In this post I wanted, in as simple a way as possible, explain the costs you’ll be liable for and the key responsibilities involved with owning buy-to-let properties. Touching on any obvious pitfalls you may encounter too. In these difficult times, people are looking for ideas of ‘safe investments’ and in the UK especially we see property investment and something to aspire to. You do need to think about it carefully though and with your eyes wide open. Here are some of my top tips :
There are many costs involved, from initially buying the property to maintaining and even selling the buy-to-let properties can be an expensive business. I’m going to cover more of the costs in detail below but it’s also very wise to have a contingency fund set aside in case any of your costs are greater than you expected.
Buy-to-let mortgage costs
If you’re buying your property using a mortgage, you will be likely to sit down with the mortgage advisor. They will often ask you for a fee in order to secure the deal you are going to go on. Your monthly repayments are likely to be your biggest regular outgoing going forward. Be aware though that the more you can put down as a deposit, the better the rates you’ll be able to get. If you decide on a variable rate mortgage these outgoing are likely to go up as (and down) as time goes on as they are based on the rises and fall of the Bank of England base rate.
It’s a good idea to take out landlord insurance and, if you have a mortgage, your lender will usually expect you to do so. The three main types of landlord insurance are buildings, contents and liability insurance. It’s important to compare landlord insurance both in the level of insurance you need, costings and in the company that you want to go.
Property maintenance costs
This is a tricky one to put a figure on, keep in mind if you have a house already what kinds of thing come up for you on a ongoing basis. It will likely depend on the age and level of repair the house is. It’s good to keep on top of things though, as by leaving any ongoing issues is likely to cost more in the long run. Personally I would budget between £250-500 per year for maintenance.
It’s unlikely you’ll find a home without needing to either redecorate before you move in tenants or that it will need redecorating every few years. Always view a home as you would a tenant, keep things simple but looking clean and tidy. This is also where your experience of perhaps being a property owner before will come in handy.
Letting agent fees
It’s often simpler to use a letting agent to find tenants and collect rents, but they will take a fee of at least 10% of the monthly rent. You can also go for more of a comprehensive package where they collect rent, deal with tenants’ problems and queries on your behalf. You will pay nearer to a 20% fee for this service. I personally would be wary though of letting them deal with everything and would still want to retain some authority.
This is when your property is sitting empty. Again hard to plan but these are ideal times to refurbish or decorate.
This is a very simplified guide, but if there is enough interest I will go into more detail and cover things like tax and buy to let stamp duty in my next post.