Letting out property is an increasingly popular way to make a
profit. However, there are many costs involved in being a landlord
that could take you by surprise. Luckily Towergate, the specialist
providers of Landlord Insurance have listed the top hidden
costs for landlords. View our short video or read about them in our
web guide below.
1. Advertising for the right tenants
The first cost comes before you’ve even rented out your property
– finding the tenants. The simplest route is to place an ad in your
local paper, which will cost around £40. You could save money by
placing an ad on free online services such as gumtree.com or by
using social networks such as Facebook or Twitter to spread the
word. Once you’ve found your tenants, don’t forget to get credit
checks and references. Credit check services can cost as little as
£10, and it’s well worth the money for the peace of mind.
2. Letting agent
The big question for many landlords is do you get a letting
agent or go it alone? There are two levels of service with letting
agents. The basic service is a tenant finder, which includes
handling all the advertising, interviewing and credit checks. This
will start at around 10% of the rental price. Look for an agent
that offers a ‘No let, no fee’ policy, to make sure you don’t get
charged should they fail to find someone. A full management service
will cost on average 15% of the monthly rent – which is a big chunk
of your profit. But in return they will find tenants, plus manage
the property for you, collect monies and pay bills and handle the
day-to-day relationship with the tenants. The pricing model of each
letting agency can differ widely, so make sure you check exactly
which costs are covered in the service and be aware of any
additional costs.
A standard home insurance policy won’t be enough for when it
comes to letting out your property and you will need to get
specialist cover. At the most basic, you will need to have
buildings cover. But, there are many other options you may want to
consider. If you let your property out as furnished then you should
look at getting the right level of contents insurance. It’s also
advisable to cover yourself for loss of rent and providing
alternative accommodation should your property become inhabitable,
plus cover for damage cause by tenants. And there are also legal
fees to consider should a tenant need to be evicted or takes you to
court.
There are different levels, and therefore costs, of insurance
depending on the type of tenant you have in your property. For
example, if you let to students you may have higher charges than if
renting to a single professional. It may be tempting to go for the
cheapest option when insuring your property, but lower levels of
cover could leave you open to risk. You are best going with a
landlord insurance specialist, such as Towergate, who can
tailor-make a policy to cover your precise needs. Not only will it
give you peace of mind, it could save you a lot of money in the
long term.
4. Property maintenance and safety checks
Keeping your property in good working order is another cost that
you will incur as a landlord. While some simple maintenance jobs,
such as looking after the garden, may be the tenant’s
responsibility, it is the landlord who is ultimately responsible
for keeping the overall building safe and in good repair. By being
vigilant and doing regular checks on the state of the property you
could stop small problems, such as cracks and leaks, from becoming
big, costly problems. You are also legally obliged to carry out
yearly safety checks on gas and electrical appliances, which can
cost anything between £40 and £100. Also, don’t forget the costs of
providing fire extinguishers and smoke detectors.
5. Cleaning
Once a tenant has vacated your property you will need to get it
into the best possible state for your next tenant. If it has been
left in a particularly poor state, you may be able to use your
tenant’s deposit to cover some of the costs. But more often than
not you should expect to pay for the cleaning and redecoration for
yourself.
6. Loss of rent from empty property
It is an unfortunate truth of renting property that you are not
always guaranteed to have the property rented for 12 months of the
year. More often than not you will face periods where your property
remains empty and the rent isn’t coming in. With more and more
rental properties on the market, it may take longer than previously
to rent out your property so you should be prepared for this
scenario. Make sure you have enough funds to cover you for void
periods. You may also want to consider taking out specialist
landlords insurance to cover you for loss of rent whilst your
property remains unoccupied.
7. Buy to let mortgages
Buy to let mortgages come with higher interest rates, higher
fees and you’ll often be expected to put down a larger deposit than
compared with personal mortgages. Even if you decide to let out
your own home, rather than buy a new property, you will need to
inform your mortgage provider and may be moved to a higher interest
rate. Make sure you work out the figures carefully and get
financial advice. If you do decide to go ahead, shop around to find
the best deal – your personal mortgage provider may not give you
the best offer.
8. Legal fees and administrative charges
Renting out property comes with a host of small charges that may
seem inconsequential on their own, but soon add up when put
together. These include:
- Tenancy agreements
- Registering with a deposit protection scheme
- Obtaining an energy certificate
- Utilities, such as water and ground rent
- Security measures
- Setting up a limited company
9. Tax
Whatever profit you make on renting out properties will of
course be subject to taxes. You will only be taxed on your profits
– as the costs of maintaining and managing your property will come
under expenses. So make sure you keep all your receipts for any
work done. You may even want to consider employing an accountant to
help you manage the process. While this is yet another upfront
cost, they could save you money in the long term.
10. Your time!
One cost that many people seem to forget about is their time.
Letting out a property will take time and energy, from finding and
meeting tenants to maintaining the property. Even if you use a
letting agent, there will still be times when you will need to get
involved. But with careful planning your time could be well
rewarded as a landlord.
