Hidden Costs of Buy to Let

27 Jul 2017

Hidden Costs of Buy to LetIf you are thinking about investing in a buy to let property its really important to be clear and informed about ALL costs involved. Its not just a case of saying, that’s the rent I’ll get per month and thinking happy days! (Unfortunately!)

When you purchase a buy to let property there are some important and substantial costs you need to consider:

THE PURCHASE

  • Conveyancing cost – usually around £750 per property.
  • Second property tax (if this is a second property it will be subject to a 3% tax) so property purchase price @3% payable upon purchase.

GETTING IT READY TO LET (costs before a tenant moves in)

  • Regulatory safety certificates – I would suggest building in around £500 for this. There are various certificates that you need to prepare prior to a tenant signing a lease and the costs depend on the condition of the electrics, boiler etc but I would suggest a buffer of around £500 to get all of these
  • Cost to furnish – does the property need to be furnished or have white goods. Some properties and locations rent much more quickly and for better rents if they are furnished so you need to do your homework to find out if this applies to your property.
  • General maintenance – tenants have high expectation so the property needs to be well presented- be clean and tidy, paintwork in good order, decent flooring etc- dependent on the property you buy, does any of the internal décor need addressed before a tenant moves in?
  • Keys – generally you need to have multiple sets of keys for the incoming tenants, yourself and agent if you are using one
  • Utility cost while the property is empty if you are doing any upgrading works – you are responsible for bills (gas, elec and council tax) until a tenant moves in.
  • Factor fees – these are always the landlords responsibility so these are a fundamental part of your purchase and yield calculations
  • Agent Fees – most agents wont charge you until the property is let but bear this in mind!
  • Insurance – you need to be sure you are covered, if it’s a factored building then it probably will be a communal policy but that’s something you need to check.

WHILE ITS LET (what to consider while the tenant is in place)

  • Annual /Periodic Safety Check – some safety checks needs reviewed annually so build in a figure for this, not too much, around £100 per year should cover it.
  • General Wear and Tear Upgrade allowance – the property needs to be kept up to scratch from a presentation point of view so build in a cost to redecorate every 4-5 years
  • Maintenance – repairing stuff! I would build in around £400-£500 per year for repairing items too
  • Agent fees – the general rule of thumb is 10% per month of your monthly rental income

TAX TAX TAX

Remember this is UK income for you as a landlord so you need to be clear from the outset what your liabilities are. You can offset any actual cost that relate to the day to day letting of the property- so agent fees, insurance, factor fees, repairing costs, regulatory certificate costs. Your will then need to prepare a self assessment on an annual basis to declare any income earned.

For more information or questions on buy to let investment please get in touch sally.beard@fineholm.co.uk