The costs involved in letting a property

Letting a property involves several costs that landlords need to plan for. Understanding these expenses will help you budget effectively and protect your investment.

Letting agent fees

Letting agents offer a range of services, from marketing your property and finding tenants to rent collection and full property management, including emergency repairs. Fees vary depending on the level of service and are usually charged as a percentage of the rent for the agreed term.

Income tax and capital gains tax

Rental income is subject to income tax, and if your property increases in value, any profit on sale may be liable for Capital Gains Tax (CGT). Seek professional advice to ensure compliance and optimise tax efficiency.

Maintenance

Landlords must keep properties in a safe and habitable condition, which involves ongoing maintenance costs. Many of these expenses are tax deductible, but rules can change—consult an expert for up-to-date guidance.

Landlord insurance

Landlord insurance comes in three different tiers. There is buildings insurance, which covers the structure and protects against fire and flood damage. Then there is contents insurance, which is relevant to landlords renting out a property even if it is unfurnished. Finally there is landlord liability insurance that covers landlords in the event of a tenant or visitor being injured in the property and the landlord is judged to be responsible. 

As well as these policies, landlords can set up rent guarantee insurance to cover them against unpaid rent. Some policies also offer cover against potential legal expenses and home emergency cover to ensure core utilities, including gas and water, are quickly restored after an outage. Tenants are advised to take out their own insurance for their personal belongings as the landlord’s insurance will probably not cover these.

Safety certificates and EPCs

Unless there is no gas supply to the property (including no communal gas boiler within a block of flats), landlords are required to give a valid gas safety record to each tenant before the tenancy starts to show that the property meets the legal requirements and also within 28 days of any further legally required check taking place during the tenancy term. This also applies if heating or hot water is supplied by a boiler in another part of the building.

A landlord must ensure that the electric installation within the property is safe and provide a copy of a satisfactory Electrical Installation Condition Report (EICR) to each tenant before any new tenancy, renewal tenancy or statutory periodic tenancy starts. All privately rented properties must have a satisfactory EICR in place for the duration of the tenancy. An EICR is valid until the end date shown on the certificate; this is usually 5 years, but can be shorter depending on the condition of the installation.

Energy Performance Certificates (EPCs) must also be given to tenants at the point of marketing. Each EPC is valid for ten years, and they cost an average of between £60 and £120. If the property is let under an assured shorthold tenancy, the efficiency rating for property must be between A-E, unless an exemption applies and the property is listed on the PRS Exemption Register.

Unpaid rent and voids

The risk of unpaid rent, during a tenancy, or no rent coming in due to the property being empty between tenancies, can be mitigated by only expecting to receive around 90% of the total potential rent throughout the course of a year. Many landlords will budget for this contingency, and may also purchase a rental protection policy. This type of policy may insure against rent arrears, or for the loss of potential rent due to damage caused by the last tenants which prevents immediate re-letting of the property.

Contingency funds

Putting aside a little of each month’s rent means funds are available to cover any unforeseen expenses. It can also help make mortgage repayments during periods when no rent is being paid.