If you’re an aspiring landlord – or perhaps, one of the many ‘accidental’ landlords that got thrown into the deep-end (head first) – it’s critical to have a comprehensive understanding of the costs associated to being a landlord so you can prepare your finances appropriately.
The reality is, after crunching the numbers, being a landlord may not even seem feasible. Yup, that could be tragic, but it’s a better alternative than pursing a plan that simply doesn’t make sense.
Unfortunately, many strolled into landlord-hood without grasping the running costs of being a landlord, which largely includes a whole bunch of unforeseen costs, and it’s been a primary reason for many failures.
Don’t be that kind of landlord.
I’m going to make a shameless confession before I do or say anything else: before I became a landlord I had no idea what the associated costs were, although I had naively convinced myself otherwise. I thought I knew it all (or at least could hazard an accurate guess). In retrospect, after years of experience, it’s become apparent that I was blissfully ignorant. I may as well have entered the Dragon’s Den without a business plan. Embarrassing.
In my feeble little head, I had reduced the financial costs of being a landlord to a small handful of expenses, which was actually, primarily why the whole landlord deal looked so mouth-watering. Don’t get me wrong, the whole landlord deal is still a sweet deal, just not as sweet as I initially anticipated in terms of cashflow!
Now, if you’re reading this blog post it means you’re probably a lot more sensible than I am, because I’m assuming you’re actually researching the costs of being a landlord before biting the bullet. Wise decision.
I want to clarify, the information I divulge isn’t to scare you, it’s to prepare you, and essentially make you a better landlord. Hopefully you’ll be able to form a rough, yet practical idea of the costs of being a landlord, so you’re able to assess your decision with a little more clarity and precision.
While no one can predict the unpredictable (trust me, a lot of unpredictable shit happens in this business), we can forge a typical balance sheet for a landlord.
From my experience, the following are the bare bone expenses that landlords have to endure…
|EPC (Energy Performance Certificate)||
An EPC is a legal requirement. It’s an assessment of how energy efficient your property is.|
Landlords must have a valid certificate before any viewings are taken. An EPC is valid for 10 years (you only need to pay for one every 10 years), but can be renewed if you make significant energy efficiency improvements to the property and want it reflected in the report.
|£65 every 10 years||Order Online|
|Gas Safety Certificate||
A landlord gas safety check is also a legal requirement, and it MUST be done annually.|
All gas appliances and fittings must be checked by a Gas Safe registered engineer. At the end of the check, assuming everything is safe and in working order, you will be given a certificate.
|£80 per year||Order Online|
Being a landlord is like ANY other profiteering business- tax has to be paid!|
For most landlords, any profit you make will be part of their income tax e.g. If you’re a basic rate taxpayer, you’ll pay 20%, while higher rate taxpayers pay 40%.
|Varies per case||More Info|
|Smoke & Carbon Monoxide alarms||All landlords in England are required to supply and install smoke and Carbon Monoxide alarms. Fortunately it’s a pretty sensible and inexpensive requirement, so all good.||The average house will need 2 smoke alarms (one per floor) and 1 Carbon Monoxide alarm, which should cost about £30 for all 3.||More Info|
The following costs may apply depending on your specific situation…
|Letting Agent Management Fees||One of the most undesirable costs for landlords is agent managing fees, and that’s why so many landlords are now self-managing. As an example, a property that achieves £750 per month will cost approximately £1830 per year in management fees!||8 – 14% of rental income||More Info|
|Landlord License||Some landlords will require a landlord’s license. Will you need one? Well, that depends on the location of your property. Some boroughs require landlords to have a licence, some don’t. The best way to find out is by contacting your local council.||£500 every 5 years||More Info|
The cost of a mortgage applies to most landlords, particularly new ones. I can’t imagine there are too many landlords that won’t require a mortgage to get their foot onto the BTL ladder. Of course, the interest paid on the loan is an expense and should be taken into consideration.|
It’s difficult to provide an accurate cost that will apply to everyone, as every circumstance is unique. So this is something you’ll have to work out. Something worth noting is that interest on BTL mortgages are generally higher than regular residential mortgages, so don’t base costs on residential mortgage rates. Look at the rates available for products today and base your costs on that.
|Varies per case||Free BTL Mortgage Quotes|
Ideally, this would be under the list of mandatory costs, but in reality, ‘Landlord building insurance’ isn’t a legal requirement for landlords. However, you’d be stupid not to have it. Also, most mortgage lenders won’t lend without adequate insurance in place.|
There are various insurance types available, and many “bolt on” extras, which can come in handy (e.g. legal coverage, which covers costs for eviction). But at the very least, ‘Building Insurance’ should be acquired.
Refer to the Insurance Guide for a rundown of the most common options available.
|Varies by case. But I pay £150 per year for a 2 bedroom house||Get Free Quotes|
|Tenant Acquisition||I can’t imagine there are many landlords out there that won’t have to endure the cost of acquiring a tenant, although it is still a “circumstantial cost”, because some landlords won’t (e.g. they’ll let to friends/family). The cost of tenant acquisition can vary depending on the method used e.g. online letting agent Vs High-street letting agent.||
Online Letting agent: £50|
High-street agent: 8% of annual rental income
|Online Agent Prices|
This can be an expensive period, and it most commonly occurs during the transition between old tenants vacating and new tenants moving in. There’s almost always a void period, especially during a slow market, or/and repairs and decorating needs to be done before the new tenants move in.|
This is when a contingency is useful, because you need to remember that your running costs will be going on, most notably mortgage payments, insurance and council tax.
|Varies by case.|
Under the Data Protection Act individuals and organisations that process personal information need to register with the Information Commissioner’s Office (ICO).|
If you currently or retrospectively store, use or delete tenant personal information (e.g. name, email, telephone, address etc.) on any electrical device (i.e. computer, phone or tablet) – which is almost all landlords in the 20th century – then you should be registered with the ICO.
On a side note, from my experience 1) most landlords aren’t aware of this requirement so aren’t registered 2) many of those that are aware of the ICO don’t think it’s even necessary for landlords to register – there’s a bit of an ongoing debate among landlords on the issue.
One thing is for sure, I’ve yet to hear of a case where a landlord has been prosecuted for failing to register. But that’s not to say it’s NOT required.
Make of that what you will, I’m “just saying” :)
|£40 per year.||More Info|
Here are a few other costs to consider…
Generally, tenants are responsible for paying utility bills directly. However, some landlords do offer “bills included” as part of the deal. If that’s the case, this should be added onto the expenses, and also reflected on the rent cost.
Maintenance & Repairs
Most of the points I cover can be inserted into the category of “maintenance and repairs”, but for the purpose of being as transparent as possible, I will discuss certain areas in more detail below.
There’s literally no way of avoiding this aspect of being a landlord, and there’s mostly no way of predicting how much you’ll spend on maintenance. I frequently have boilers, fridges, cookers and the plumbing die on me. However, there have always been years’ when I’ve gotten away without spending a penny on maintenance, while other years the costs have climbed into the thousands (it’s scary). In that respect, it’s pretty much like any other property that’s being lived in.
I’ve also had mother nature have her wicked way with me by blowing over garden fences. Not to mention, tenants that cause so much damage that the tenancy deposit doesn’t even begin to cover the cost of repair. How can you prevent or predict all of that? Impossible. That’s why it’s imperative to have a contingency pot of money to help cover these unexpected occurrences.
However, what I will say is that you can limit the costs. Extended warranties, insurance policies and landlord emergency repair services are available. For example, British Gas offer a landlord cover service, where they charge £15 per month to cover plumbing and electrical faults.
While it is impossible to predict exact costs, it’s very possible to get a better idea of how much you’ll spend on average on repairs and maintenance after a few years.
Size of property
Larger the property, the more it costs to run. That’s the general idea anyways. Reason being is that, simply, there’s usually more to break and maintain. But also, larger properties are usually rented to families, meaning there are more people living in the property, and in particular children. That all equates to higher probability of breakage and wear.
Age of property
Generally speaking, older houses are more expensive to maintain because they often have old-fashioned features which aren’t as cheap to repair and main as the newer stuff, they also tend to have older boilers, heating systems, and electrics, which can be expensive to keep alive.
Every few years and/or after going through a few tenants, you’ll probably have to freshen up the property. It’s part of the landlord cycle.
Personally, I’ve found that the carpets take the most beating, as do the condition of the walls, consequently I find myself repainting and laying down new carpets every 3 or so years per property.
The true underbelly of landlord life.
Assuming you’re a good landlord, and you stick to your legal obligations, the only legal costs you’re likely to encounter at some stage to the cost to remove and/or prosecute rogue tenants. This is unfortunately more common than most new landlords are aware of.
The costs of dealing with a rogue tenant can be soul-destroying, and not just the legal costs, but also the associated costs of losing out on unpaid rent, which is usually the case.
Furnished / Unfurnished
While furnished properties do demand higher rent and larger deposits, they do tend to cost more to maintain, for obvious reasons. Often, the extra earned in rent doesn’t cover all the “fair wear” expenses, so be aware of that.
I cover the pros and cons of furnishing a BTL in this blog.
Are you a pet-friendly landlord? Many aren’t, but some are. Tenants with pets notoriously find a hard time finding properties to rent, particularly dog owners. However, landlords can (and do) take advantage by demanding more rent from pet-owners. But it’s important to bare in mind, pets cause damage and may have an impact on the overall cost for maintenance and redecorating.
I wasn’t sure whether to include in the list. I know some people get “touchy” about the issue (mostly smokers). However, I do believe it’s something worthy of noting, and from experience, I know it’s a real issue.
Similarly to pets, tenant smokers can be destructive, particularly if they’re compelled to smoke indoors (good tenants will only smoke outside, fact!). Smoke can cause damage, and consequently reflect on the overall cost for redecorating at the end of the tenancy.
Most UK flats/apartments are leasehold properties – particularly in the South of England – and they’re a popular choice among many new landlords, largely due to the lower asking prices compared to freehold properties. But purely fixating on the lower ‘cost of entry’ is often a fatal mistake, because leaseholds generally come with added complications and ‘running costs’, which can make the proposition… not so profitable in the long-run. Most leaseholds add restrictions, which in many cases include regular ‘service charges’ and ‘ground rent’, both of which can quickly spiral out of control.
I’ve already written a blog post on whether I think leasehold properties are good for BTL. But in short, be wary of the fact that leasehold properties do come with extra running costs. So if you plan on buying leasehold, be sure to read the lease carefully and fully understand the costs. All the costs.
The round up
Relatively speaking, there is a lot to shell out for, and potentially much more than “a lot” depending on individual circumstances. It may even seem like “blow your brains out” expensive (especially the unpredictable maintenance side of things), and I wouldn’t entirely blame you for feeling compelled to completely abandon ship and throw your money into penny shares instead.
Being a landlord definitely isn’t as easy as many believe, and that’s primarily because, as said, it’s a business based around people, and people are idiots… they’re often filthy, disruptive and generally irresponsible. I’ve had tenants break everything from bathtubs (literally) to my soul (by falling into arrears).
But don’t be discouraged, there is profit to be made (obviously), which can be summoned by purchasing the right property for the right price, and stuffing it with the right tenants. Sounds easy, right? It’s not. Fortunately, I’ve written an in-depth guide for new landlords that cover the essentials. Enjoy it (but only after you’ve finished with me here).
It’s also worth noting that being a landlord is like any other business, the more experienced you are, the cheaper it becomes as you master the craft. I’ve noticed that over the years my expenses have drastically reduced purely through experience and gained knowledge. Essentially, I’m not as stupid as I once was.
One particularly significant example of enlightenment, was when I switched from high-street agents to online agents. It’s the best thing I ever did.
For the first couple of years I was using a high-street agent to find tenants. I’d say, on average, the acquisition would cost £700. I paid that excruciating amount for a couple of years. But then I discovered online lettings agents, and my cost tenant acquisition cost reduced to £50. Massive difference, right?
“Once I was blind, but now I see.”
Another example of how experienced reduced my costs is when I realised letting agents are generally the “middle-man” for most services. For example, I often used to acquire things like gas safety certificates and EPC’s from letting agents.
That’s without a doubt one of the most expensive ways of acquiring those things, because agents put a mark-up on the price on the products and then hire third party suppliers. In reality, I could have just gone direct to the suppliers and saved myself a buttload, which is exactly what I do these days.
If I sat here counting how much my inexperience cost me, I’d be a blubbering, incoherent mess. I’d rather just chalk my losses up as lessons well learned, and opportunities to help others.
Lastly, I was just to clarify, a lot of the spiralling costs will be depending on YOU, the landlord, not just tenants. For example, if you use cheap materials and fittings that aren’t fit for purpose or durable, you’re likely to spend a lot more than necessary on repairs. But that’s a lesson new landlords usually learn through experience, because it’s hard to sway new landlords away from spending as little as possible when they’re starting out. However, for more information, you maybe interested in the how to renovate and decorate your buy-to-let property article.
I often become teary-eyed when I think of the money I wasted – not just with online letting agents – but in general. But that’s something wisdom and experience can help iron out. In the mean time, I hope my little nuggets of advice will prove for a good starting point in what you should expect.
Have a contingency
One of the biggest mistakes most new landlords make is that they don’t put measures in place to deal with unforeseen expenses. Being financially ill-prepared can literally cripple a landlord’s business and cashflow, usually in the form of expensive debt, or even worse, negligence of their duties (e.g. ignoring tenants maintenance issues).
The “grab and run” approach can be extremely appealing, and you wouldn’t be the first to fall victim to its appeal. We’ve all done it. As in, when we see money in our account, we just grab and run. But that could lead to expensive mistake.
If you’re able to make profit every month after paying all your expenses (e.g. insurance, mortgage), don’t be tempted by the devil- don’t grab and run with all of what remains. Leave a percentage in there every month, and allow it to build up, which will allow for a nice contingency, to cover (or at least help contribute) any of those unforeseen mishaps. ALWAYS have a contingency in place.
If anyone can think of any other costs, please let me know. I’m pretty sure I covered all of them though, or at least for the mandatory part anyways.
Disclaimer: I'm just a simple landlord blogger; I'm not qualified to give legal or financial advice. Any information I share is my opinion based on my personal experiences as an active landlord, and should never be construed as legal or professional advice. For more information, please read my full disclaimer.