The true costs of being a landlord

With rental properties in high demand during recent months as UK house prices continue to climb, becoming a landlord for the very first time or adding to your buy-to-let property portfolio is no doubt a lucrative step in the right direction.

There are many reasons why people decide to become landlords in the UK. The extra income, independence and security that go hand-in-hand with renting out a property are the most obvious plus-points. Whilst the investment potential of purchasing a property and renting it out unlocks impressive profits over time if the market provides optimum conditions. 

Owning a rental property is also tax-deductible, which represents major savings for those looking to benefit further financially.

Your role as a landlord however should not be taken lightly. As a landlord, you’ll have to fulfil many duties and responsibilities, and this can often come at a cost.

In this blog post, we reveal the true costs of being a landlord so you can enter and negotiate the property rental market with your eyes wide open.

Buy-to-let mortgage costs

Obtaining a buy-to-let mortgage is one of the most convenient and cost-effective ways to become a landlord in the UK.

Buy-to-let mortgages are products specifically designed with landlords in mind, but like any financial product, they don’t come without their risks. Buy-to-let mortgage repayments are typically covered by the rent your tenant pays, but what if your rental becomes vacant or your tenant can no longer pay their rent on time?

Whatever the circumstances of your tenant, it is your responsibility to settle your buy-to-let mortgage repayments from month to month, which can leave you in a difficult position if your property remains or becomes empty.

With this increased risk often comes the need for a larger deposit, higher interest rates, and costlier fees.

Income tax repayments

Whilst one of the perks of being a landlord is that your rental property is tax-deductible, it’s certainly not tax-exempt. Any profits made from your rental property must be declared and any income tax due settled at the relevant rate.

Safety inspections, reports and certification

Landlords have to fulfil many legal requirements to keep their properties and tenants safe. With this in mind, you’ll need to foot the bill for various safety inspections, reports and certificates to abide by current legislation.

By law, every privately rented property is subject to an annual gas safety check. In England, landlords are also required to obtain an Electrical Installation Condition Report (EICR) at least every five years. 

The energy performance of your rental property is subject to review too. An Energy Performance Certificate (EPC) needs to be acquired every 10 years or after your property has undergone energy efficiency upgrades.

The installation and maintenance of smoke and carbon monoxide alarms throughout your rental property should also be budgeted for.

Property management fees

Keeping your property occupied and the tenants within satisfied can often become a full-time job, particularly if you have multiple rentals in your property portfolio. By enlisting a letting agent or property management specialist to act on your behalf, you can save a lot of time.

Property management however can be expensive, with landlords needing to hand over up to 14% of their rental income for the privilege.

Landlord licensing

Landlords of larger Houses in Multiple Occupation (HMOs) need a license, but the rules vary for landlords of other properties. Depending on the type of rental property you own and the area it’s based, you may need to obtain a landlord license.

A growing number of local councils use selective licensing policies to enhance standards within private rented accommodation. We’ll let Which? explain more:

“Selective licensing can apply to all landlords in an area. Before awarding you with a licence, your local council will make you undergo checks to prove you are a ‘fit and proper person’, and you’ll need to agree to adhere to various regulations around property management and tenant safety. In some areas, you’ll also need to sign up for a charter. Your council will set the cost of the licence, but you could pay around £500-£600.”

Other costs to budget for

Whilst, not a legal requirement, taking out landlord insurance is another must that could save you money in the long term. Setting aside a contingency fund for maintenance and repairs to your rental property is also essential for landlords looking to manage their properties diligently.

Joining a landlord association and paying annual membership may be another expense yet the credibility membership often represents is certain to be welcomed by would-be tenants.

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