Why you can't afford to not read this article if you're thinking about buying a property to rent out!

If you want to make money from a BTL portfolio then you need to understand the true costs of running a property in today's market.

Don’t make the mistakes most first time buy to let investors make when working out the costs associated with running a BTL property – if you ignore this it could wipe out all your profit!

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When buying an investment property to rent out its really important to treat the property like a ‘mini business’ and this means doing your research to make surer you really understand the costs involved in running your property (business) and to analyse potential cash flow it will generate.

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Most investors will look at what rent they will achieve for the property and take off costs for mortgage interest and letting agent fees if they are using one.?However there are dozens of hidden costs which if you are not aware of this before you buy can eat all your profit!?So make sure to consider the following;

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1.????Letting agent fees

You may have been quoted a fee per month e.g. 12%+VAT however have you checked the other fees associated with letting and managing your property??This could include additional marketing costs, erecting a ‘to let’ board outside your property, drawing up an inventory, checking in your new tenants, separate costs for registering the tenant deposits, inspection visits to the property plus a top up fee for managing repairs and maintenance.?Make sure to check the letting agents’ T&Cs!

2.????Compliance – Gas Safe Certificate

If the property has a boiler or gas appliance you will need to have an annual gas safe certificate carried out for the property carried out by a gas safe registered engineer.?Expect to pay around ￡75 for a boiler plus extra for each additional appliance e.g. gas hob.

3.????Compliance – Electrical certificate

As a minimum every 5 years or change of tenancy (whichever is less) you will need to have the electrics tested by a qualified electrician.?Expect to pay around ￡200.00 for an average size property.

4.????Compliance – Carbon monoxide alarms

For every source of gas in a property (boilers, hobbs, fires etc) you must have a carbon monoxide alarm positioned near it.?Expect to pay ￡15 per unit and to replace every 5 years.

5.?????Compliance – Fire alarms

Depending on the property (BTL, HMO etc) you will need to have fire alarms in your property, and in some cases this will need hard wired alarm system with an alarm on each floor plus smoke detector in the kitchen.?For a hard wired system in a 2 bed terrace expect to pay around ￡1200 to install.

6.????Compliance – Fire doors

Depending on the property (BTL, HMO etc) you will need to have fire doors in your property, and in some cases they will need extra hardware including smoke seal strips and self closing hinges.?To fit and supply one internal fire door with associated hardware expect to pay around ￡350.00-￡450.00 per door

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7.????Repairs and Maintenance

This can be a bit like trying to guess ?‘how long is a piece of string’ but as a general rule of you set aside around 10% of the rental income each month this should cover most day-to-day costs.

8.????Appliances

If you provide appliances in a rental property like washing machines, driers, TVs, kettle, microwave etc then expect to replace these every 4-5 years.?Based on an average house initial outlay will cost around ￡1400 for washing machine, drier, TV, kettle, toaster, microwave and miscellaneous items like kitchen bins.

9.????Furniture

Again if you provide your rental unit furnished these items will need replacing every 5 years, in particular items like beds and mattresses that get a lot of use will need replacing more regularly.?Budget around ￡1,000 per room to take into account bedroom furniture and communal areas like living rooms.

10.?Costs associated with re-letting your property

So if you’ve been fortunate to have tenants in your property for a few years and they move on then chances are you will need to spend time doing some work to the property before you can re-let it.?Make sure to factor in the voids (loss of rent) plus costs to redecorate (budget for around ￡400-￡500 per room) plus replacement of carpets and flooring every 10-15 years.

11.?Building insurance

It is your responsibility to make sure your property is properly insured and will more often than not be a condition of your mortgage lender.?For a typical 2 bed BTL in the north of England expect to pay around ￡300 for the year (not including contents insurance)

12.?External maintenance

You know the saying ‘a stitch in time saves nine’? Well in property if you neglect to keep up to date with regular maintenance of the outside of your building it can end up costing you a lot more if left – make sure to organise having your gutters cleaned every year, make sure downpipes are unblocked, cutting back on hedges and gardens and fixing the roof leaks before they become a much bigger problem!?For a typical 2/3 bed BTL budget around ￡250 a year to cover those smaller jobs outside.

13.?Window cleaning

Don’t argue with your tenants over whose responsibility it is to clean the outside of your windows!?Keep the outside of your property looking clean and this attitude will help you to let the property in future and let your tenants know you care about the house and they will be more likely to stay on.?For an average property expect to pay around ￡10 a month to have your windows cleaned.

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My recommendation would be to put a spreadsheet together with all of the costs above listed based on the ‘spread out’ cost per month so you can quickly analyse what your ‘true’ profit will be when your property is up and running!

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