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.
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:
Registering with a deposit protection scheme
Obtaining an energy certificate
Utilities, such as water and ground rent
Setting up a limited company
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.