landlord costs

Costs of Being a Landlord

If you’ve got a property you want to rent out, you’ll need to be aware of the potential costs involved. Find out what you’ll be paying as a landlord with this guide.

The deposit

If you’re not a cash buyer and are planning to take out a mortgage for a buy-to-let property, then you will need a deposit for the property you wish to buy. You may need a higher deposit than if you were buying a property to live in, and keep in mind that the higher your deposit, the more mortgages you are likely to be accepted for.

The mortgage

Buy-to-let mortgages usually have higher interest fees than other mortgages but are often offered on an interest-only basis, meaning your monthly repayments will only cover the interest on the loan. Mortgages have their own fees to keep in mind, which you can find in our mortgages guide.

Tax

As a landlord, you will have to pay income tax on any profit made on your property from rent or fees paid by tenants. Any property you purchase that is not considered your ‘main residence’ is also subject to an increased rate of tax on top of the usual Stamp Duty/Land Transaction/Land and Buildings Transaction Tax. Find out what you must pay in different parts of the UK with our Complete Stamp Duty and Land Tax Guide.

Repairs/renovations

As a landlord, you must ensure your property is fit for human habitation and follows any legislation for where you are in the UK, such as minimum energy efficiency standards, carbon monoxide regulations, gas safety and fire safety. These costs should never be overlooked, as doing so can lead to fines or court convictions.

Make sure you have budget aside for any safety renovations needed for a property, particularly if they are older or in a state of disrepair.

You may also decide to renovate the property if it is dated or unappealing. Doing so may not only increase the price of the property but make it more appealing to tenants and even increase the amount of rent you could charge.

A good renovation might also reduce the risk of future repairs needed on the property, saving you money in the long run.

Safety checks

Your property will need legal safety checks and features before and during a tenancy to ensure the property is safe and following the law.

These include:

  • Energy Performance Certificate (EPC) – Approx. £40
    • Valid for 10 years
  • Gas Safety Certificate – Approx. £60
    • Annual cost
    • Higher costs for properties with more gas appliances
  • Smoke detectors
    • Must be installed on every level of the property
  • Carbon monoxide detectors
    • Needed in rooms with solid fuel-burning appliances

The cost of these can’t be ignored, as they are important to the tenant’s ongoing safety.

Furnishings

You may decide to furnish the property before a tenant moves in. Whether you furnish or not depends on what kind of tenant you hope to attract. For example, students and young professionals are unlikely to be able to afford to fully furnish a property themselves, so will actively look for properties that are fully furnished.

Cleaning

Before a tenancy begins, you may wish to have the property thoroughly and professionally cleaned. This will not only help attract potential tenants but also make things easier when they leave the property, as tenancy agreements require tenants to return the property in a similar state to the start of the tenancy. If they don’t, you may be able to deduct from their deposit to cover cleaning costs.

Inventory

An inventory is a report detailing the contents, furnishings, fixtures, fittings and condition of a property before it is moved into by a tenant. Usually, it is accompanied by photographic or even video evidence of the property’s current state and condition. The reason for an inventory is as a reference point and evidence for when a tenant moves out, in case there are any disputes regarding tenancy deposit deductions in relation to the condition of the property. Inventories can be carried out by a landlord, but a letting agent is trained to perform them thoroughly and professionally. Using an agent can cost approx. £80 or even around  £200 for larger properties, but the potential compensation from deposit deductions can massively outweigh this.

Licensing

If you own a House in Multiple Occupation (HMO), you may need an HMO licence from your local authority in order to legally let it. In England, Wales and Northern Ireland this licence lasts for a maximum of five years; in Scotland, it usually lasts for three years, according to the GOV website.

You will need an HMO licence for every HMO property you own. Find out the cost of licences from your local council.

Selective or Additional licensing may also apply to your area if you are a landlord in England or Wales. Check with your local authority to see if you need to be licensed. Selective licensing costs, on average, around £590 per property and can last up to five years.

Scottish Landlord Register

Landlords in Scotland must now be part of the Landlord Register if they wish to legally let a property. It is £65 to apply to the register for your local authority, then £15 for each property you are renting out. Your registration must be renewed every three years.

Rent Smart Wales

All landlords in Wales must register with Rent Smart Wales by law and be licensed through them if they are self-managing their property (finding tenants and managing the property without an agent).

Registering online costs £33.50, or £80.50 if you wish to complete a paper application. You must re-register every five years.

To be licensed, you need to undergo, and have evidence of, training to be deemed fit and proper to manage your property. The courses offered through Rent Smart Wales can range from no cost to £100.

The licence fee itself is £144 for an online application or £186 for a paper application.

Finding tenants

The cost to find suitable tenants for your property can vary on whether you wish to undertake it yourself or use a letting agent.

An ARLA Propertymark Protected agent can advertise your property, find prospective tenants and reference them to see if they are suitable to rent out your property. Although there are costs involved, the length of time it takes an agent to find a tenant can be quicker, meaning your property won’t be empty for as long and you can earn income from rent faster.

Referencing checks, although an additional cost, can be beneficial in the long run, as they will warn you of any tenants that may be unreliable in paying their rent. The small costs involved in credit and tenant referencing can save you much more compared to potential rent arrears from an unreliable tenant.

Tenancy deposit protection

Some of the tenancy deposit schemes, which you must legally hold a tenant’s deposit in, may charge a small amount, either to protect the deposit or to allow you, the landlord, to hold the deposit. Check the costs for your preferred tenancy deposit scheme.

Ongoing repairs

Be prepared for unexpected costs during a tenancy. Appliances breaking, leaks, cracks and other issues can always happen, so it helps to be prepared for them. You can either do the repairs yourself or call out a third party for any maintenance. Most letting agents will organise maintenance and repairs for you if you opt for a fully managed service.

Landlord insurance

There are certain insurance policies available to landlords to protect them against any potential losses, these include:

  • Buildings insurance – for potential damage to the property’s structure or built-in features.
  • Loss of rent insurance – when you’re unable to rent out your property through no fault of your own (such as due to a flood or fire), this covers the potential rent lost.
  • Tenant default/rent guarantee insurance – covers any rent lost due to the tenant not paying.
  • Contents insurance – covers any contents that you have provided/own, tenants should get their own contents insurance for their own belongings.
  • Liability insurance – covers any legal costs if you are taken to court, i.e. if the property causes injury to a tenant or visitor.

Shop around for different insurance providers to see which ones offer cover that applies to you most. Although there is a cost involved with insurance, the savings and compensation offered, in the long run, is invaluable.

Lost rent

If a tenant falls into arrears, it will inevitably mean a loss of income for you as a landlord. It is always worth talking to your tenant to see if there are any alternative arrangements to ensure rent is paid back. There are ways to reduce this risk and to mitigate any further losses, such as paying for thorough referencing, having the right insurance or serving a Section 8 notice after two months of rent arrears to evict the tenant.

Deposit deductions

Since most tenancies require a protected Security Deposit, you can deduct from this amount for any loss on your part caused by the tenant. For example, unpaid rent can be claimed back through the deposit, as well as cleaning costs and damage to property (that isn’t covered by fair wear and tear). The costs you charge must be reasonable and like-for-like, so be sure to present receipts, pictures of damage, a check-in report or inventory (if used), a copy of the tenancy agreement and any other evidence, as tenants can dispute any deductions you wish to make. Be sure to contact your chosen deposit scheme for further advice.

If you a serving a notice, taking a tenant to court, or a tenant is taking you to court, there will likely be costs involved. Some insurance may cover any potential legal costs that come with being a landlord, but it is important to keep in mind that court is often a last resort for a landlord. By ensuring your responsibilities as a landlord are upheld and you have followed the law correctly, you can avoid court altogether or make your case more likely to win.

Letting agents

Good letting agents can save landlords money in the long run, given that they have the experience and knowledge of how to smoothly run a tenancy. Agents can value the potential rental yield for your property, undertake any referencing, put together tenancy agreements, protect the deposit, arrange any necessary maintenance, provide inventories and assist you to ensure you and your property are compliant with the law.

Their fees are either upfront or can be a percentage of the property’s rent, but importantly, their services can cover a lot of what is mentioned above.

By using an ARLA Propertymark Protected Agent, you’ll have added protection, as our agents hold professional qualifications, regularly undertake training and adhere to a strict code of practice.

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