Being or becoming a landlord can be daunting, depending on the property, with landlord expenses and other costs often varying on a case-by-case basis if they are not budgeted and monitored.
However, before becoming a landlord, it is crucial that you put together a list of the costs and expenses that are involved with being a landlord.
There are many different things that you will need to budget for to succeed with your property and not face financial issues.
It is important to budget and consider mortgage payments, insurance premiums, maintenance costs and taxes like HMRC rental property expenses.
We have compiled a list of some of the expected landlord costs that should be considered before owning a rental property.
Mortgage payments
Unless your property is owned outright, then you are going to have a mortgage to pay. It is important that mortgage payments are not missed as this could result in losing ownership of the property.
Mortgage payments are usually a landlord’s biggest monthly expense and rates can vary over time. It is likely that a landlord will have a fixed-term mortgage, meaning that the monthly payments will be fixed for a period of time.
However, some landlord may have a tracker mortgage, mean that prices can fluctuate periodically with any changes to interest rates made by the Bank of England.
If you have a tracker mortgage it is important to budget accordingly and ensure that your rental fee can cope with any fluctuations in the interest rates.
Landlord insurance
Like a mortgage, landlord insurance is an essential cost that must be a priority for landlords. Like mortgage repayments, insurance premiums can go up and down.
Landlord insurance premiums are something that you do not want to miss a payment of. This could result in a policy being cancelled and your property will be left uninsured.
This could leave you exposed to a host of issues and in the worst case could lead to a loss of property, so it should be at the top of your list along with the mortgage payments.
It is important to research the best available landlord insurance policy that will suit your needs and protect you against all inevitabilities.
Decoration, repair and maintenance
To ensure that your property is attractive to the rental market, it is important to carry out regular maintenance and decoration to keep the property in the best condition.
Usually, after most rental contracts end, new tenants will expect a fully cleaned and potentially a redecorated property. This means you will need to budget for these costs and consider whether you will need to hire professionals to carry out any work.
There are also other maintenance and repair that as a landlord you will be responsible for covering e.g. boilers, rooves and windows. Replacing these is easier to budget for, as they will not need replacing regularly. It is the unexpected issues, such as a boiler breaking, that can be a pain for landlords.
A good piece of advice is to put away a set amount every month that will be used as a safety net for any unexpected repair and maintenance costs that you could face.
Additional landlord expenses
Some landlords choose to hire the services of a letting agent, these costs will need to be factored into your landlord expenses budget. A rule of thumb is that agents charge around 10 – 15% of the monthly rental income, which offers a fully managed service for maintaining and renting your property.
A small number of landlords choose to manage their own properties and just pay a one-off fee to agents for finding tenants.
It is crucial to discuss and understand all the potential fees and expenses in detail with your letting agent so you can budget for them.
Healthy and safety considerations
There are two important health and safety documents that you need to have as a landlord. A gas safety certificate and an Energy Performance Certificate (EPC) – are legal requirements that a landlord must adhere to.
These certificates are a small cost, but it is something that is needed, so always included them in a budget.
Landlord expenses through tax
Landlords pay tax on any profits they make from a rental income. To work out how much tax is paid, landlords must first work out their allowable expenses and then deduct them from the rental income. The money that remains is the taxable profit.
Allowable expenses include maintenance and repair costs, council tax, utility bills, insurance, service costs such as cleaners and gardeners, and letting agent fees.
You can also deduct the interest on the mortgage for the property, this if capped at 20% tax relief though so higher rate tax payers or people close to that threshold should get advice about the best way to proceed.
To be a successful landlord, it is important to fully understand the expenses that you can and may face throughout your tenancy. It will allow you to budget accordingly and make a profit on your property.
If you are a landlord and have any questions on the expenses that you can expect to pay, then get in touch.
Give us a call on 01484 441431, or email our team on hello@itsrelative.co.uk. We are here to help.