Of course, like all forms of business, it’s seldom like this. Landlords are faced with umpteen hidden costs, which can wreak havoc with their investments and cause yields to be much lower than they initially anticipated.
Today, we’re going to mull over some of these costs to shed some light on the financial impact you may have to take.
Not everything is an expense
Let’s start with one of the significant movements in the UK over the last few years. Once upon a time, most expenses incurred by a landlord would be allowed as a taxable expense.
Now, this isn’t necessarily the case. Mortgage repayments are the obvious one, and while you may have once been able to claim all interest payments, a much more complicated system is now in place, which ultimately leaves you more out of pocket.
In short, make sure that any net yield calculations you perform consider these new tax rules.
While it’s a legal requirement to take out building insurance for your property, it’s often the case that this doesn’t cover you for everything.
For instance, if you have a void period where your property is unoccupied, you may need to take out specialist cover. This is on top of the usual landlord insurance costs and can add up if you have multiple properties.
Another obvious one, but one which can often be forgotten. As a landlord, you’re legally obliged to keep your property in a good state of repair.
This means that if something breaks, you’re on the hook for the repairs. And, of course, if your property is in a poor state of repair, you’ll likely have void periods, which, as we’ve discussed, can be costly.
It’s often a good idea to set aside a certain amount of money each month to cover these eventualities, as you never know when you’ll need it.
If you’re letting out a furnished property, you need to make sure that the furnishings meet all the relevant safety standards.
This includes ensuring that the electrical appliances are PAT tested and that the furniture meets the necessary fire safety standards.
Again, this is an additional cost which can add up, particularly if you have multiple properties.
Other, more hidden costs can take a chunk out of your profits.
For instance, if you’re using an agent to manage your property, they’ll almost certainly charge you a percentage of the rent.
And, of course, there are always the little things which can add up, like the cost of gas safety checks or the cost of getting a new boiler installed.
All of these costs need to be taken into account when you’re calculating your yield, as they’ll all impact your bottom line.