The finances are a big part of being a landlord, and unfortunately, it’s not quite as simple as rent, minus mortgage, minus tax equals rental income. There are plenty of other costs associated with being a landlord that you must understand in order to prepare your finances appropriately. Failing to account and take notice of these costs could potentially put you at risk of unforeseen costs later down the line. To avoid any nasty surprises, it’s always a good idea to take a focused approach to your landlord business and factor in every possible cost accordingly.

Compulsory costs

There are a few costs that every landlord will encounter somewhere down the line. These compulsory costs are:

  • Energy Performance Certificate – this is a legal requirement that assesses how energy efficient your property is and will cost you £65 every 10 years
  • Electrical Safety Inspection/Report – this is a legal requirement to ensure national standards for electrical safety and will cost you £199 every 5 years
  • Gas Safety Certificate – this is a legal requirement that must be carried out annually by a Gas Safe registered engineer, costing £45 per year
  • Income tax – just like any other profiteering business, landlords must pay tax. If you are a basic rate taxpayer then you will pay 20%, whilst higher taxpayers pay 40%
  • Smoke and Carbon Monoxide alarms – these are legally required to be supplied and installed, with a smoke alarm for each floor and one carbon monoxide alarm. For a two-story house, this cost should amount to £30 for all three.

Optional costs

There’s no one-size-fits-all when it comes to being a landlord, and many costs are circumstantial. Here are some examples that you may come across:

  • Letting agent management fees – if you’d prefer not to self-manage your buy-to-let, you can use a letting agent. This usually costs around 8-14% of your rental income
  • Landlord License – depending on the location of your property, your local council may require you to have a license. This usually costs £500 every five years
  • Mortgage interest – whilst this will arguably apply to most landlords, not all landlords will have a mortgage on their rental property. They may have paid off the mortgage, inherited the property or bought it outright. If you have a buy-to-let mortgage, the interest is generally higher than on residential mortgage rates. Ultimately, this amount will depend on the size of your mortgage and your mortgage term
  • Landlord insurance – despite not being a legal requirement, most mortgage lenders won’t lend without adequate landlord insurance in place. You can contact CIA’s expert team to get a quote on the right policy for you
  • Empty periods – having an empty buy-to-let can be expensive, however commonly occurs during the transition between old tenants vacating and new tenants moving in, or when repairs and decorating must be carried out
  • ICO registration – under the Data Protection Act, individuals and organisations that process personal information need to register with the Information Commissioners Office (ICO). If you store, use or delete tenant personal information on any electrical device such as a computer or phone, then you should be registered with the ICO for £40 per year.

Costs to keep in mind

As with anything in life, things can go wrong and you can run into unforeseen expenses. It’s really important that you have some money set aside to fall back on if this happens. For instance, as a landlord, you are responsible for the maintenance and repairs within your buy-to-let property. Over the years, it’s difficult to avoid these costs. It’s a good idea to take out extended warranties, insurance policies and rely on a landlord emergency repair service. These things could limit the overall cost you could end up being faced with in the event of unexpected repairs, but they do all cost a few extra pennies. Factor these into your financial plans.

You may also decide to redecorate every few years and/or after every few tenancies in order to keep things looking fresh and attractive for future tenants. This might involve replacing the carpets and repainting the walls. Legal costs are also important to keep in mind. No landlord expects to run into legal costs, but it can happen to anyone. For instance, you may find yourself in a position where you need to evict a tenant. Serving notice, taking a tenant to court or being taken to court by a tenant will all likely incur a cost. This can make a difficult situation all the more unpleasant if you are unprepared. If you do your research and understand the costs of becoming a landlord, it will be a worthwhile business venture. It takes time and effort to get right, and preparation is key. And remember – landlord insurance can be a great way to safeguard against things not going quite to plan. At CIA Landlords, we compare landlord insurance to find the best quote for your needs. Contact us today or complete our get a quote form.

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