must as it protects your property investment and helps your tenants, safeguarding against potential future issues. As with all insurance, it’s a good idea to shop around for the best deals and there are varying degrees of coverage, with ‘bolt on’ extras such as legal coverage should you need to evict a tenant, and things like content insurance for furnished properties, that can be well worth investing in. At the very least you should have building coverage and many mortgage lenders make this a requirement. Extras like rent guarantee insurance can provide peace of mind if there ever is a time that your tenants cannot pay rent or for periods between tenants.
Repairs & maintenance
Find the right tenants with the help of a reputable letting agent and they should look after your property like it is their own. However, we all know that wear and tear eventually builds, fixtures break and common areas require maintenance too – all costs that will eventually creep up down the line that need to be considered. Regular checks to your property can help smaller problems from developing into larger, most costly issues and establishing whether you or your tenants are responsible for areas like gardens and stairwells is a good approach.
There are legal requirements in place that require all landlords to get safety checks carried out and obtain up-to-date certificates before a tenant is allowed to rent from you. These include Energy Performance Certificates (EPC), Gas safety certificates and installing smoke and carbon monoxide meters – all costs that won’t break the bank but that are essential and that require renewal – every 10 years for your EPC and annually for Gas Safety Certification.
For further information, please download our comprehensive Landlord Guide to Letting here.