Landlord costs

What Does it Cost to be a Landlord?

6 August 2020 Simon Banks Read time: 3 min
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Simon Banks

You can see why people get excited about the idea of owning a buy-to-let investment. Being a landlord offers many benefits, such as having a short and long-term investment rolled into one. But it's not without its expenses.

There are a fair few costs involved after you've paid your initial outlay on the property. So while it's true that you get to enjoy a regular rental income while your rental property hopefully grows in value, you will still need to do a few calculations so that it all adds up.

If you're not a big fan of maths or aren't sure about the costs involved with being a landlord, worry not. We've put this guide together that details everything you need to know when it comes to expenditure, from services charges to mortgage repayments.

Buy-to-let mortgages

The majority of landlords who purchase a property for investment do so with a buy-to-let mortgage. Compared to a regular mortgage, buy-to-let options incur lower monthly repayments. This is because most of them are interest-only.

Buy-to-let mortgage

However, unless you've paid for your property outright, you will need to pay a monthly repayment fee for the mortgage. The amount depends on your borrowings, but it's safe to say that mortgage repayments will be the primary cost landlords should factor in when working out their finances.

Service charges and ground rent

Most buy-to-let purchases are apartments, especially in cities like London and Manchester. And apartments are usually bought on a freehold, meaning there are ground rent and services charges to pay during the year.

Service charges are the more expensive of the two, and you have the choice of paying monthly or in one lump sum. Ground rent is usually much cheaper and needs paying twice yearly. The average service charge is around £150 per month, while the ground rent averages around £300 a year.

Letting agent fees

There are many ways to let your property. These include using an online agent, the complete DIY approach which sees you advertise the property without any help, using renter-exclusive platforms or instructing a letting agent.

To let sign

All of them come with a cost, though the amount varies depending on the method. Going it alone is the cheapest option but still incurs costs, such as referencing renters. No matter which method you use to let your home, expect there to be some form of cost associated. If you're using a letting agent, expect to pay between 8% and 14% of your annual rental income. 

Property checks

Before a renter moves in, you will need to carry out electrical tests, gas safety checks, get an energy performance certificate and more. These are part and parcel of letting a home and fall under your responsibility.

Costs vary, with gas safety checks usually starting from around £35 – though it's dependent on the size of the property. EPCs, electrical safety checks, legionnaires test et cetera all vary in price, costing between £50 and £150. Some tests, such as the gas safety check, must be carried out annually. While an EPC needs doing once every 10 years.

Insurance

With so much invested in bricks and mortar, it's vital that you safeguard yourself against any potential issues. Paying for insurance might seem like a burden at first, but it's much cheaper than forking out for severe damages to your property – especially if the worst happened, such as a fire.

There are different insurance types, but the most popular one is the buildings insurance (also known as landlords insurance). This covers you against damage to the exterior of the property, as well as the inside fixtures and fittings (excluding furniture).

Other insurance types include rent guarantee insurance (in case the renter can't pay rent) and home emergency cover (for any unexpected emergencies in the property). Insurance costs range between £100 and £300 per year.

Wear and tear

Wear and tear is an annoyance for all landlords, but it's something that should be expected. Over time, furniture needs replacing, walls need painting, and new carpets need laying.

Tattered chair

Fortunately, replacing wear and tear isn't something you will need to do regularly. But you should keep in mind that you will need to pay for new items around the home every now and then.

Covering the costs

As you can see, there are a few financial outlays involved with being a landlord. And while it might seem like a lot at first, the good news is that you can offset most of these costs against the tax due on your property. You might pay upfront, but you will save when it comes to filing a tax return.

Landlord success

Buying a rental property can be a fruitful investment, as long as you do your calculations and are aware of the costs involved. But this information isn't to scare you off; it's to prepare you for being a landlord. And now that you know the financial outlay required, you can feel more confident about making decisions that will help you make the most out of being a landlord.

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