What are the Running Costs as a Landlord

Renting out a property can be very financially rewarding in terms of monthly cash flow and capital appreciation of the property over time. However, landlords are responsible for all the costs of running a rental property and it is not uncommon for landlords to make a loss in the first year of owning a property.

These include mortgage payments, insurance and maintenance. You also have to pay tax on the amount of rent collected from tenants. In this blog, we outline the main costs so you don’t get any unexpected surprises.

Running a rental property is expensive, but there are ways to keep costs down.

The main costs associated with being a landlord are:

• Mortgage payments
• Insurance
• Pre-tenancy costs
• Void periods
• Maintenance & repairs
• Tax

Other costs may arise. For example, if you buy a property that needs repairs and/or renovations before it can be rented, you will have to pay for these expenses. It is also worth noting that many renovations cannot be claimed back against tax until you sell the property. If the property is empty before tenants move in, you may also incur costs from utility bills and council tax. Add to this, tenant finding costs, management fees, furnishing and void periods and the initial outlay soon adds up.

Mortgage Payments

The biggest cost to consider as a landlord is your mortgage payments. These are typically paid monthly and the interest on the mortgage payments used to be tax deductible, but the rules on this have recently changed.

Mortgages are often taken on an interest-only basis, meaning only the interest of the property is ever paid off, and it is common for landlords to put a 25% deposit down, meaning the mortgage is for 75% of the value of the property. This is to ensure the landlord has enough equity in the property in the event of any defaults.

Mortgages at a higher loan-to-value are available but not as common and are likely to have higher interest rates attached. If you choose to opt for a repayment mortgage, this means you will not have to find another way of paying off the mortgage later on, as you will be paying both interest and capital each month, but it will reduce your monthly cash flow.

Insurance

It’s a good idea to have insurance for your property, so you can be compensated if something goes wrong. There are two types of landlord insurance: home and contents cover and landlord cover.

Landlord covers include buildings and contents insurance (which covers any damage to the structure or fixtures of your property), legal expenses and emergency repairs.

Home and contents policies will reimburse you if someone breaks into your house or steals something from within it (such as jewellery). It also provides protection against fire damage, flood damage and other perils associated with everyday life at home – like an animal getting stuck in a pipe!

Pre-tenancy Costs

Before you let a tenant move in, remember you have a responsibility to make sure the property you are renting is safe and inhabitable and there are a number of costs you must pay. These include:

Gas safety certificate – this is an annual inspection of the gas appliances at your property. It costs around £50-75 and must be carried out by an approved contractor.
Electrical Installation Condition Report (EICR) – this is an electrical inspection that checks for any defects or dangers in the wiring system at your home or rental property. It costs around £100-150 depending on where you live and whether you need more than one inspection done (for example if you have a complex wiring system).
Legionella testing – if there’s hot water flowing through any part of your property then it needs to be tested for Legionella bacteria before letting anyone move into their new home! This usually costs around £100 per test depending on where exactly they’re going to take place within each building; some companies even offer free trials so tenants can see how easy it is before deciding whether they want one done themselves!
EPC – An electrical performance certificate tells you the property’s energy efficiency using a rating system from A to G, with A being the best rating given to the most energy-efficient properties. Properties are currently required to have a rating of at least E before they are let to tenants,  but this is changing to a rating of C by 2025. A certificate is valid for 10 years.
Marketing costs – Even if you have a tenant lined up, it is still a necessity to do pre-tenancy checks such as referencing and credit checks, which you will need to pay for. Many landlords use a letting agent to source a tenant, which also comes at a cost, usually around 1 month’s rent.

Before a tenant moves in it is necessary to get an inventory. This will usually cost around £70 and will give a full description of the condition of the property and should include photo evidence. An inventory will be an essential piece of evidence should you need to make a claim against the tenant’s deposit when they leave. Some landlords also opt for a letting agent to manage their property. Typical fees are around 8-12% of the monthly rent. Remember, even if an agent is managing your property day to day, you are still responsible for the property itself.

Void Periods

The void period is the time between when a tenant leaves and another moves in. It’s important to be aware of this period because it can affect your running costs as a landlord, especially if you don’t have a new tenant lined up.

If you don’t find someone quickly, you may be stuck with no income coming in for weeks or even months until your property is let again. In addition, you may have to pay council tax, gas and electricity and broadband costs.

Landlords who earn more than £12,500 per year, whether from their rental property or a combination of the investment and their employment, must pay tax. Landlords who earn more than £12,500 per year, whether from their rental property or a combination of the investment and their employment, must pay tax.

Maintenance and Repairs

The maintenance and repairs of your property are probably the most important aspect of being a landlord. You will need to make sure that your property is in good condition, as well as having regular maintenance and repairs done on it. It is beneficial to have a contingency fund to account for any unexpected maintenance issues that arise.

You will also need to have regular inspections of the property by an approved inspector who can tell you if there are any problems with it before they become too serious.

A good relationship with your tenants is key for making sure that everything runs smoothly for both parties involved in renting out a house or flat, so make sure that you get along well with them before offering them somewhere to live!

Tax

Landlords who earn over £12,500, whether from their rental property or a combination of the investment and their employment, must pay tax. The tax regime for landlords is complicated, but it’s always worth doing your homework. There are two types of taxes you could be liable for: income tax and capital gains tax (CGT). For income tax, we would recommend reconciling your expenditure once a month so you are not caught short at the end of the year when the tax return has to be submitted.

To work out what you owe, you need to add up all of your income from renting out the property–that includes rent, any service charges paid by tenants and any other money made from the property. Then deduct expenses such as repairs or maintenance costs that relate directly to renting out the home. You’ll also need to factor in any other business expenses like advertising or employing staff who help run things on a day-to-day basis.

As a landlord, you’re responsible for keeping your rental property in good condition. This means paying for repairs, cleaning and maintenance. You may also have to pay tax on rental income if you don’t own the property as an investment vehicle (like a trust). By planning for all possible costs in advance and keeping track of your outgoings on a monthly basis, you should not be hit with any nasty surprises.