What is the true cost of a being a landlord today?

Warren Lewis
13th September 2019
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Over the last few years, due to a combination of crushing new government legislation and the present financial climate, the profitability of the buy-to-let sector is being squeezed beyond recognition and is far from what it once was.

Not that long ago, the buy-to-let market was considered a cash cow for those with the financial means to operate within it. However, leading a number of Government changes have dented this profitability through initiatives such as an increase in stamp duty tax.

Yet despite this, landlords are still considered to be raking it in, but Howsy has found that the average landlord is left with just £2,000 from an annual return of £13,000 once the hidden costs of being a landlord are paid for.

The research shows that the initial start-up costs of Stamp Duty Tax (£6,663) and agency fees to find a tenant (£811) cost the average landlord £7,475 and that’s before the ongoing costs are considered.

According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy, that’s an average of £535 a year.

What’s more, 73% of landlords buy with a mortgage and each and every year will see £6,921 paid out in interest as a result. Couple these costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 and you’re talking £11,147 per year.

In a worst-case scenario, UK landlords may also find themselves forced to stump up for additional unforeseen costs, such as the legal process to evict a tenant. While this doesn’t happen to everyone, there is a one in 500 chance that you will have to pay for bailiffs to evict a tenant from your property.

What’s left?

Based on an average annual rental income of £8,112 divided by the average B2L property cost of £183,278, the average yield available is 4.4% - that’s an annual sum of £8,119.

Over the last decade, the capital appreciation of bricks and mortar has also averaged an increase of 2.85% a year, £5,223 in monetary terms. That means B2L landlords are seeing a return of £13,343 on their investment.

However, leaving start-up costs and unforeseen events out of the equation, once the average UK landlord has paid the ongoing costs associated with a buy-to-let property each year, they’re left with a profit of just £2,140.

Calum Brannan,  founder and CEO of Howsy, commented: “Investing in an area with higher yield is one way to increase profit but you can also squeeze every last penny out of your property by shopping around on things like mortgage rates and which agent to use.

Today, the sector is ripe with alternative platforms and so you don’t have to be at the mercy of the traditional letting agent and the high fees they charge.

The new age of letting platform not only costs less where fees are concerned but many platforms, like Howsy, are now offering comprehensive packages designed with security and peace of mind as the motivation, not profit. These packages provide the traditional service aspects with the addition of guaranteed rent and also cover the cost of repairs and maintenance for one small monthly fee.

All of this can contribute to lower void periods, no rental arrears and an all-round happier experience for tenant and landlord which can be as valuable as the additional income.”

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