Last week I wrote about some of the reasons why buy-to-let is, in the vast majority of cases, still a good investment despite the huge numbers of people that are jumping on the bandwagon. Today, I’m going to talk about a few of the hidden costs of buy-to-let that you’d do well to remember if you have any intention of joining them.
Some of the costs associated with buy-to-let are pretty obvious, and you’ll be familiar with them if you already have a property of your own – surveyor’s fees, stamp duty and legal costs all spring to mind. But while most would be buy-to-let landlords have set aside some cash to refurbish their new property, many fail to take the following into account:
Letting Agents’ Fees
If you use an estate agent to find tenants for you, you can expect to pay them for that privilege. You’ll need to set even more cash aside if they’re managing the property too.
You’ll save yourself a lot of hassle operating through an agent and, if you’re in an area where it’s a little more difficult to fill a rental property, you might be even more inclined to involve a third party because of the next point.
When a property’s occupied, you usually don’t need to worry about council tax. However, if you don’t have any tenants, you’ll be responsible for its payment. There’s a six month exemption period for empty properties but, if you own any of the furniture in the property–i.e. you let the property furnished or part-furnished–you’ll only get a 50% discount.
One tip is that properties undergoing substantial renovation are exempt from council tax. If you know you’re going to have an empty pad for a few months, get the painters in or start tearing up that broken tiled floor and you could save yourself some cash.
Deposit Protection Fees
Not every scheme has fees associated with it, but there are some that do. Ask landlords about deposit protection schemes and you’ll hear some horror stories about them siding with tenants over landlords, but it’s still probably better than having no deposit at all.
Buildings insurance, contents insurance, life insurance–to pay for the mortgage should you pass on before paying it all off–and rent guarantee insurance are all either essential or advisable in the world of buy-to-let. Individually the payments will likely be fairly small, but they quickly add up.
Repairs and Refurbs
“Hold on!” I hear you cry. “You already mentioned refurbishments above!” That’s true, I did. But, unless you get very lucky, tenants won’t take care of rental properties in the same way that their owners would.
From students exploring their freedom for the first time (make of that sentence what you will) to those people who think you won’t notice they’ve been hiding a Schnauzer in the house for six months, most places will start to look shabby unless you refurbish every few years.
Unfortunately, the above isn’t even an exhaustive list of the hidden costs associated with buy-to-let. Hopefully it’ll get you thinking about how much rent you actually need to charge and the size of the property you can afford beyond any rough estimates you may have already made.