Ah, the life of a landlord. It seems alluring: buy a property, let it out, and watch the rent flow in month by month. Yes, we have covered some of this already, but I do like to repeat myself, as my other half (OH) says, I love the sound of my own voice too much. She may be right. Anyway, let us have a quick recap. While rental income can be a consistent source of revenue, it’s crucial to remember that being a landlord isn't just a case of, ‘show me the money.’ There are several costs and considerations to account for which, might sometimes feel like they're eating into your profits.
Things break; it’s a fact of life. When they do, especially if it’s something crucial like the boiler or the plumbing, you can bet your tenant will be on the phone pronto. Repairs can range from minor fixes to significant overhauls. I have had everything from “My window latch is sticking” (fixed with a bit of WD40), to “The toilet has leaked into the front room downstairs.” The one thing I do not skimp on is setting aside a fix-it-fund. It's crucial in fact, to set a budget for any unexpected repairs or void periods between tenancies. However, remember to always keep any receipts you gather along the way - they might be a saving grace come tax time.
Unless you're one of the lucky few landlords who own their property outright, mortgage repayments will be a significant monthly expense. But here's a heads-up: remember the changes to mortgage tax relief, it's phasing into a standardised 20% allowance, regardless of the tax band, over the next four years.
The allure of the buy-to-let market is undeniably strong for many investors. While tenants might be covering utilities, you're on the hook for insurance. From buildings and contents insurance (dependent on whether you furnish or not), to landlord-specific cover like rent guarantee insurance, as with any investment, it doesn't come without its risks. From unpredictable weather damage to unforeseen incidents caused by tenants, the potential for property damage looms large. Get it insured, but remember, standard home insurance just won’t cut it.
Here's the doom and gloom bit. Landlord insurance for buy-to-let properties covers the unique challenges posed by renting out. Imagine a situation where a severe storm lashes your property, causing flooding in the basement. Perhaps subsidence causes significant damage to the foundations. Maybe there's a burst pipe in the dead of winter or, heaven forbid, a fire breaks out, devastating portions of your property. The financial ramifications of such incidents can be staggering. Repairing a burst pipe alone can strain your finances, and a catastrophic event like a fire could lead to significant losses including finding alternative accommodation for your tenants. Although there's no legal compulsion to have landlord insurance, think of it as a safety harness for your investment. Without the right protection, an unexpected setback could not only disrupt your cash flow but also leave you with a substantial dent in your finances.
Agency involvement can be a godsend, especially if you’re a landlord with multiple properties or one who’d rather not deal with the 2 am “The heating's gone out” calls. The convenience comes at a price, usually 10 to 15% of the rent. Think carefully how involved you want to be.
If this is to be your first rental property it is vital to understand the need for a robust tenancy agreement to be in place. This isn’t just for peace of mind; it’s a legal necessity. There are several ways to do this, the first, and probably most expensive, is to appoint a solicitor to oversee your agreements, ensuring they're airtight. The way I prefer is to use a pre-approved agreement from the National Residential Landlords Association (NRLA). This way I know that the agreement is up to date with all the relevant and current legal criteria necessary. The final way is to ask your letting agent, if using one, to arrange it for you.
Property Standards and Refurbishment
I’m not talking about having that Jackson Pollock available, it’s about keeping your property up to code and is a legal requirement. Whether it's improving fire safety measures, arranging electrical checks, or the additional considerations needed for Houses of Multiple Occupation (HMOs), there are associated costs. Not to mention the occasional need for a fresh lick of paint or updated décor, okay, so you can keep the JP print.
If you do decide to offer your property furnished, you will need to ensure everything from sofas to beds meets fire safety standards. This means the fire safety labels must remain attached to the furniture and be up to date. Plus, furniture has a lifespan. The wear and tear from tenants might mean more frequent replacements than in your own home, they’re just not as careful. Factor these costs into your budget.
Energy Performance Certificate (EPC)
Yes, I know I go about these the whole time, but they are an absolute must-have. Energy Performance Certificates (EPCs) are a necessary evil, and legal requirement, to ensure your property's energy efficiency is up to scratch. The good news? They last for ten years, making their £50 to £100 cost a once-in-a-decade expenditure. Maybe the not so good news, by 2025 your property must have a ‘C’ rating to comply with the governments net-zero targets.
Landlord Association Membership
As I said above, joining a landlord association can be invaluable. From providing legal advice, tenancy documents, to networking opportunities, the benefits are vast. Depending on the association and membership tier, you're looking at £50 to £184 annually. I am with the NRLA and have always found their help useful. Do make up your own mind though, not on commission here, lol.
There you have it, while the life of a landlord can undoubtedly be lucrative, it's not without its expenses. Having a detailed understanding of these costs, both recurring and one-off, is vital for success. A contingency fund can also be a game-changer, ensuring you're always prepared for whatever landlord life throws at you.
Until next time, keep your investment compass steady and your dreams of property prosperity alive!
The Anonymous Investor.