If you’re thinking of entering landlord-hood or have become an ‘accidental’ landlord, then it’s imperative to have an understanding of the associated costs that may be coming your way. Whether it’s a one-off amount, or a regular monthly payment, you need to ensure that you have your finances in place accurately before you dive in headfirst. The following information is not meant to dissuade you, or dampen your ambition, but rather to prepare you for a career as a good landlord. Landlords that aren’t prepared to pay the expenses that are necessary, are doomed for failure!  Whist we can’t foresee the costs that are unpredictable, which unfortunately do rear their ugly head every so often, having a practical balance sheet of what you can expect to pay going in, will stand you in good stead to becoming a landlord supre

Mandatory Costs

These are costs that all legally required by all landlords in England:

Repairs & Maintenance

This area of cost is probably the hardest to predict as you can never know when the dishwasher is going to need to be repaired, the boiler needs to be replaced, or mother nature herself blows down the garden fence. Unfortunately, there is no way to avoid it. Some years you my get lucky and spend virtually nothing on maintenance and repairs, whereas other years you may end up spending more than you make in profit. The trick is to be prepared! The general rule of thumb is to set aside 1% of the property’s value for the first few years in order to build up a sufficient maintenance pot to cover the dramatically varying trades prices. After a few years you will probably have a better grasp of how much you need to keep in your maintenance fund to keep you afloat.

Appliances & Furniture

Whilst no landlord can escape the rough terrain that is maintenance and repairs, the amount you end up spending may depend on if you offer your property furnished, or not. Any appliance or furnishing that is provided as part of the tenancy needs to be kept in safe and working order throughout, meaning if it breaks you as the landlord are responsible to either repair or replace it (unless tenant caused).

If you are offering your property part or fully furnished don’t be tempted to buy the cheapest furniture and appliances you can find, as these will often be of lower quality and not last very long, leaving you spending more money than you needed to in the first place through either having to repair or replace them. Even if you buy quality furnishings, consider the average lifespan of these items, for example a gas combi boiler is said to have a 10–15-year lifespan. It means you will be able to roughly predict at what point during your tenure as landlord you will need to have sufficient finances in place to spend on a replacement.  

Remember, if you are supplying electrical appliances, it is your responsibility to keep them maintained in a safe condition. An easy way to do this is to get an annual Portable Appliance Test done, which will show you have done your due diligence as a landlord if something were to go wrong.

Void periods

An easy area to forget about when you are preparing your budget, but you need to take into account the amount of time you can expect the property to remain uninhabited, meaning you won’t be receiving rent. This may be whilst you’re finding your first tenant(s), and then following this, any void period between tenancies. Do some research and try to find out the average time it takes to rent a property similar to yours in your area to give you a solid basis to work from.

During these void periods whilst you won’t be receiving an income from your property, it doesn’t mean you are free from expenses. You will still be responsible for mortgage payments, utility bills, insurances, and other tax related charges. However, these empty periods do give you the perfect opportunity to do any works that needs doing, which leads us onto our next point.

Redecoration, cleaning & gardening

Every few years or so, as part of the landlord cycle, you will need to redecorate. The frequency in which you need to do this can depend on a lot of factors such as the size of your property, age of the home, and the tenants you have. For example, a family with 2.4 children is probably going to exert harder wear and tear on a property than a retired couple, meaning more frequent redecoration is necessary. However, the good news is that offering a freshly decorated property means you should attract a greater number of tenants, therefore allowing you to have your pick of the tenant-bunch whilst maximising your properties rental value.

Likewise, offering a property that has had a professional clean before a new tenancy, will mean you can expect to receive the property back in a similarly clean condition, meaning a potential shorter void period between tenancies, saving you money in the long run. Equally, if you are renting out a property that calls for it, such as an HMO, then you may want to consider hiring a monthly cleaner for the communal areas. HMOs can be notorious for not being left in the cleanest of conditions, as they are often let to big groups of students who have never rented previously. The monthly clean will keep the property maintained and hopefully show the tenants what state you expect the property to be kept in.

In our experience, we have found cleaning to be one of the main reasons for a deposit deduction, along with gardening. If your property comes with a garden, provide equipment. It means the tenants will not have an excuse to let the garden turn into a jungle during their stay. Speak to new tenants before they move in about their gardening habits. If they enjoy it then you can rest assured that you are likely to receive your lawn returned in the same perfectly manicured condition as you left it, however if gardening is just not for them, it may be wise to hire a gardener to visit once a month or so. This may seem like an avoidable expense, but it may mean you can demand a higher rent, and make for happy, long-staying tenants.

Tenant expenses

These are the small, but necessary expenses if you want to have a smooth tenant journey. First off referencing. The price of references varies across the board, depending on how in-depth you’re going. Whilst references cannot say with certainty if someone will be a saint of a tenant or not, they can identify any potential red flags.

Next comes the inventory and schedule of condition. Many first-time landlords think these are a rather pricey and unnecessary bit of paperwork but believe us when we say, these things can save you a bucket load of money. The report will show the condition of your property as you have presented it to the tenants, meaning at the end of a tenancy, you can reasonably expect it to be returned to you in the same condition (minus any fair wear and tear). A check-out report will then be needed at the end of the tenancy, to compare it to the inventory and schedule of condition.  If the property is returned to you in a non-acceptable state, then these expenses, can in most cases, be fairly deducted from your tenant’s security deposit, rather than coming out of your own pocket. Inspections throughout the tenancy are a good way to mitigate any unexpected end of tenancy expenses, which you may also have to budget for. 

Following on from this, keys. Enough sets of keys will need to be given to the tenants that is reasonable for the size of the property. For example, tenants of a 3-bedroom house, would realistically expect to receive 3 sets of keys. Then you will probably want a set for yourself, and maybe one to give to an agent, or to keep in a safe place. You should also always keep a spare set of window keys, as these are notorious for going missing, and can be a bugger to replace!

There are many different ways to advertise your property to tenants, but the most commonly used method today is the property portals, such as Rightmove, Zoopla and OnTheMarket. The problem with these portals is that they carry a large cost with them, that most landlords who only have a small portfolio can’t justify spending. Letting agents will usually be subscribed to one or more of the portals, so using their services to find tenants is a cost-effective idea.  Similarly, a tenants security deposit must legally be protected by a deposit protection scheme, and to do this there is inadvertently an associated cost. Prices differ between the schemes, but a letting agent will already be a member of one of the schemes, and it may be cheaper for them to protect the deposit on your behalf.

Finally, unless you are going to draft them yourself, factor in document expenses such as the initial tenancy agreement, any notices that may need to be served, a legionnaires report, and any renewal agreements. Getting these wrong, can be costly.

Landlord Expenses

Whilst not all landlords will choose to spend money on these things, the cost of spending on them vs. the cost of not spending on them needs to be considered - things such as landlord insurances. If you have a mortgage on the property, it is likely that the lender will require you to have buildings insurance, however this is just the tip of the iceberg. The market is swarmed with different types of insurances to protect landlords, and it is up to each individual to decide which are necessary for them.

 Another expense to consider is hopefully a cost you will never have to come across as a landlord, and that is legal fees. Assuming you are a good landlord and perform all your legal obligations, the only legal fee you are likely to encounter is to remove rogue tenants. The system in place in England, rightly or wrongly so, is a difficult and lengthy process, meaning you will not only have legal expenses to fork out for, but also the associated costs such as losing out on unpaid rent. More often than not it is more cost-effective to compromise with difficult tenants to reach an agreeable and quick conclusion.

Ultimately being a landlord is a business, and as such there are a number of complicated assessments, rules, and taxes surrounding the finances of it. If you don’t have a mind for numbers, then an accountant may be a smart investment to save you paying for your mistakes when HMRC comes knocking.

Circumstantial Costs

These are costs that may be required by some landlords depending on the situation:

Back-up Plan

We hinted at this idea earlier, but the biggest mistake a new landlord can make is not putting measures in place to deal with the unforeseen expenses. This can lead to landlords either having to sell up, or even worse, neglecting their landlordly duties, risking even bigger financial and penal consequences. Each month when your rental payment comes in, make sure you leave a percentage of your profit as a contingency, to cover, or at least contribute to any unpredictable expenses that may come your way.

If you’ve read this far and haven’t given up hope yet, then firstly, well done! But secondly, you have probably come to the realisation that being a landlord is a tough gig. The ever-changing legislation is a mind-field that can lead to expensive consequences, along with trying to deal with regular maintenance issues and any tenant problems that may arise. But don’t be discouraged because Aquarius Homes is the answer! As with any other business, the more experienced you are, the cheaper it becomes, and we have a wealth of knowledge and experience.  Our ARLA trained agents will help with all your landlord needs, our flexible management packages suit all situations, and we offer free valuations. So, if you’re debating whether to use a letting agent or not, don’t be afraid to get in touch and find out about our management packages, that can include many of the costs mentioned above. We can’t wait to hear from you!