Becoming a landlord can be an exciting prospect, though it is highly advised that you evaluate the costs and incidentals involved before becoming a landlord.
There are several expenses you must plan for running a lucrative business. Expenses such as insurance, mortgage payments, and tax payments to the HMRC are unavoidable. For instance, yearly profits above £2,500, made from rentals, are liable for tax deductions. The amount collected as tax depends on if you’re a higher or normal tax-payer.
Most landlord expenses are easy to predict and address. Let’s explore the list of expenses every landlord faces eventually.
You must tell your mortgage provider before changing occupancy status on a rental. If you already have a mortgage on the property that you wish to let, your mortgage provider may raise your interest rate when you rent out your property. So, it’s important the landlord considers this added mortgage cost when charging rent.
An option that many landlords choose is a buy-to-let mortgage, which is designed specifically with properties that are to be rented out in mind. Opting for this option may prove more cost-effective in the long run.
- Vacancies and Tenant Turnover
As a landlord, you’ll run into these two at some point. In such situations, maintaining your cash flow depends on how fast you’re able to find replacements and if the replacements actually pass your tenant assessment test.
You must spend money getting the unit ready for a new renter. This means incurring expenses for repairs, deep cleaning, and repainting.
In addition, you must spend money on marketing to find a new tenant.
As a landlord, you are responsible for regular maintenance and repairs. Make sure you plan for these expenses, so you aren’t caught unawares. Some larger works, such as replacing a roof or boiler (which must happen as least every 15 years) are easy to plan for, but general maintenance and emergency repairs are more difficult. This is because it varies across different properties and will likely happen unexpectedly.
To cope with maintenance costs, aim to save 1% of your property’s value for repairs every year. For instance, if your property’s value is £100k, your yearly repair budget will be £1000.
Financial security is essential for most landlords. Landlords may need to budget for other insurance policies including:
This insurance offers coverage for damage and loss because of disasters or theft. It provides liability insurance if someone gets injured on your property. You can only use it if you live there. The policy dictates that the landlord must occupy a multi-family unit.
Similar to homeowner’s insurance, landlord insurance offers liability protection and covers physical properties. This is perfect for landlords who rent out their property and will cover most things that could go wrong in your property when it is being rented out.
Rent Guarantee Insurance
This will ensure that you are protected should your tenant default on paying their rent and will pay the monthly rent for a set period of time while the landlord recoups any overdue payments and handles the situation with their tenant.
Preparing for unforeseen landlord costs is a crucial part of effective budgeting. You must keep up-to-date records of your expenses and outgoings. Get a letting agent to make things easier for you, as a decent letting agent can offer advice and guidance needed to monitor your landlord costs.