It’s easy enough to assume that rent minus mortgage fees equals profit for you as a landlord. But there are far more expenses involved in renting property, and if you were to go on this simple equation, you’d soon find yourself out of business. In this short guide, we take a look at the expenses you will encounter being a landlord and how you can keep track.
Turnover
In an ideal world, your property would be occupied all the time, but unfortunately, that’s not the world we live in. From time to time, you’ll have to change tenants. And you might not be able to collect rent for a portion of the year. You need to account for this. This means you should always consider if you expect your property to be without tenants for three weeks of the year. Then you need to add these three income-free weeks to the amount you rent your property out for.
Of course, for every week your property has no tenants you are not making money while your mortgage provider still wants paying. You can take steps to minimise income-free weeks by marketing your property well. And getting the property cleaned, repainted and ready to rent out as quickly as possible.
Another way around minimising rent-free weeks is by choosing tenants that will not move. Students and single people typically move on far more frequently than families and couples. In addition to this, people who rent properties and move their own furnishings also stay longer than those who move into fully furnished properties. And, even if people do move out of a property that you rent without furnishings, you’ll be able to make it ready for rent again sooner.
Marketing
Your vacant property will not find itself a new tenant. So you’ll need an agency or sign up to a platform such as Rightmove that tenants use to find new homes. You don’t need an agency that will typically take a large cut. Plenty of platforms are free to use. The important thing is to take excellent photos of your property and make sure the property is scrupulously clean and well maintained.
Annual Certifications
Although not a significant cost, you still need to make sure you have annual certifications completed so that your property and tenants are safe. And you’re not breaking the law. You need to make sure a qualified individual checks lamps and heaters, and they are PAT tested. An annual Landlord’s Gas Safety Certificate for the boiler and any gas fires is also an expense to consider.
Repairs and Maintenance
It’s not possible for there not to be any wear and tear in a property even with the cleanest tenants.
Yes, you can take money from a tenant’s deposit if they have damaged property or heaven forbid, put their fist through a door or a wall. But you can’t blame a tenant for having made a bum-shaped imprint in the cushion of a reasonably inexpensive sofa after three years.
The taxman also won’t allow you to deduct for this, so you need to make your rental price high enough to cover 20% of this. This means that if you rent a property for £500 per month, you’ll have overcharged by £100 each month. This means you will have £1,200 in the kitty annually to use for property maintenance.
Insurance
Insurance is another necessary evil that you need to make sure you have covered. You need the insurance that your mortgage provider will insist upon for the building structure. If you are renting a property with contents, you’ll need special landlord’s insurance to cover this. It’s also well worth considering upgrading your insurance to cover you for rent-free periods. Although you will pay more, you’ll get peace of mind. And insurance companies can pay you for rent-free times if you were to be hit with an extended period of not having any rent.
This could happen if there were some severe damage to the property, such as structural damage from a storm. Of course, a landlord’s nightmare is a tenant that decides to stay and not pay rent. A tenant could stay in your property without paying rent and force you to use the legal system to evict them. This is extremely expensive, and you also don’t have any rent. Many landlords insurance will happily take on this liability and take on the brunt of the legal work for you. So it’s best to hunt down tailored landlord insurance that will help out with this nightmarish eventuality.
The Taxman
Earning income from properties isn’t a perk you can keep to yourself. It’s taxable income that the taxman wants a slice of. The personal allowance has not changed from the tax year 19/20 and has stuck at £12,500 for 20/21. You’ll start paying the basic rate of 20% for any income over and above this. But if renting property is something you do on top of a full-time job or have several properties, you’ll have to pay tax on your income of 40% on income over £50,000 .
Aside from giving landlords an extra £1,000 of the personal allowance, there are also deductibles you can take into account. So you don’t have to pay tax on your total rental income. You can deduct your expenses such as repairs, agency fees, utilities (if you pay them), council tax, and maintenance services such as gardeners and cleaners. If you only rented one property and you were under your personal allowance, then you’d pay nothing on rental income of £10,000. But you might have to pay £4,000 if it was over and above £50,000 of your total income.
How To Keep Track
How do you keep track of all these things? Well, for a start as mentioned above, since the taxman wants a piece of your pie, it’s imperative that you do! You can use a simple spreadsheet. But you can also use a software that’s specifically designed for this. Rentila is the perfect way to help track your expenses and has heaps of other benefits, such as free tenancy agreement templates. You can open an account for free if you just have one property or you can have an account for unlimited properties for as little as £8 per month.
Landlord Expenses: Things to remember
You must keep a check of all your expenses and consider them when setting your property’s rental value. Consider using software such as Rentila to keep abreast of your expenses. And make sure you save paper and electronic invoices managed for if the taxman comes calling.
Remember to account for:
- Turnover – if your property is vacant
- Marketing – to rent out your property
- Annual Certifications – which are vital for safety and to stay legally compliant
- Repairs and maintenance – are a big part of your budget so account for at least 20% that is set aside
- Insurance – get landlords insurance to cover you for rent-free periods
- Taxes – don’t forget to declare and pay your taxes
Protect the environment. Reduce paper consumption and help save the trees as well as save money at the same time. 
