Hidden costs of letting a property
I started my property journey the same way that thousands of other “property investors” did. When I moved out of my city-center flat, I became an accidental landlord. I decided that I could rent my flat and cover the mortgage payment. I could even earn some extra income on top.
Thousands of people find themselves in the same boat every year. You may, as I did, jot down your figures and be very happy with the yield and monthly cash flow that your property is about to start generating.
However, letting a property comes with a multitude of hidden costs that you may not have originally considered.
What are the hidden costs of letting a property?
Finding a tenant: the first cost you will face is finding a suitable tenant. You will need to advertise your property. To advertise effectively, you will need a certified agent. They will advertise your property through Rightmove, Zoopla, etc. The “going rate” is can be anywhere from half to one month’s rent.
Gas safety check: great – you have found your tenant. However, before you can legally move them in, you need to have a gas safety certificate. The Gas Safety (Installation and Use) Regulations 1998 state that landlords must ensure gas appliances, fittings and flues are safe for tenants. Maintenance and annual safety checks must be carried out by a Corgi-registered gas installer. Once they are, you will obtain a CP12 certificate before your tenant moves in. Moreover, gas safety checks must be carried out on a property annually.
Inventory: You’ll also need to take an inventory of the contents of the property you are renting. Each item should be recorded and its condition judged. This will ensure that the tenant leaves your property as they found it. Again, having a 3rd party perform an inventory can costs £100s.
Structural repairs: the law also requires that you maintain the property and perform checks & necessary repairs on the structure and exterior of the property before you let.
Fixed wire testing / Portable appliance testing: The Electrical Equipment and Safety Regulations also state say you must ensure that the electrics are safe. Getting your electrics regularly checked by a qualified electrician comes at a cost.
Landlord insurance: As previously discussed, landlord’s insurance is vital for new landlords who do not have a diversified portfolio of rental properties.
On-going management costs: You have two choices as a landlord – manage the property yourself or hire a property management company. Whilst the latter is more expensive, it can save you a lot of time. I would recommend that everyone listens to this episode of the Property Podcast on the debate between being a “landlord” and being an “investor”.
Tax: After all of these costs, you find yourself lucky enough to make a profit. Brilliant – well done you. Oh, hold on. What’s this? Of course, it’s the taxman. He wants his share!! I won’t go into detail here (as it probably requires at least another three articles), but you should plan your tax on your rental at the start of the year. If it is an afterthought, it will end up costing you more.
How can I minimize the hidden costs of letting a property?
There are two large hidden costs of letting a property: money and time. I would therefore recommend lettingaproperty.com who provide a complete service for a very reasonable price, which can save you both time and money.
When I found my first tenant, I was charged half a month’s rent to let my property through a local estate agent, amount to £300. This essentially consisted of putting the property onto Rightmove with 3-4 mediocre photographs.
In comparison, lettingaproperty.com offer a “gold service”. This includes finding and referencing the tenant, drawing up an agreement, registering the deposit and collecting the first month’s rent.
They will advertise your property on Rightmove, Zoopla, Gumtree, PrimeLocation and more for up to 24 weeks. When a suitable tenant is found, they will reference check them, draw up your agreement, register the tenant’s deposit and provide an inventory template. And, all this for a flat fee of £199!
But wait, there is more!!
For a limited time only (until the end of February), if you sign up through this link and use the code “AWGOLD20”, you will get an extra £20 off the Gold “Full Let” Service, making it only £179.
I was nodding my head reading your list here about the hidden costs. The worst for me has been repairs. The strangest things can happen to your rental property that you can’t really plan for. For example, our tenant rang to say that a pigeon had flown down the chimney and was stuck. We had to pay to get the gas fire disconnected, removed, reinstalled and reconnected. Expensive. And the pigeon? Yes, it was rescued safe and sound. 🙂
Nightmare!! Did you try invoicing the pigeon?! 🙂
Thanks, Moneystepper. Lots of good info here for us as we are considering jumping on to the real estate investing bandwagon.
The costs are slowly moving into the sales market aswell, most banks will now ask for a gas certificate and electrical certificate. Its becoming so much of the norm that more businesses like myself ourselfs are popping up to solely provide these certificates and can hopefully provide them a slightly cheaper rates due to the wholesale business side of it
These are really good and useful tips! I am a first-time home buyer and I still can’t think of all the things that I need to do with the new house in order to get tenants, so the property starts paying for it’s own mortgage! I decided that I will stay at the house of my parents another few years and during this time tenants will pay me rent. I think that it is the best not to move… but still there are many things that have to be fixed before this. Thanks do much for sharing!