5 things buy-to-let landlords frequently forget when budgeting
To succeed as a buy-to-let landlord, you need to keep a tight rein when budgeting.
But, there are so many factors to consider, it can be hard to keep on top of them all. This is most likely to happen when you’re first starting out, but can affect landlords at any stage.
We’ve prepared this handy list of things you should double-check when budgeting to help keep your finances in order.
What do buy-to-let landlords forget when budgeting?
1. Void periods
You’ll still need to pay your mortgage and bills, even when tenants aren’t occupying a property.
Void periods differ depending on the type of property you’re renting out. A family home is likely to be occupied relatively consistently, whereas a student house might be left vacant for a few months each year.
This can void your insurance policy, too. So, you should also factor unoccupied property insurance into your policy and overall budget.
2. Letting agency fees
If you use a letting agent, be prepared to pay 10–15% of rental value in fees.
Letting agents can take on a whole range of responsibilities that save you time and money. This includes property advertising, house viewings, contractual duties and rent collection.
But, you should work out whether this presents good value for money. And, remember that letting agents may soon no longer be authorised to charge tenants directly. If this change goes through, letting agency fees would come directly out of your pocket.
3. Property maintenance
You will be responsible for all property maintenance costs, both before and during tenancies.
This includes all furniture, appliances, utilities infrastructure and other resources noted in the tenancy agreement and inventory. You’ll also need to arrange annual checks of all gas fittings (such as the boiler and cooker).
Tenants may fail to carry out proper maintenance, or inform you before an issue becomes more serious. Therefore, maintenance costs are often higher than in an owner-occupied property,
For leasehold properties, you’ll need to add ground rent and service charges (both of which can increase over time) to your maintenance costs.
According to LV=, landlords spend an average of £2,360pa on maintenance costs.
4. Stamp duty
Stamp duty is a land tax that’s collected as part of the property purchase and varies depending on the property price.
As of last April, the amount of stamp duty buy-to-let landlords are required to pay when purchasing a property increased to 3% of the overall property value.
Therefore, you may be faced with an additional charge of £9,000 when purchasing a £300,000 property.
5. Insurance
Insurance isn’t compulsory, but most mortgage providers will demand it before they’ll agree to lend.
You’ll need special landlord’s insurance, which typically costs more than homeowner insurance. It’ll cover you against costly repairs to structural damage from things like fire and flooding.
You may also want to get contents insurance to cover damage to your fixtures, fittings and furniture.
The amount you spend on insurance will depend on the value of the property, the value of your contents and your policy provider. But, it’s certainly worth factoring in when budgeting.
Remember these five things when creating your budget, and you can set up a profitable buy-to-let enterprise.
Call on 3 Wise Bears for more handy accountancy tips that can help keep your buy-to-let enterprise profitable.
