The Costs Of Being A Landlord

Feb

If you are thinking of becoming a landlord and investing in property, it’s important to have a comprehensive understanding of the costs involved, in order to plan your finances and expectations.

Having spent the majority of my working life letting and managing rented properties - I could write a book on the experiences alone (but that’s for another day!) – I am regularly asked by first-time investors what are the typical ‘running costs’ to budget for. So I’ve put together a brief outline of these day to day costs – this list isn’t exhaustive, but it should cover the majority of eventualities.

Under the Landlord and Tenant Act and various Housing Acts and other property-related legislation (over 170 in all!) a landlord has many legal obligations, which mainly come down to the provision of good living accommodation, with adequate services and safety measures. Obviously there’s a lot more to it than that, but this is where it starts. Another thing to remember is, a good tenant is more likely to stay in a well maintained property and make it their home.

Mandatory (Legal) Requirements
General Costs

So, what are the costs of being a landlord?

Expense	Description	Estimated cost
Energy Performance Certificate (EPC)	Must have a rating of E or above. Required every 10 years.	£80-100 Every 10 years
Gas Safety Certificate	Annual requirement – it’s always advisable to have boilers serviced at the same time, to reduce maintenance.	£80-100
Electrical Installation Condition Report (EICR)	Every 5 years	£150-200 Every 5 years
Portable Appliance Testing (PAT)	All non-fixed appliances (anything with a plug)	£20-50
Smoke and carbon monoxide alarms	Minimum one smoke alarm on each floor and a carbon monoxide alarm in every room with a solid fuel appliance (new legislation expected, extending this to all combustible appliances)	£10-20 per alarm
Legionella Risk Assessment	Landlords have a responsibility to ensure their tenant(s) are not exposed to health and safety risks	£120-160 every 2 years
Income Tax	Rental income is subject to tax. Property expenditure can be offset against income tax so landlords are taxed on their profit	20% (basic rate) or 40% (higher rate)

Expense	Description	Estimated cost
Mortgage repayments	Mortgage repayments will depend on the amount borrowed, interest rate and term of mortgage	Individual
Landlord Insurance	Landlords are responsible for the following insurances Buildings Contents (carpets and any other furnishings) Additional insurances can be taken out to safeguard loss of rent with/without a tenant, legal costs, etc.	£150-300 per year
Maintenance & Repairs (general)	In short, everything you provide should be maintained – includes plumbing, heating, electrics, appliances, fixings, fencing, etc. and it really depends on the age and condition of the property. It’s worth looking into a British Gas service contract which covers all maintenance and boiler parts, and can extend to plumbing and drainage too.	Can be anything between £0 and £1000 per year
Maintenance & Repairs (wear & tear) - long term	This relates to structural repairs such as windows, roof, gutters, replacement kitchen, bathroom, carpets, boiler and redecoration (est. every 5 years) – it’s advisable to build a ‘sinking fund’ if you’re in it for the long term. It’s also worth remembering that a poorly maintained property will not let as easily, and fixtures & fittings do become outdated eventually.	Ideally 5-10% of annual income
Leasehold Properties	Leasehold properties are usually subject to ground rents and service charges (these would normally cover insurance, building repairs and sinking fund). Service charges are individual to each block/development.	Can be between £500-£1500 per year
Letting and Management costs	A good letting & managing agent will source and help you select the right tenant and look after your asset throughout, manage your maintenance, ensure you are legally compliant and maintain a good relationship with your tenant in an ever-changing industry	12-14% of annual income
Empty/void periods	Most rental properties will let and re-let quickly if they are well maintained and priced correctly. An average tenancy can be around 20-24 months – you might allow for a one month void every two years (unless you allow extra time for decorating/maintenance)	Est. 4% void period allowance

Dawn Clarke

[email protected]

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