The unseen expenses of being a landlord
Whether you’re new to the rental market or have been a landlord for years, costs and expenses are something to be ever mindful of. Like any endeavour, when the expenses outweigh the income, it’s time to stop, take stock and reconsider your options. The rental market in the UK has been volatile for a few years and uncertainty, changing regulations and rising interest rates make it harder to stay in the black.
While most expenses are predictable and manageable, sometimes there are unforeseen costs that can have a major impact. What are the less obvious expenses that can have an outsize impact on your profit margins?
Void periods:
Obviously, a vacant property means zero rental income. Hard to anticipate, a void period could be as little as a week or could go on for many months. Whether due to tenant turnover and management or sheer difficulty finding suitable tenants, these gaps can significantly impact cash flow. It’s essential to have a financial buffer to cover mortgage payments, council tax, and other ongoing expenses during these periods of vacancy.
Letting agent fees:
While some landlords opt for self-management, many rely on letting agents to handle tenant sourcing, rent collection and property maintenance. However, the convenience comes at a cost, with letting agent fees typically ranging from 3% to 16% of the monthly rent depending on what services you opt in to. Additionally, landlords may incur additional charges for services such as inventory checks and tenancy renewals, further eating into profits. While these fees should remain stable and manageable - shop around in case another agency has a better deal.
Landlord insurance renewal:
While landlord insurance provides essential protection against property damage, liability claims and rental income loss, renewals can mean a sudden increase in monthly payments. If you’ve claimed already, make sure you have an estimate for how the monthly fee might change. Most insurers will be able to show their calculations so you don’t have a sudden unexpected price hike at renewal. Better still, shop around for insurers who are up-front about their renewal process, so you know how claiming on your insurance will impact your future payments.
Maintenance and repairs:
Properties require regular upkeep and the extent of maintenance costs can be huge. From routine maintenance like boiler servicing and gutter cleaning to unforeseen emergencies such as burst pipes or electrical faults, the expenses can quickly accumulate. While budgeting for regular maintenance and setting aside funds for unexpected repairs can help avoid financial strain, taking advantage of affordable monthly plans might be more predictable. YourRepair’s affordable landlord cover ensures your properties get the essential boiler and heating maintenance they need and reliable cover for unexpected emergencies.
Tax implications:
Rental income is subject to taxation and landlords must account for tax liabilities, including income tax on rental profits, stamp duty land tax (SDLT) on property purchases, and capital gains tax (CGT) on property sales. Changes in tax legislation, such as mortgage interest relief reductions, can also impact profitability, necessitating proactive tax planning and professional advice. If you don’t have a strong head for financial planning make sure you have a good accountant.
Being a landlord can offer lucrative returns, but it’s essential to plan for the hidden and unexpected costs that come with the territory. If we were to summarise our advice it would be to save money where you can, spend your money wisely and keep some cash aside for the unexpected.
Taking care of maintenance and boiler servicing should be the easiest thing to manage. We have specialist landlord & homeowner plans that can leave you one less thing to think about. Click the link below and browse our range of care packages which are currently two months free for NRLA members!