We take a closer look at common costs for landlords and how much you can expect to pay in overheads for your rentals.
Running a buy-to-let property comes with a variety of ongoing operational costs. Some of these are deductible, others are not. All have to be managed and accounted for. Understanding these costs and having reasonable expectations is essential if you’re going to budget and forecast accurately, and ultimately run a profitable rental business.
In this article, we take a closer look at the most common costs for landlords and how much you can expect to pay.
For most landlords, any profit you make will be part of their income tax e.g. If you’re a basic rate taxpayer, you’ll pay 20%, while higher rate taxpayers pay 40%.
Related: A Landlords Guide to Tax on Rental Income
An EPC is a legal requirement. It’s an assessment of how energy efficient your property is.
Landlords must have a valid certificate before any viewings are taken. An EPC is valid for 10 years and your property will need to achieve an energy efficiency rating of at least an E. You can also renew if you make significant energy efficiency improvements to the property and want it reflected in the report.
You can expect to pay around £65 every 10 years. However, you may need to fork out more if work is required to ensure your property meets the minimum energy efficiency standards.
Related: 11 Questions Landlords Have About Energy Performance Certificates
(England Only) Since July 2020, landlords in England have been legally obligated to get an ‘Electrical Installation Condition Report’ (EICR) in order to ensure national standards for electrical safety are met. The report must be renewed at least every 5 years.
You can expect to pay £199 every 5 years.
A landlord gas safety check is also a legal requirement, and it needs to be done annually.
All gas appliances and fittings must be checked by a Gas Safe registered engineer. At the end of the check, assuming everything is safe and in working order, you will be given a certificate.
You can expect to pay £45 per year.
Related: Gas Safety Certificates: What Landlords Need To Know
All landlords in England are required to supply and install smoke and carbon monoxide alarms as part of the building’s fire safety. Fortunately, it’s a pretty inexpensive requirement. The average house will need 2 smoke alarms (one per floor) and 1 Carbon Monoxide alarm, which should cost about £30 for all 3. There are slightly different rules for HMOs however.
One of the most undesirable costs for landlords is agent managing fees, and that’s why so many landlords are now self-managing using software like Landlord Studio.
Generally, you can expect to pay anywhere between 8 – 14% of the monthly rental income.
The cost of a mortgage applies to most landlords and will take a big chunk of the rent payment each month. The amount you’ll expect to pay each month will depend on your interest rate, the cost of the property and your deposit.
It’s worth noting that mortgage interest is no longer deductible but you can claim back up to 20% of the mortgage interest back in tax relief according to section 24 tax changes.
Whether or not you’ll need a licence depends on the location and type of your property. Some boroughs require landlords to have a licence, some don’t. The best way to find out is by contacting your local council.
Expect to pay as much as £500 every 5 years.
Whilst landlord insurance isn’t a legal requirement, most if not all landlords have it. That’s because the majority of lenders stipulate that insurance is a requirement as part of the lending process. There are various extras you can get, but at the bare minimum ‘Building Insurance’ should absolutely be purchased before renting the property out.
This can vary widely, but you can expect to pay between £150 or more a year for a two-bedroom house.
At some point in time you’ll need to acquire new tenants. This could be as regularly as every year or as irregularly as once every five years. Thankfully, with the invention of online letting agents, this process is somewhat easier and faster than it used to be.
Expect to pay around £50.
On top of your advertising costs, there are additional costs for things like tenant referencing and application management that need to be considered. Using a company like Open Rent will help you keep these costs down.
Costs start at £20.
This can be an expensive period, and it most commonly occurs during the transition between old tenants vacating and new tenants moving in. There’s almost always a void period, especially during a slow market, or/and repairs and redecorating that need to be done before the new tenants move in.
During this vacancy, your running costs will be going on, most notably mortgage payments, insurance and council tax. This is why it’s good to have a contingency of at least six months of mortgage payments at all times.
The average council tax per dwelling in 2022-23 is £1,493. Generally, this will be paid monthly in ten or twelve instalments meaning a monthly cost of approximately £150.
Generally, tenants are responsible for paying utility bills directly. However, some landlords do offer “bills included” as part of the deal. If that’s the case, this should be added to the expenses, and also reflected in the rent cost.
Your buy-to-let property will need regular property maintenance to ensure not only that it remains safe and habitable, but that to encourage tenants to stay for longer and help reduce the likelihood of larger unexpected maintenance jobs in the future.
Things like boilers, fridges, cookers and plumbing all break and the repairs and call-out fees can be hard to predict. What you can do, however, is try and limit costs with things like extended warranties, insurance policies and landlord emergency repair services. For example, British Gas offer a landlord cover service, where they charge £15 per month to cover plumbing and electrical faults.
If you’re a good landlord, and you stay on top of the changing regulations, look after your properties, and ensure everything is done by the book, then the only legal costs you’re likely to encounter should be the cost to remove and/or prosecute rogue tenants. This is unfortunately more common than most new landlords are aware of.
Alongside the legal expense, this process can take time, with tenants occupying your property but not paying rent, and this lost revenue can compound into a serious loss and is something every landlord should be prepared for.
There are two parts to this. The first is your bookkeeping costs. This is essential if you want to make the most of allowable expenses and operate a profitable business. For smaller portfolio landlords there’s no reason why you can’t self-manage this with the right software. Landlord Studio is the leading rental accounting software for landlords. Check out our pricing here.
The second part of this is completing your income tax self-assessment. Again, it’s perfectly possible to manage your income tax self-assessment yourself, but you might want to employ an accounting agency to ensure you fill in everything correctly.
For this service, you can expect prices to start from around £160 per property.
As a rule of thumb, the larger the property, the more it costs to run. There’s simply more of it that might break or need maintenance. On top of this, larger properties will likely have more people living in them, resulting in more wear and tear.
Older houses may also have additional issues which can make them more expensive to maintain. Older features like the wiring, plumbing or boiler can be expensive to keep alive with a scarcity of parts and a propensity for giving up.
In order to keep your property looking slick so you can attract high-quality tenants you’ll need to freshen up the property every couple of years. This means new paint, and potentially new carpet, curtains or other soft furnishings.
If you supply a furnished property, for example, you rent to students, then all of the equipment you supply will also need to be looked after and routinely replaced. Remember, ‘wear and tear’ is not covered by the deposit. Instead, you will need to claim back the value of any like-for-like replacements under the replacement of domestic items relief.
Allowing pets is a great way to encourage renters and quickly fill vacancies as tenants with pets notoriously have a hard time finding pet-friendly homes. However, there is a reason for this. Many animals can be destructive. A dog scratching a door frame, or a cat leaving a mess inside. Animals almost always have an impact on the overall cost of maintenance and redecorating.
If you have a tenant that smokes inside the result is pretty obvious. Yellow stains on the walls and ceiling and an odour that is at best hard to get rid of. This could be a significant factor in the redecorating cost between tenancies.
As you can see there are a plethora of costs associated with being a landlord. And these costs quickly stack up chewing into profit margins and generally making life stressful.
In order to ensure you’re running a profitable and sustainable buy-to-let business you need to ensure you’re accurately keeping track of all of your income and expenses so that you can identify areas of loss or potential improvement
Landlord Studio makes it as easy as possible for you to track your buy-to-let income and expenses with default expense categories in line with HMRC tax requirements and powerful time-saving functionality.
Scan receipts at the point of sale to digitise them and our Smart Scan technology will automatically input the details for you. Plus, our bank feeds feature enables you to automatically import transactions so you can reconcile with the tap of a button reducing manual data entry, saving time and reducing errors. And gain nuanced insights into your financial data with our powerful industry-specific reporting.
Minimise your overheads and maximise allowable deductions with Landlord Studio today.