Important costs for buy to let landlords to consider

As research reveals many landlords underestimate the cost of buy to let, we outline the main factors that must be taken into account.

According to Platinum Property Partners, around one in eight landlords fail to consider additional expenses that could be related to their buy to let property.

This oversight can add £8,359 to the average buy to let property with the figure including aspects such as: letting agent fees, maintenance, repairs, marketing fees and mortgage interest.

Accurately measuring returns

Platinum Property Partners suggests landlords are overestimating potential returns by as much as 50 per cent by omitting these figures, claiming ‘return on investment’ and ‘return on equity’ calculations are the best ways to measure their buy to let performance.

These methods take gross profit, capital gains and running costs into account but the firm stressed that void periods also need to be considered.

A property will not return finances in the form of rents when it is not occupied yet only 12 per cent of landlords currently factor them into their calculations.

“Becoming a landlord isn’t a walk in the park, and running a successful portfolio takes continued investments of time and money on top of your initial lump sum” explained Platinum founder Steve Bolton.

Key costs to consider

The research found that 52 per cent of landlords do not take the cost of repairs into account despite 90 per cent of them paying an average of nearly £400 per home to solve such issues.

Some 63 per cent didn’t take the cost of letting agents into account while 77 per cent discounted the costs of refurbishment and decorating – factors which add an average of £830 in costs annually.

Exterior maintenance, cleaning costs, service charges and mortgage interest also need to be considered; potentially adding more than £2,300 to the total.

When reviewing mortgage rates, it’s important for investors to understand the different products and the costs they’ll incur.

Recent data from Mortgages for Business found 839 buy to let mortgage products on offer from 31 active lenders in Q1 2015 with fixed rate mortgages on two, three and five year terms better value than trackers.

Overall, the cost difference between low and high LTV mortgages stabilised at 1.5-2 per cent compared with 1 per cent figures from early 2013 which means lenders are hoping to attract a greater amount of low LTV business.

This ensures there is growing competition in the market which is helping to drive down mortgage rates and offer landlords fairer rates and greater profit potential.