Being a landlord is more than just getting a rental income at the end of each month. At a distance, a buy-to-let property looks like a fruitful investment with high rental yields and a high return per annum. This is true for a lot of locations within the UK, but that doesn’t mean that there aren’t risks you need to consider. One of those risks is the cost of running a buy-to-let.
Property investment comes with an excellent passive income, but you also need to consider the expenses that come with owning a buy-to-let property.
A study done by specialist buy-to-let company, Platinum Property Partners, found that around ‘1 in 8 landlords fail to consider any additional costs when calculating the profitability of their property portfolio’. On top of this, more than half of landlords don’t take into account the repair and maintenance costs according to this research.
Because of this a report by Platinum Property Partners believes that many landlords and property investors are overestimating their returns by up to 50%. The most accurate way of estimating the performance for your buy-to-let investment is by using ‘return on investment’ or ‘return on equity’. These methods of calculating profits take into account the gross profit, capital gain, and the additional costs of operating the property for as long as the lease requires. This also includes the amount you spend on refurbishing the property.
Another cost factor is void periods. Void periods happen when the property is empty in between tenants. Platinum Property Partners suggested that in a period of 1 year up to 60% of landlords will experience void periods, however only 12% of those landlords consider this when calculating returns.
The study concluded that landlords the total average annual cost for unaccounted costs of owning a buy-to-let is £8,359. The study listed the main factors that landlords fail to consider along with the percentage of landlords who experience the costs, the percentage of those who fail to consider them, and the average annual cost per property. It showed the following results:
- Repairs – 90% incur the costs, 52% don’t take them into account, costs £376 per property
- Letting and management – 77% incur the costs, 63% don’t take them into account, costs £438 per property
- Refurbishment – 77% incur the costs, 73% don’t take them into account, costs £392 per property
- Letting agent finder fees – 76% incur the costs, 66% don’t take them into account, costs £230 per property
- Exterior maintenance – 72% incur the costs, 80% don’t take them into account, costs £259 per property
- Maintenance fees – 67% incur the costs, 81% don’t take them into account, costs £506 per property
- Cleaning costs – 66% incur the costs, 85% don’t take them into account, costs £206 per property
- Service charges – 66% incur the costs, 83% don’t take them into account, costs £500 per property
- Mortgage interest – 66% incur the costs, 80% don’t take them into account, costs £1,343 per property
- Advertising fees to let – 6% incur the costs, 87% don’t take them into account, costs £177 per property
- Other costs – £3,933 per property