Running Costs

Depending on the market it therefore sometimes makes sense to market the property at a slightly lower rent to achieve a quicker rental minimising void periods. If the market is strong though price the rent at a good price for the property in its location and you should hopefully be able to select your favourite tenant.

OTHER POTENTIAL RUNNING COSTS

LETTING FEES

These are typically 1 month’s rent plus VAT and includes reference checks, signing AST agreements, dealing with utilities and doing check-ins.

However, if you want to save costs you can advertise for free on a number of portals like Facebook marketplace, Gumtree, or even Spareroom.

If the property is high quality and you’re looking for a better level of tenant then there are a number of online letting services that will market your property on online websites like Rightmove or Zoopla for a fraction of the cost, usually around £100-£150 per property.

MANAGEMENT SERVICES

Agencies often have their own in-house management teams, but there are other options, make sure you have a look at local and national options and check pricing and reviews. These will likely cost you 3-8% of the rental income.

GROUND RENT AND SERVICE CHARGES

Leasehold properties will have ground rent charges, sometimes these will be “a peppercorn” (which means nothing) but you should pay careful attention to ground rent charges, especially those related to inflation or other calculations which increase the costs over time.

Service charges are usually associated with flats, but sometimes are charged for housing developments with communal services such a landscaping. You should review previous costs to get an idea of how much it will cost you each year and expect them to rise inline with inflation.

INSURANCE PREMIUMS

Building insurance premiums vary depending on location and size of property, it’s important to make sure your property isn’t in a high risk area such as an area of potential flooding or japanese knotweed.

If you are furnishing the property you are renting out then contents insurance is also necessary, this will usually be between 1-3% of the rent.

It is also possible to get rental default insurance that protects you against a tenant who is no longer able to pay their rent however this will likely cost a further 2-4% of rent.

There are also several other insurances you can take or memberships with plumbing, gas and electrics etc which save on call out and fixing charges but again increase base costs.

REPLACEMENT FIXTURES AND FITTINGS

Whatever you provide as part of your buy to let will inevitably come under some wear and tear, there will likely be call outs for engineers to fix damaged or broken white goods, or replacement furniture like beds, sofa, chairs and tables.

Buying good quality, hard wearing items will help to minimise the repairs but too much quality may increase the cost of parts.

GENERAL MAINTENANCE

The main things that go wrong in let properties are boilers, pipes, overflows, drains etc. People tend to not treat rental properties as well as they would if they owned it themselves, to avoid pipe issues, which tends to be one of the main problems, whenever carrying out an inspection put some drain cleaner down the sink holes to clear and hair or oil build up that could result in leaks and other larger problems.

Gas appliance must get a gas safety certificate annually by a registered gas engineer and these will likely cost between £50-£100.

LEGAL AND REGULATORY EXPENSES

Getting rid of a bad tenant costs time and money and usually takes about 4-6 months to remove them, so make sure you budget for this by adding half a months rent every year to your costs. This is another reason why vetting tenants is so important and can save significant money in the long run.

Energy Performance Certificate’s (EPC’s) are required to sell or let a property. They last for 10 years and cost around £50-£100 to carry out. They also provide great advice to upgrade the energy performance of your property.

Tenancy Deposit Protection in an insured scheme costs about £30.

HMO licensing fees (where applicable).

LANDLORD AND PERSONAL COSTS

If you want to join a landlord organisation this will cost around £100 per year and will give you access to news, legal updates, helplines, local meetings, up-to-date tenancy agreements and discounts on a number of different things. The two biggest are National Landlords Association and the Residential Landlords Association.

Time, travel, filing systems, cleaning materials, new keys etc should all be accounted for when totalling your costs.