Becoming a landlord is known to be a great investment opportunity, especially if you build up a healthy portfolio. The market is worth an estimated £25 billion. However, achieving a successful portfolio is no easy feat. There are various factors to consider to even purchase one successful private rented property.
- Additional mortgage costs
Securing a mortgage can be difficult for anyone looking to purchase property especially given the rising interest rates. However, for buy-to-let, you could be looking at a hefty deposit due to the increased risks associated with mortgage repayments as a landlord. For example, a tenant goes into rent arrears and so you struggle to make the monthly payments.
2. Cost of set up
Before a tenant can move in, you need the following in place, which each have their own cost:
Referencing – Background checks on a prospective tenant to establish their ability of meeting the rent each month.
Registering with deposit scheme – If there is a deposit in the tenancy, you need to register with a deposit scheme.
Energy Performance Certificate – You must have an EPC in place at the start of the tenancy. If you fail to comply with EPC regulations you could be heavily fined.
Gas Safety Checks – these must be carried out annually and one must be in place at the start of the tenancy.
The same format should be adopted in respect of any notice, be it s8 or s21 where the executor is serving notice on the tenants.
3. Hiring a managing agent
If you want to avoid having to be the point of contact for your tenants, then a managing agent can help. However, there is a management fee which is set at a percentage of the rental price, which adds further cost each month.
Whilst a tenant is responsible for cleaning the property and standard upkeep, the landlord is responsible for keeping the property in repair. Failing to do this can result in compensation payable to the tenant and even legal costs if a disrepair claim is made.
As a landlord, you must pay income tax on profit from renting your property. Therefore, you must keep up funds aside to pay your annual tax bill.
6. Legal Fees
You must also consider prospective legal fees should you seek to evict your tenant. Fees vary between law firms. However, if you have to serve a notice, make a possession claim and instruct a bailiff, you could be looking at around £1700-£2000 in fees. Granted, you could be awarded costs during a successful claim. However, these costs awarded are not always the full amount, and you also need to be able to pay them upfront to your solicitor.
Being a landlord can be a very successful investment. However, as with any investment, there are associated risks and costs. It is very important to be aware of these factors when considering becoming a landlord.
Our partners Woodstock Legal Services, have a friendly team with extensive experience and legal knowledge of the private rented sector. If you are a landlord in need of legal advice, please don’t hesitate to contact them at https://www.woodstocklegalservices.co.uk/brief-us-now
by Leonard Aiken