On paper, it sounds like a dream. And, with interest rates currently at exceptionally low levels, the profitability of being a landlord seems like a no-brainer.
However, it’s not all rosy. There are umpteen hidden costs – many of which are not unearthed until it’s too late.
Some of these have been around for decades, while others are more recent fees that the authorities have brought in. Regardless, if you’re considering becoming a landlord, here’s the lowdown on some of these surprising costs.
The majority of transactions in the UK incur stamp duty – but there’s an extra fee for landlords. As well as the standard rates, they also have to pay an additional 3% tax on the value of the entire property.
Suffice to say; this adds a significant bill onto any purchase.
As the famous saying goes, there are two things in life which are certain… However, while landlords have always had to pay tax, it would be fair to say that the situation has changed somewhat over recent years.
Several years ago, a landlord could claim all their mortgage interest payments as an expense. Now, this isn’t the case. A slightly more complicated system has been brought in, meaning landlords can claim 20% relief on their expenses. For basic rate taxpayers, this won’t make too much difference. Still, for those in the higher brackets, the costs can be significantly higher and mean that a rental property is no longer a viable investment.
Unsurprisingly, getting the appropriate insurance is another cost you need to factor in. If you have a mortgage on your property, you’ll need to turn to buildings insurance to satisfy the lender’s terms. There is also landlords insurance, which differs from typical home insurance.
These fees are low compared to some of the others we have mulled over today, but they again need to be accounted for, as they can all add up.
Fortunately, this doesn’t happen in every part of the country. However, the local authorities charge a ‘license fee’ for landlords in some areas. This can be as much as £900 per property, which can again hit a landlord’s bottom line.
Nottingham was one of the first to implement this fee, but it’s understood that more councils are considering it to raise much-needed funds.
A lot of landlords forget that there can be periods where properties remain vacant – and each one of these periods is going to cost you. It’s not only the days, weeks or even months without receiving rent (and potentially paying council tax as well), but it’s the added costs of finding replacement tenants and prepping your property so they can move in comfortably. Most agents charge a finding fee when they get new tenants, which can eat away at your first month’s rent.
Some properties, and areas for that matter, are more likely to experience tenant churn – so do your research before committing.