Boy Scouts across the World will tell you the importance of being prepared. And it’s no different for landlords. One area where preparation pays off is knowing what expenses to be prepared for when renting out a property and avoid unexpected costs.
Renting out a property can be very profitable and even enjoyable. When done correctly, it’s an asset earning you money as you sleep and who doesn’t like the sound of that. The best landlords have clear budgets and an understanding of the costs they can expect to fork out on.
But even the best have been caught out by expenditure that seemingly came out of the blue.
Here are eight awesome tips to help landlords to avoid unexpected costs.
Beyond taxation
Be crystal clear about what costs you’ll need to consider at the start of your journey as a landlord or when adding a property to your portfolio. It’s not just a case of your annual rent received minus taxation. Be aware of as many potential expenses as possible as there are more than you probably think.
Professional fees
If you are going to use a letting agency to find you a tenant and carry out the vetting and referencing expect to pay anywhere between one month’s worth of rent or up to 10 -15 per cent of its annual income as a ‘finders’ fee.’ These amounts will vary considerably based on your property’s location and other geographical and social factors. If the agency is going to manage your property fully, this cost needs to be considered. Go back to point one and be clear about what agencies charge for the likes of management, inventories, commissions and even maintenance.
Safety first
Do not cut cost corners with your tenants’ health and safety. Not only can this be enormously costly if you are found not to be fulfilling your responsibilities as a landlord, it can end up in extreme cases with criminal action against you.
Be aware of all your legal obligations around fire and gas safety. Add in the cost of smoke alarms, gas certification and electrical appliance checks if necessary. From financial, professional and moral perspectives, it pays off to invest in this area of being a landlord.
While the first three tips cover areas, you are probably aware of the next three are often overlooked and come as an unwanted surprise to landlords.
Accidental damage
Expect fair wear and tear when a property has been let out for some time. Spills, stains and scuffs here and there are acceptable, but have you budgeted for things getting broken? If you are providing a property with white goods, that’s a cost base there which needs cover – and the best way to protect yourself from bigger bills is to spend a little on accidental damage insurance. The internet is awash with insurance companies offering landlords a range of cover. But do your research as cheap insurance can end up costing a lot due to not paying out or slow service.
Thinking ahead
Times, fashions and property rental regulations (constantly) change. But if you’ve no plans to sell your rental property one thing won’t change – it’s location. And when it comes to finding excellent tradespeople to carry out any repairs or maintenance finding local ones will save you time, money and hassle. Start building up a contact list of trusted traders who you can call upon if the matter arises. And remember the adage ‘A stitch in time saves nine.’ Have a schedule for regular maintenance rather than let things in, or on your property, slip into a state of disrepair.
Associated costs
Joining a landlord association can be money very well spent because the best ones provide services, resources, education, discounts and offers that can save you money. The big player in this area is the National Landlords Association (try for instance NLA, RLA, GRL and try to understand which one is for you), but others are also serving the market.
Regular costs
The most predictable of all costs can sometimes be so obvious they get forgotten about when budgeting. Factor in your income tax owed from the property, putting regular amounts away is a wise move ahead of your tax bill. Other ongoing bills can include building service charges if applicable, agency management fees and servicing of appliances. A useful exercise is to list out all possible regular costs you can think of that may apply to your property.
Weathering the storm
Nothing tests your property’s financial plan like a bad weather event. Whether it’s a storm causing chaos, floods, gales or snow and ice, you need to be mindful of the damage bad weather can bring. When was the last time you had a professional roofer check your roof to see if there were any weak points? Is the fencing you are responsible for likely to withstand another winter? Are you pipes insulated sufficiently to stop them freezing in a cold spell? Be as ready as possible for any eventuality.
Having to pay out unexpectedly is always a pain in the neck. We understand some costs are unavoidable but others, with proper planning and foresight, can be reduced or even avoided altogether.
We hope you have you plenty of food for thought, that the above tips make your life a lot easier and avoid unexpected costs.
Be on top of your expenses
Talking of making landlords’ lives easier that’s exactly what we do at Rentila with our free cloud-based property management software. It helps landlords manage their portfolios, stay the right side of the law and maximise their investment returns. It can also help you budget for, and be mindful of, all costs related to being a landlord.
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