As many landlords are aware, buying a property as an investment is completely different from buying a property as a home to live in.
It is all about the figures, and many landlords would argue that there is no emotional element required in their investment decision.
And yet, some landlords - like many residential buyers - still make the mistake of overlooking the costs of buying a property, which could ultimately trip them up financially.
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Here’s our list of the top six costs landlords should keep in mind when purchasing a buy-to-let property.
1. Stamp duty
Not only do many people not factor in stamp duty into their purchase costs, but some landlords may forget about the three per cent surcharge that has been introduced on all buy-to-let and second homes.
This can mean you end up paying an eye-watering £10,000 in stamp duty on a buy-to-let property worth £250,000. For more information on calculating how much you’ll need to pay, check out our article on stamp duty for landlords.
2. Maintenance costs
Maintenance costs are varied – they could be everything from how much you need to spend to get the property up to standard for the rental market, to making sure that you know the cost of monthly service charges and ground rents if you’re buying a leasehold property.
Most flats are leasehold properties, so if you’re buying a flat, you’ll need to keep service charges and ground rent in mind, as well as whether to rent it furnished or not and whether any parts need refurbishing.
You also need to study the lease for information about how these charges will increase in the future. Ground rents could potentially double every 10 years, for example.
A recent study found that the average landlord spends over £2,000 a year on maintenance costs.
Landlords are responsible for repairing and replacing appliances that they supply, so the cost of these checks needs to be factored into your budget.
You’re also legally required to have an annual gas safety check carried out on all gas fittings, appliances and flues at your properties. The cost of a gas safety check will vary depending on who provides it, as well as how many items need checking.
4. Buildings insurance
Most lenders will ask for proof of buildings insurance if you require a mortgage for an investment property. This covers the structure of the property against events such as a fire or flooding.
You may also want to protect your contents, as well as your fixtures and fittings against such events. If they were damaged or destroyed and you didn’t have insurance in place, you’d have to pay for repairs and replacements out of your own pocket.
5. Void periods
If you’re buying the property with a mortgage, this will still need to be paid - along with utility bills - whether or not you have a tenant living at the property. As such, it is worth budgeting for potential void periods.
It’s worth keeping in mind that a number of insurance policies won’t cover you while the property is unoccupied, so it’s worth keeping unoccupied property insurance in mind when purchasing your policy.
6. And don’t forget letting agent fees
This is important for cash flow if your figures only add up if you have a tenant paying a monthly rent. Agents typically charge 10 to 15 per cent of the rent to help find tenants and collect rent on your behalf.
And with letting agents no longer able to charge tenants, your own fees could be going up, so make sure you keep that in mind.
Check out our quick-start guide to letting agent fees if you’re after a little more information.
Did any of these unexpected costs come as a shock to you? Let us know in the comments.