If you’re a prospective landlord – or one of the many ‘accidental’ landlords who ended up in the deep end (head first) – it’s vital to have a thorough awareness of the costs associated with being a landlord in order to properly prepare your finances.
After crunching the numbers, it’s possible that becoming a landlord isn’t even realistic. Yes, that could be awful, but it’s a better option than pursuing a plan that doesn’t make sense in the first place.
Unfortunately, many people enter land lording without fully comprehending the ongoing expenditures of being a landlord, which generally involve a slew of unplanned expenses, and this has been a major source of failure.
- Don’t be a landlord like that.
- Costs incurred due to circumstances
- Management Fees for Letting Agents
- Landlord’s Permit
- Interest on a mortgage
- Insurance for Landlords
- Acquisition of a Tenant
- Periods of void/emptiness
- Registration of an Initial Coin Offering (ICO)
- Here are a few more expenses to think about.
Bills for utilities
In most cases, tenants are responsible for paying their own utility costs. Some landlords, on the other hand, include “bills included” in their rental agreements. If this is the case, it should be factored into the expenses as well as the rent cost.
Repairs and maintenance
The majority of the topics I cover fall under the category of “maintenance and repairs,” but in order to be as clear as possible, I’ll go through some of them in further depth below.
It’s impossible to ignore this part of being a landlord, and it’s nearly impossible to forecast how much you’ll spend on upkeep. Boilers, refrigerators, cookers, and plumbing systems all fail on me on a regular basis. However, there have always been years when I’ve gone without spending a penny on upkeep, while other years the prices have soared into the hundreds (which is frightening). In that regard, it’s similar to any other occupied residence.
Mother nature has also had her wicked way with me, blowing over garden fences. Not to mention tenants who do so much damage that the lease deposit is insufficient to cover the repair costs. How can you avoid or anticipate all of this? Impossible. That’s why it’s critical to have a cash reserve set aside to address these unforeseen events.
However, I will agree that the costs can be kept to a minimum. There are options for extended warranties, insurance coverage, and landlord emergency repair services. British Gas, for example, offers a landlord cover service for £15 per month that covers plumbing and electrical issues.
While it’s impossible to anticipate exact prices, you may have a good idea of how much you’ll spend on repairs and maintenance on an annual basis after a few years.
Property Dimensions
The larger the property, the higher the operating costs. At least, that’s the general notion. The reason for this is because there is usually more to break and maintain. Larger residences, on the other hand, are typically rented to families, implying that there are more people living in the home, particularly children. All of this adds up to an increased risk of breakage and wear.
Property’s age
In general, older homes are more expensive to maintain since they often have older features that are more expensive to repair and maintain than newer ones, as well as older boilers, heating systems, and electrics that can be costly to maintain.
Redecorating
You’ll probably have to freshen up the property every few years and/or after a few tenants. It’s a natural aspect of the landlord-tenant relationship.
Personally, I’ve discovered that the carpets, as well as the quality of the walls, suffer the most abuse, therefore I find myself repainting and laying down new carpets every three to five years per home.
Legal fees
The dark side of being a landlord.
Assuming you’re a good landlord who follows the law, the only legal charges you’ll likely face at some point are the cost of evicting and/or prosecuting rogue tenants. Unfortunately, this is more prevalent than most new landlords realise.
Dealing with a rogue renter may be soul-destroying, not just in terms of legal fees, but also in terms of losing money due to unpaid rent, which is typically the case.
Unfurnished vs. Fully Furnished
While furnished houses have higher rents and deposits, they also have greater maintenance cost for obvious reasons. Be careful that the extra rent sometimes does not cover all of the “fair wear” fees.
In this blog, I discuss the benefits and drawbacks of furnishing a BTL.
Pets
Are you a landlord who welcomes pets? Many aren’t, but there are a few who are. Tenants with pets, particularly dog owners, have a notoriously difficult time finding rental houses. Landlords, on the other hand, can (and do) take advantage of pet owners by raising their rent. However, keep in mind that dogs cause damage and may increase the overall expense of upkeep and redecorating.
Smokers
I debated whether or not to add it in the list. I’m aware that some folks are “sensitive” to the subject (mostly smokers). However, I believe it’s important addressing, and I know it’s a serious problem from personal experience.
Tenant smokers, like pets, can be damaging, especially if they are forced to smoke indoors (excellent tenants, on the other hand, will only smoke outside!). Smoke can cause damage, which can affect the total cost of redecorating at the conclusion of the rental.
Property that is leased
The majority of UK flats/apartments are leasehold properties – especially in the South of England – and they’re a popular choice among many new landlords, owing to lower asking prices than freehold homes. However, focusing solely on the reduced ‘cost of entry’ might be a fatal mistake, as leaseholds often come with additional hassles and ‘operating cost,’ making the offer… less lucrative in the long run. Most leaseholds impose restrictions, which often include recurring ‘service cost’ and ‘ground rent,’ both of which can quickly become out of hand.
I’ve already written a blog post about whether or not I believe leasehold houses are suitable for BTL. In short, be aware that leasehold properties come with additional operating fees. So, if you’re thinking about buying a leasehold property, make sure you read the lease thoroughly and understand the charges. All of the expenses.
The summing up
In terms of money, there’s a lot to pay for, and depending on individual circumstances, it may be much more than “a lot.” It may even appear to be “blow your brains out” pricey (especially given the inevitable and unpredictable maintenance issues), and I wouldn’t blame you if you felt driven to abandon ship and invest in penny stocks instead.
Being a landlord isn’t as simple as many people imagine, and that’s because, as previously stated, it’s a people-based company, and people are fools… they’re often filthy, disruptive, and generally irresponsible. My tenants have shattered everything from bathtubs to my soul (by falling into arrears).
Make a backup plan.
One of the most common mistakes made by new landlords is failing to plan for unforeseen expenses. Being financially unprepared can destroy a landlord’s business and cash flow, either in the form of cost debt or, worse, neglect of their responsibilities (e.g. ignoring tenants maintenance issues).
The “grab and run” strategy might be very seductive, and you aren’t the only person to fall for it. It’s something we’ve all done. As in, we grab and run when we see money in our account. However, this could result in a costly error. For more landlord matters if you are a resident of London you could contact solicitors in London W2.
