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buy to let investment

Buy to let costs

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Although becoming an investor landlord will not necessarily break the bank, there are quite a lot of costs involved that still puts it well beyond the reach of most people. Fortunately, you will not have any moving costs, as you should not have to relocate unless you are letting to buy. Obviously, if you are letting a property that you already own, you will not have any acquisition costs either. But for most would-be landlords, the costs of playing the game are as follows:

Acquisition costs
There are considerable acquisition costs involved with purchasing any property. A property that is being bought for investment purposes is not much different to a normal purchase. The normal purchase costs include:

  • Deposit - this will normally need to be at least 15 or 20 percent with a buy to let property
  • Application/arrangement fee
  • Conveyancing fees
  • Surveyors
  • Stamp duty

For more information on purchase costs, please see our HowTo guide on buying property.

Letting costs
Once you have bought the property there are further costs that you must endure in order to start earning a crust from your new acquisition.

Firstly, there will be a varying amount of preparation costs in order to get your property into a condition that will allow you to get the best possible rent for it. This may involve as little as giving the property a proper clean, either yourself or using a professional cleaner. Then again, it may involve gutting the property, some expensive renovations, re-carpeting, decorating and lots of other work.

Once the shell of the property is ready, you then have to furnish it and fit it with the furniture, appliances and equipment that your tenants will require. You may decide to offer the property unfurnished, meaning only the most basic needs will be met. Then again, if you decide to fully furnish the property to a high standard, you may need to set aside a sizeable sum for the task. You may even employ the services of an interior designer to help with the planning. You will also have to fork out a hundred pounds or so on the Gas and Safety report if you have any gas supply to the property.

Next comes finding tenants. If you are letting privately, you will have to pay for advertising, otherwise you could face a long wait for a suitable tenant to find you. More commonly, you will enlist the help of a lettings agent, who will charge you around 10 percent of the annual rent for their services, plus VAT.

Once you find a tenant, you may have to pay extra for referencing and credit checks on the tenants, as these are not always included in the lettings agents fee. Nor will the costs of the inventory and conditional report (or the check-in check-out report), or the drawing up of the tenancy agreement. Documentation and tenant checks are likely to cost you around 100 to 300.

Running costs
Some properties cost much more than others to maintain, regardless of how much goes wrong with them. Gardens, lifts and flats in blocks with facilities can all run up large annual bills. And they don't just do this once, they do it every single year, even the years when you have to pay for other maintenance, repairs and redecoration.

The biggest single running cost is likely to be your mortgage repayments, which are obviously proportional to the amount of borrowing you have. But there are also other financial products that you may have to buy - mostly insurance. There is buildings insurance, contents insurance, public liability insurance, rental insurance and emergency repair insurance. The last three are optional but advisable. Many buildings and contents policies will include some degree of public liability cover.

Finally, there are other costs which you may have to pay on an annual basis if the property you are letting out is a leasehold one. Ground rent and service charges are pretty much standard on all leasehold properties. Though ground rent is rarely more than a couple of hundred pounds a year, service charges can run into thousands, particularly on upmarket properties with lots of shared facilities.

As you can see, being a landlord is unlikely to be a cheap venture. There are considerable up-front costs and plenty of requirements to spend money along the way. Of course, you can do it by spending a lot less, but this may mean not getting tenants of the quality you were looking for.

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