10 hidden costs of being a landlord

10 hidden costs of being a landlord

Landlords can often underestimate the expenses involved in letting out their properties.  Don’t be caught out by these unexpected costs.

1. Letting agency fees

Legally, letting agencies must state all fees in their terms and conditions, but many landlords don’t look at the contract carefully enough. They are told there’s an 8% management fee, but there may also be further fees down the road, particularly when it comes to contract renewals. Some agencies will also charge for protecting the deposit. Check all fees before signing an agency contract.

2. Replacement of goods provided

Some landlords are not aware that all goods provided – be it a fridge, toaster or dishwasher – have to be replaced on a like-for-like basis. The example I often give is a microwave. If a landlord lets out a property and no microwave is provided, the tenant is deemed to have taken that property with no microwave and the landlord is not obligated to provide one, as there wasn’t one when the inventory was done.

3. Service charges and major works

In England and Wales, if a landlord has a leasehold flat, there is usually a quarterly service charge payable to the freeholder or the managing agent. But the big one to be careful of is if the freeholder decides to carry out major works. I’ve got flats where the council is the freeholder and it can decide, for example, that the outside of the building needs to be refurbished. It will estimate the cost and the landlord could potentially face a hefty bill, which could amount to a few thousand pounds.

4. Unexpected maintenance costs

Bad weather can cause problems such as leaks or flooding, while other unexpected costs might include guttering that needs clearing out. Regular maintenance costs, such as gas safety and electrical safety certificates, also need to be accounted for.

5. Mortgage interest relief

Many landlords are not aware of the impact the changes around mortgage interest relief could have. Relief will slowly be eroded over the next four years and it could mean landlords’ profits suffer, as they will no longer be able to claim these costs back.

6. Freeholder costs

If someone buys a flat in a block, the freeholder is technically the landlord, and the landlord is the tenant for the purposes of leasehold law. When the landlord then lets out the property, it is technically a sublet, and some leases have a fee for permission to sublet. Another leaseholder charge is around extensions. If landlords choose to extend the lease, they have to pay the fees of the freeholder who grants the extension.

7. Breakages

It’s important to ensure that an in-depth inventory is taken at the start of a tenancy and a checkout is done at the end. If the inventory hasn’t been done properly and the tenant has broken something, the landlord won’t be able to prove this to the adjudicator and will have to absorb the costs of any breakages. To be honest, if my tenants have been good tenants, I won’t argue over £20 or £30 worth of minor damage, but it is still a cost to us – £500 worth of damage is another matter.

8. Section 21 notices

If a landlord has to serve a notice to end a tenancy and it then goes to court, there is a fee of around £355. The court will order the fee to be recoverable from the tenant, but whether the landlord gets this back or not is another matter entirely.

9. Tenant illegality

For example, if there is a cannabis farm on the property and the police kick the door in, this cost is not always recoverable from the police if there is a genuine criminal issue. General tenant illegality can also cause damage to the property, and sometimes it is not covered by insurance.

10. TAX

As a landlord you are taxed on your rental income before expenses.  For example, if you rent a property for £1,000 per month (under current taxation laws as of April 2018 when writing this article) the landlord would at best pay 20% tax on the full £1,000 before any operating costs and other expenses like maintenance can be deducted.  This is a significant amount of money which would equate in this example to £200 per month and a hefty £2,400 at the end of the tax year.    

Summary

Always ensure you ask any prospective letting agent about their fees before entering into any contractual management agreement, so you can more accurately forecast what your true profit from your rental will be.

You could also consider using a letting agent who offers guaranteed rent like ourselves at Apex Lettings & Investments Limited.  There are significant advantages to opting for guaranteed rent like TAX savings and negating loss of rental income caused by voids to name just a couple.  For more information see: What is Guaranteed Rent?

Why not visit our website at: https://www.apexlets.com

Source and credits to: NLA