Becoming a landlord is an exciting proposition, but what a the key landlord costs you need to consider before doing so?
We explore 11 common costs below. How many were you expecting?
The first thing to be aware of is if you’re planning to rent out the property you previously lived in, you’ll need to inform your mortgage lender of the change of occupancy status.
This will more than likely result in an increase in your rates in order to move your existing payments in line with current buy-to-let mortgage rates.
If you’re not on a fixed deal, you can reduce the cost of this by shopping around other buy-to-let mortgages to ensure you get the best price.
Many new landlords get caught up in the dream of capital growth and regular rental income, but the experienced ones know that you won’t always have it your way.
Void periods are going to happen, so you need to keep some finances in reserve to cover any loss of rent. Research has shown that renters typically stay in a property for 18 months and it usually takes about three weeks to fill a vacant home. Therefore, keeping the equivalent of one month’s rent per property back per year is a good way to protect against void periods.
If you’re unsure of the best ways to attract tenants, consider using a letting agent to fill your property quickly and reduce losses.
Looking after one rental property can feel like a full-time job, never mind an entire portfolio. That is why many landlords choose to use a property management service.
These services come in different forms, from only finding tenants to full management of deposit and rent collection. They can also mean you don’t have to deal with the tenants directly, which is useful if you’re time-poor.
If you’re happy managing tenants yourself then you can probably save a few pounds, but this will require a lot of leg work and you’ll need to keep up with changing subtleties of the law to make sure you don’t tread foul.
As a landlord, you’ll be responsible for the health and safety compliance of your property.
This includes things like ensuring there is a working smoke detector on every floor and carbon monoxide detectors in all rooms that have a solid fuel burning appliance.
These all need to be tested on the first day of the tenancy. Bear in mind here that “testing” doesn’t just mean pressing the button – that will test the sound, but not whether the alarm actually works. To do this, you’ll need special appliances, such as canned smoke.
Health and safety compliance will vary depending on the type of property and rental, so be sure to understand exactly what your responsibilities are.
This is one of only two points in this article that we haven’t provided a cost-cutting tip for. The price for these appliances isn’t high and why would you want to cut corners on something so important anyway?
In order to rent your property, there are a few certificates you’ll need to keep up to date.
The first is an EPC (Energy Performance Certificate), which needs to be completed every 10 years. This is a legal requirement that assesses how energy efficient your property is and you need to have this before viewings can take place.
You’ll also need to a Gas Safety Certificate, which needs to be completed every year. Again this is a legal requirement.
Like the point above, these don’t form a huge cost per property.
Just as you need to be prepared for void periods, so to do you need to be ready for maintenance costs. The impact of these can be reduced by conducting regular checks and spotting issues before they become a massive problem.
For some elements of your property, such as the boiler, you may be able to get dedicated cover, allowing smaller monthly costs instead of large surprise ones.
If you’re renting out a leasehold property, some structural maintenance may be covered by the responsibility of your freehold landlord. Just be sure to understand any restrictions on this listed in your leasehold agreement.
If potential maintenance costs are a serious worry for you, consider investing in off-plan property, which comes brand new and with warranties. Learn more about the benefits of off-plan property investment.
Most landlords lose sleep worrying about serious damage being done to their property, whether as a result of an accident or negligence. Therefore, it is important to ensure you have the right insurance.
Your standard home insurance policy won’t be suitable for renting, so you’ll need a dedicated landlord policy. This should not only including basic things like buildings cover but also things like contents (if you’re letting the property furnished) and providing alternative accommodation should the property become uninhabitable.
Again, the details of the insurance you need will depend on the type of property and whether it is a freehold or leasehold, so take the time to research your options.
This point is really a warning on why you should take your duty as a landlord to provide high-quality accommodation seriously.
Tenants are sometimes, wrongly, seen as just a source of income and capable of putting up with a lot. In reality, though, keeping your tenants happy is essential to keeping costs low.
One reason for this is that happy tenants tend to stay longer, cutting down on void times and providing more stable income. The other, more frightening, reason is that the legal ramifications can be large.
Not using a tenant deposit protection (TDP) scheme can, for example, result in landlords being taken to court and being ordered to pay back three times the amount of the original deposit.
We could have included this in our point about insurance, but it’s so important we thought it deserves its own point.
Loss of rent can be a serious problem for landlords, especially since serving a Section 21 notice to evict can mean up to six months without rent.
As alluded to, landlords can get insurance to cover the loss of rent, which you should certainly do. If you’re using a property management service, you may also find they guarantee rent payments for a certain time period, though these obviously differ from company to company and come with their own set of small print.
We mentioned previously that if you’re going to manage your property yourself, you need to keep up to date with the latest changes in the law.
Well, one that comes into effect on 1st June is the Tenant Fees Act, which bans charging tenants for things like reference checks. This may result in increased fees from letting agents who rely on these charges.
One easy way of making sure you don’t pay more is to manage the paperwork on your own. However, if the ban does result in increased charges from letting agents, you’ll likely find many landlords on the market and agents competing with each other for new clients, so there may be some deals to be found.
Our last landlord cost you should consider is managing your finances. As with any income, you’ll have to pay tax on any profit you make from renting, so carefully tracking your finances is essential to making sure you don’t pay too much.
Accountancy software is available at a low cost to help you manage your finances and keep track of the running costs of maintaining your property. This can save you from having to keep a filing cabinet full of receipts and invoices.
Alternatively, consider hiring an accountant to manage your finances for you.
Yes, this article has been about landlord costs to consider, but does that mean we only have to talk about the negatives?
Despite the costs, becoming a landlord can still be a fantastic way of planning for your retirement, supplementing your existing income, or creating a new career altogether. The key is to find the right location to invest in.
We specialise in helping investors from across the world find their perfect property investment. Get in touch to find out how we can help you.