Keywest Estate Agents / Jan 21

Landlord Costs and Expenses Checklist

In the UK landlord costs can vary from city to city. Before investing in buy to property, you should put together a list of the costs and expenses involved with being a landlord.

There are many different things that you will need to budget for in order to run a profitable business. Things like, mortgage payments, insurance premiums, maintenance costs and taxes like HMRC rental property expenses. 

Most of your landlord expenses are relatively easy to plan out. Below is our landlord costs and expenses checklist every landlord should consider.

9 Landlord Costs you Need to Budget For

  • Mortgage payments
  • Landlord insurance
  • Decorating
  • Maintenance and repairs
  • Letting agency fees
  • Health & Safety
  • Paying Taxes
  • Finding tenants
  • Credit checks & referencing

You Must Pay Your Mortgage

Unless you own your property out right, you are going to have a mortgage to pay. Not paying your mortgage will obviously result in you losing ownership of your property. 

Mortgage payments are usually a landlord’s biggest monthly expense and rates can change over time. If like most people you have a fixed-term mortgage, you know what your monthly payments will be and they don’t ever change. 

Tracker mortgages, however, can fluctuate periodically with any changes to interest rates made by the Bank of England. 

If you have a tracker mortgage you will need to make the proper calculations to budget for any fluctuations.

Don’t Forget Your Landlord Insurance

Landlord insurance is essential. Much like mortgage repayments, landlord insurance premiums can go up and down. 

And just like your mortgage, you definitely don’t want to miss too many payments. Missing payments can result in you policy being cancelled and your property will be left uninsured.

 If the worst case scenario occurred you could lose your property and end up facing financial ruin. This is why landlords put mortgage and insurance payments at the very top of the list.

Time to Redecorate

It’s recommended that full redecorations should be carried out every three years. But you will always find work that needs doing in-between lets. 

You will usually need to clean and decorate the property after each tenancy agreement is terminated. 

This means you will need to put aside a budget specifically for buying paint. Unless you plan on doing it yourself, you should put some money aside to cover the cost of hiring workers. 

As a minimum, you should budget for the cost of having the property painted and professionally cleaned after each tenants term, usually 6-12 months.

The True Cost of Maintenance and Repairs

If you have read up on your landlord and tenant responsibilities, you know there are maintenance and repairs you will be responsible for. It’s important to budget for these so you don’t get caught off guard. 

Some of these will need to be performed more regularly than others. Rooves, white goods and boiler systems will only need to be replaced every 10-15 years, these are easy to budget for. Emergency repairs and general maintenance is much harder to budget for because it can vary with every property. 

A good general rule of thumb is to put aside 1% of the property’s total value for repairs each year. For example, if your property is worth £150k your annual repairs budget would be £1500.

Letting Agent Fees

If you hire the services of a letting agent the costs will need to be factored into your expenses budget. Most agents charge around 10 – 20% of the monthly rent income, which isn’t bad if they are good property managers. Keywest offers a fully managed service for 11%+VAT!

Landlords with 5+ properties usually seek the services of a property manager. Keywest can offer you a comprehensive service. 

But not all landlords use letting agents to manage their properties. A small number of landlords choose to manage their own properties and just pay a one-off fee to agents for finding tenants. 

Discuss all the potential fees and expenses in detail with your letting agent so you can effectively budget for them.

The Price on Health and Safety

Gas safety certificates cost around £60 per gas appliance. You will need to update gas safety certificates every 12 months in order to stay in compliance with the law. It’s also a legal requirement to have an Energy Performance Certificate (EPC) for rental properties.

It can cost anywhere from £60 to £120 to get your property on the EPC register. Your registration will then be valid for the next five years. It’s a small cost but it all adds up and it must be budgeted for.

How to Budget For Loss of Rent

There are two ways a landlord can experience loss of rent, void periods and tenants falling behind. Void periods are inevitable and simply cannot be avoided, but you can budget for them. The average void period for a rental property is 3 weeks per year. 

Experienced landlords recommend you should set aside 1 months rent to cover your expenses when your properties are vacant. 

Tenants falling behind on the rent can be far more costly than void periods and difficult to budget for. Just make sure you take quick action the minute a tenant is late

Paying Your Taxes

You may have to pay tax on any profits you make from your rental income. To work out how much tax you must pay you first need to calculate your allowable expenses. 

Allowable expenses include maintenance and repair costs, council tax, utility bills, insurance, service costs such as cleaners and gardeners, and letting agent fees. 

Once you know your allowable expenses, you simply deduct them from your rental income and what’s left is your taxable profits. 

For more information on paying tax on rental income click this link.

Bringing in The Tenants

In order to attract tenants into your properties, you will need to set aside a marketing budget. Rightmove is the biggest online property site in the UK with over 120 million visits per month. After that you have Zoopla with over 35 million visits each month. Keywest include marketing across online portals for free when you sign up with us!

Obviously with this type of traffic it’s a no-brainer, you absolutely must advertise your property here. But Rightmove and Zoopla only allow estate agents to advertise and not private landlords so you will have to talk to a lettings agent.

Credit Checks and Tenant Referencing

Once you have found a potential tenant, it’s a good idea to pay for credit checks and professional tenant referencing. 

The RLA provide instant credit checks online for as little as £10 for each tenant. You can actually find out quite a lot about your tenants credit history and also their previous address history. 

You will be able to see if they have ever faced bankruptcy or if they have had any County Court Judgements (CJJ’s). Spending £10 on a credit check could potentially save you a lot of money in the long run so it’s worth budgeting for.

Costs and Expenses Summary

Planning for unexpected landlord costs is all part of successful budgeting. The key is to expect the unexpected and keep a detailed account of all your landlord outgoings and expenses. 

You can get mobile landlord apps specifically designed for landlords to help you keep track of your expenses. 

To make things easier on yourself, a good letting agent will give you all the advice and guidance you need to track your landlord costs while keeping your outgoings to minimum.