The Cost Of Running A Buy-To-Let Property
Management fees
Many landlords pay a letting agency or management company to run their rental property for them, which is normally charged as a percentage of the rental income. Their services will include finding tenants, carrying out reference checks, taking a deposit, organising contracts and dealing with ongoing tenant queries and issues, as well as contract renewal. This cost can be avoided if landlords wish to self-manage. Landlords who choose to manage their own properties must be completely up-to-date on the latest regulations and legislation. Some landlords simply will not be able to keep up with the management without using an agent, such as those with multiple properties and those who live too far away to provide an adequate service.
Service charge
Many flats and apartments with communal facilities will be subject to a service charge. This normally pays for things like maintenance and repairs of communal areas and gardens, servicing lifts, and upkeep of communal heating and lighting. When you buy a leasehold property, you should be made aware of these charges and will be liable to pay them as soon as ownership is transferred. For properties that are subsequently let out, it is up to the landlord whether to pass this charge on as an additional cost to the tenant, in which case it must be set out in the tenancy agreement. Otherwise, you might recoup the costs by including it in the rent charged.
Council tax
Council tax is charged on every residential property in the UK (with some exceptions and discounts). The cost will depend on the valuation band of your home, what the local council charges for that band, and whether you are entitled to a discount. When a property is tenanted, it is up to the tenants to cover the cost of the council tax, but the bill must be paid by the property owner for rental properties that are not tenanted. Some local councils offer a discount if the property is a second home or is empty, but owners must check with their local authority if this applies to them.
Void periods
A void period is when a tenant moves out, and no immediate replacement moves in, meaning that all property costs must be covered by the owner until a new tenant is found. When selling a rental home, properties that already house tenants can either be sold with vacant possession on completion, or sold subject to an ongoing tenancy, in which case the tenancy will be handed over to the new owner on the day they get the keys.This avoids void periods for the new owner, which can be costly and are something every property investor must consider when factoring in their risk and returns.