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The costs involved in letting a property

There are a number of costs to a landlord when letting a property:

Letting agent fees

Letting agents provide a variety of services that can make life easier for landlords. The degree of service a letting agent provides will command a different price, which is usually a percentage of the rent based on the percentage of the term.

Letting agents can help market the property, vet any prospective tenants, collect rent (and chase it if it is not paid on time) and can also fully manage the property, including dealing with any emergency repairs.

Income tax and capital gains tax

Income tax needs to be paid on the rental income and if the price of a property has increased when it comes to selling, the profit may be subject to capital gains tax.

Maintenance

Landlords are obliged to keep the property in a serviceable state, and this comes at an expense. Many of these costs are tax deductible, however, including the following:

  • Repainting
  • Replacing damaged furniture
  • Replacing water pipes and disposal duct
  • Cleaning and gardening

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 (tenants should have their own personal insurance too). 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 outrage.

Safety certificates and EPCs

Unless there is no gas supply to the property, landlords are required to give a valid gas safety record to each tenant before the tenancy starts to show that the properties meet the legal requirements and also within 28 days of any further legally required check taking place during the tenancy term. You are also required to ensure that all electrical installations and appliances in the property are safe. If the property is designated as an HMO you will require an Electric Installation Condition Report (EICR) and Portable Appliance Test (PAT).

Energy Performance Certificates (EPCs) also need to be kept up-to-date. Each EPC is valid for ten years, and they cost an average of between £60 and £120. If the property is to be let under an assured shorthold tenancy then the efficiency rating for property must be between A-E, unless an exemption applies and the property is listed on the PRS Exemption Register. From 1st April 2020, this will apply to all privately rented properties let on assured shorthold tenancies at that time.

Unpaid rent and voids

The risk of unpaid rent, or no rent coming in due to the property being empty between tenants, 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 rental protection policies are also available to ensure there is an income during periods of vacancy.

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.

For more information talk to a KFH letting agent.

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