Buy To Let Mortgages

Regular Costs of a Buy to Let Property

So often, investors spend a great deal of time considering the initial costs of a property and how the finance will be raised to fund the purchase but completely overlook the ongoing costs that will have to be covered. If overlooked, these regular costs can make a potentially viable project become a black hole for your cash!

Additional Costs for a Buy to Let Property
Anyone who has purchased a property to live in is more than aware of the costs such as heating and electricity. However, there are so many additional costs involved in buy to let which absolutely must be budgeted for, as part of the project planning.

Modern tenants do, generally, require white goods to be part of the property. Therefore, an additional £1,500 should be budgeted as part of the initial setting up costs, if you are to appeal to the largest possible number of tenants.

Although your tenants will normally be responsible for costs such as council tax, water rates and utility bills including electricity and gas, it is not uncommon for landlords to include regular costs such as council tax as part of the rent. This has several advantages; tenants like the predictability of having some bills included as it allows them to budget accurately; as a landlord you are then certain that a council tax bill will have been paid. Although it is the resident tenant who is responsible for the council tax bill (unless the landlord is also resident), it may be difficult to retrieve the cash from a tenant who has moved on, leaving the landlord with a potential liability to prevent fines. A similar principle applies with water and sewerage charges and this is another bill that is often included as part of the rent.

Insurance is another ongoing cost that should be viewed as truly essential. The two main insurances that you should be maintaining are buildings’ insurance and public liability insurance. This will cover you if the property has a structural problem such as fire or flooding and will also cover you if your tenants are injured in your property and try to claim compensation from you, as the landlord.

Buy to let investors should budget for the following expenses:
10 percent of the purchase price for additional one-off expenses;
between 10 percent and 20 percent of income to an agent to manage the property on a monthly basis;
5 percent per year of income for repair and maintenance; and
7 percent of income annually for void periods.

Summary
Accurate budgeting will ensure that the buy to let property is an ongoing success;
additional costs should not be ignored;
although these costs can sometimes be unpredictable, there are general percentage rules that can be used to assist with budgeting.