Financial Costs Of Being A Landlord
01 Sep 2008
The other day I was mumbling about how the costs of being a Landlord is slowly escalating, as new shitty little schemes are slowly being introduced. The latest scam being the Energy Efficient Certificate, a mandatory document that a landlord must show their new and prospective tenants. That added another £100 onto the tally. For someone with a large buy-to-let portfolio, a small sting like that could prove to be rather expensive. It’s no wonder repossession rates are rocketing at the moment. It’s weird, because on a regular basis, I hear on the news that the government are thinking of ways to stabilise the economy and help homeowners. Here’s a thought- SCRAP THESE FUCKING RIDICULOUS EXPENSES!
The actual costs of being a Landlord can depend on what is outlined in the tenancy agreement. However, there are a bunch of “mandatory costs” and a whole pile of “costs that landlords may have to cover”
Mandatory costs of a landlord
Tax on rental income
If you’re profiting from your rental income after paying interest on a mortgage- you’re expected to pay Income Tax because it counts towards your “capital gain tax” (CGT). More on that bitter subject over at, Capital Gain Tax (CGT)
Cost: depends on personal circumstances
Frequency: per tax year
Tenancy deposit scheme
If you’re taking a deposit from a tenant, the funds need to be held and moderated by a licensed body
Cost: approximately £100
Renewel: annually / per new tenant
Gas safety Certificate
An inspection of all gas appliances that is provided with in the property by the landlord must be inspected annually by a Council for Registered Gas Installers (CORGI).
Cost: approximately £80
Renewal: annually
Repairs & Maintenance
The landlord is responsible for the structure and exterior of the property; baths, sinks and other sanitary items; heating and hot water installations
Costs: depends on circumstances
Energy efficiency certificate
The certificate will give each building a SAP (Standard Assessment Procedure – out of 100 possible) rating, and this will equate to an energy rating from A to G, similar to those seen on white goods
Costs: approximately £60
Renewal: every 10 years
Home Insurance
The landlord MUST have house insurance on the property they are letting. However, the tenant is responsible for their possessions and shouldn’t rely on a landlord’s policy to cover their possessions
Costs: depends on circumstances e.g size of property, location of property..etc.
They’re all the mandatory costs I can think of. Here are the additional costs that may apply, depending on your circumstances.
Costs that may apply for a landlord
Furniture
The landlord will be responsible for replacing or mending any appliances, unless damages were caused directly by the tenant.
Costs: depends on circumstances
Renewal: every time something bloody breaks
Bills
The landlord could choose to pay all bills, including council tax, electricity, gas and water.
Costs: depends on agreement
Letting agents
Now this, this is the biggest expenditure of them all. I think I bitch about the extortionate costs of letting agents at least once a week- apparently this week is no different. Anyways, letting agents are expensive, and usually required by amateur and lazy landlords (no offense, kinda). From my experience, a letting agent can charge 10% of your annual rental income for simply finding you a tenant, and then a renewal fee each year on top of that. For a full-management program, they could charge as much as 15%. It’s a lot of money.
Costs: 10%-15% of annual rental income
Renewal: depends on agreement
If anyone can think of any other costs, please let me know. I’m pretty sure I covered all of them, though, at least for the mandatory part anyways. If not, I’m running an illegal operation over at headquarters.
Attention! If you're new here, you may want to subscribe to my RSS feed so you're notified of all new blog entries.
Talk / 7 Comments left so far
Thanks for your comments. You're right, most of those costs are tax deductable. However, I doubt the average landlord is making enough on rent to pay tax. So then, it actually becomes 100% cost.
If you always make sure that your rent equals your mortgage payments, you put yourself in a tight situation, in my opinion.
Firstly, you're always relying on market growth; you're not actually reducing any debt, so your interest will never reduce. That's precisely why a lot of landlords are suffering right now- they relied on a growing market. What happens when the market dries up, prices drop and mortgage rates increase? It's a tough position to be.
Secondly, remortgaging every few years can be expensive. A lot of the best deals have a product fee attached (which actually doesn't even make them a great deal). And currently, mortgage rates aren't great.
Paying off interest alone doesn't really suit me, to be honest. I feel a lot safer knowing that my tenants are reducing my debt as each month passes. In 10 years time, I'll be a lot better off than a landlord who is making interest-only payments.
I've yet to come across any company that holds deposits for free. Am I missing out on something great? lol. Why would anyone offer that service for free? Can you by any chance provide me with a link? I know a lot of letting agencies offer "free" deposit schemes, but it's not actually free, since it's part of their service.
Once again, many thanks.
Kind regards
2
Firstly here's your link..
https://www.depositprotection.com/Public/About.aspx
They make money by basicly holding your deposits... They keep the intreast. But it's free to use.
Onto intreast only..
I can totally understand why you may feel paying off a little each month is a great thing to do. It looks good when that big figure comes down every month yes?
However, take into account:
1. The tax you pay on any rent above your intreast.
2. The tax you pay when you sell your fully paid off houses.
3. Your paying off your dept while it's expensive. I'll wait for inflation to do the work thanks.
While you're doing this I'll keep re-mortgaging every fee years- you're telling me you never have to do this anyhow to keep with the best deals? When when I re-mortgage I unlock cash. TAX FREE.... let me say that again.. T A X F R E E.
I then pump this cash into whatever investments I wish.
So you have your cash being held in a house- that's dropping in value quicker than you're paying it off. Or my cash held in a number of investments, that I can make liquid very fast (unlike you).
I guess it's just a different way to do things. But I must say I'm not sure your method is the right way to go sorry.
Regards,
Simon
3
Thanks a lot for that link. I can see why companies do it for free now- makes perfect sense. Do you know if there are a lot of companies doing that?
I understand your method of investing, but I think it’s clear we both have different approaches.
The tax you pay when you sell the property will be the same for both you and me. CGT rates are the same for everyone- it would just be proportionate to the tax bracket. So I don’t quite understand point #2.
I’ve only been a Landlord for a few years, and I haven’t remortgaged yet. I’ve remained on fixed rates deals for 4 years, with pretty low rates. I’ll eventually have to remortgage. But at the moment, I’m not really paying off debt while it’s expensive. I have a few 4.99% deals, and one even lower.
When you release equity, you’re increasing debt, so your interest payments go up. If you start spreading money around like that, so lightly, in each property, you become exposed to negative equity. It’s just a dangerous way of playing things. A small squeeze, like an increase in rates, could really hurt. I could release large amounts of equity, but at the moment, I don’t see any point, as house prices aren’t increasing.
Hmm..I can make my investments liquid fast as well. I mean, what’s the difference between you selling your properties, and me selling mine? There is no difference. So I don’t see how your investments are more liquid than mine. If anything, you’re less liquid than me. You’d probably need to sell a few properties to gain the same amount of capital as me, by just selling one.
Anyways, as mentioned, it’s just different strokes for different folks- both methods have their pros and cons. You’re a lot more high risk than me :)
Many thanks.
Kind regards
4
I think that site is the only free one out there (at least it was the last time I checked)
so...
My money is more liquid due to the fact it's NOT IN MY HOUSES. Take right now... You're really telling me you can free up your money fast? Try selling a house in todays market. My cash isn't in my houses. It's in other investments- many of which I could convert to cash today if I needed to.
Also in terms of capital gains tax... You pay this tax on the profit you make when you sell. As you quite rightly pointed out I wont have any profit. I've moved that profit out and into other things TAX FREE.
I don't see myself at higher risk than you. I think you're at a HUGE risk having all your eggs in one basket. A basket that's dropping in price every day and could take 10-15 years to recover. You've basiclly put everything into 1 market. A market that's got falling rents, increasing costs and your prime assets are dropping like a brick (sorry for the pun).
To me that sounds like the bigger risk. But in this market who really knows I guess.
Regards,
Simon
5
Oh, sorry, I thought we were talking about strictly property investment. If you're investing your money in other areas, that's a different issue.
I'm in property investment for the longterm. I actually plan on completely repaying my mortgages with purely rental income. So in longterm, I don't consider myself in a high risk situation.
Regards
6
Im considering buying a property to rent out.
Now, if the mortgage is on capital repayments and the monthly rental income is greater, what sort of tax is paid?
I also have a day job, im on about £26k a year?
Myself and 3 other freinds may do this together, how would the tax issue work there.
How would you go about setting everything up. Do you have any links/guides for new landlords?
7
Please leave a comment
I initially started this website because I wanted to document my every step from property idiot to property landlord,
in hope that people would find my site and help me along the way. I literally didn't have a clue about being a landlord
when I started this website.
Tax on your rent?
This is why I always re-mortgage back up so the rent = intreast on the mortgage. This means no tax to pay plus the money is unlocked TAX FREE. This is then re-invested elsewhere.
You just have to play the game.
Also a lot these "costs" you mention are also tax deductable. Repairs and fees being two examples.
Lastly in regards to the deposit holding. There are places out there that do this for free. However it still sucks for the landlord as you no longer gain the intreast from holding this money in a savings account.
Regards,
Simon
1