The Running Costs Of Being A Landlord

I’m going to make a shameless confession before I do or say anything else: before I became a landlord I had no idea what the associated costs were, although I had naively convinced myself otherwise. I thought I knew it all (or at least could hazard an accurate guess). In retrospect, after years of experience, it’s become apparent that I was blissfully ignorant. I may as well have entered the Dragon’s Den without a business plan. Embarrassing.

In my feeble little head, I had reduced the financial costs of being a landlord to a small handful of expenses, which was actually, primarily why the whole landlord deal looked so mouth-watering. Don’t get me wrong, the whole landlord deal is still a sweet deal, just not as sweet as I initially anticipated in terms of cashflow!

Now, if you’re reading this blog post it means you’re probably a lot more sensible than I am, because I’m assuming you’re actually researching the costs of being a landlord before biting the bullet. Wise decision.

I want to clarify, the information I divulge isn’t to scare you, it’s to prepare you, and essentially make you a better landlord. Hopefully you’ll be able to form a rough, yet practical idea of the costs of being a landlord, so you’re able to assess your decision with a little more clarity and precision.

While no one can predict the unpredictable (trust me, a lot of unpredictable shit happens in this business), we can forge a typical balance sheet for a landlord.

From my experience, the following are the bare bone expenses that landlords have to endure…

Mandatory Costs

Circumstantial costs

The following costs may apply depending on your specific situation…

Here are a few other costs to consider…

Utility Bills
Generally, tenants are responsible for paying utility bills directly. However, some landlords do offer “bills included” as part of the deal. If that’s the case, this should be added onto the expenses, and also reflected on the rent cost.

(although, I personally think it’s a terrible idea for landlords to bake in the utility expenses with the rent, adds too many potential complications).

Maintenance & Repairs
Most of the points I cover can be inserted into the category of “maintenance and repairs”, but for the purpose of being as transparent as possible, I will discuss certain areas in more detail below.

There’s literally no way of avoiding this aspect of being a landlord, and there’s mostly no way of predicting how much you’ll spend on maintenance. I frequently have boilers, fridges, cookers and the plumbing die on me. However, there have always been years’ when I’ve gotten away without spending a penny on maintenance, while other years the costs have climbed into the thousands (it’s scary). In that respect, it’s pretty much like any other property that’s being lived in.

I’ve also had mother nature have her wicked way with me by blowing over garden fences. Not to mention, tenants that cause so much damage that the tenancy deposit doesn’t even begin to cover the cost of repair. How can you prevent or predict all of that? Impossible. That’s why it’s imperative to have a contingency pot of money to help cover these unexpected occurrences.

However, what I will say is that you can limit the costs. Extended warranties, insurance policies and landlord emergency repair services are available. For example, British Gas offer a landlord cover service, where they charge £15 per month to cover plumbing and electrical faults.

While it is impossible to predict exact costs, it’s very possible to get a better idea of how much you’ll spend on average on repairs and maintenance after a few years.

Size of property
Larger the property, the more it costs to run. That’s the general idea anyways. Reason being is that, simply, there’s usually more to break and maintain. But also, larger properties are usually rented to families, meaning there are more people living in the property, and in particular children. That all equates to higher probability of breakage and wear.

Age of property
Generally speaking, older houses are more expensive to maintain because they often have old-fashioned features which aren’t as cheap to repair and main as the newer stuff, they also tend to have older boilers, heating systems, and electrics, which can be expensive to keep alive.

Redecorating
Every few years and/or after going through a few tenants, you’ll probably have to freshen up the property. It’s part of the landlord cycle.

Personally, I’ve found that the carpets take the most beating, as do the condition of the walls, consequently I find myself repainting and laying down new carpets every 3 or so years per property.

Legal costs
The true underbelly of landlord life.

Assuming you’re a good landlord, and you stick to your legal obligations, the only legal costs you’re likely to encounter at some stage to the cost to remove and/or prosecute rogue tenants. This is unfortunately more common than most new landlords are aware of.

The costs of dealing with a rogue tenant can be soul-destroying, and not just the legal costs, but also the associated costs of losing out on unpaid rent, which is usually the case.

Furnished / Unfurnished
While furnished properties do demand higher rent and larger deposits, they do tend to cost more to maintain, for obvious reasons. Often, the extra earned in rent doesn’t cover all the “fair wear” expenses, so be aware of that.

I cover the pros and cons of furnishing a BTL in this blog.

Pets
Are you a pet-friendly landlord? Many aren’t, but some are. Tenants with pets notoriously find a hard time finding properties to rent, particularly dog owners. However, landlords can (and do) take advantage by demanding more rent from pet-owners. But it’s important to bare in mind, pets cause damage and may have an impact on the overall cost for maintenance and redecorating.

Smokers
I wasn’t sure whether to include in the list. I know some people get touchy about the issue (mostly smokers). However, I do believe it’s something worthy of noting, and from experience, I know it’s a real issue.

Similarly to pets, tenant smokers can be destructive, particularly if they’re compelled to smoke indoors (good tenants will only smoke outside, fact!). Smoke can cause damage, and consequently reflect on the overall cost for redecorating at the end of the tenancy.

Leasehold properties
Most UK flats/apartments are leasehold properties – particularly in the South of England – and they’re a popular choice among many new landlords, largely due to the lower asking prices compared to freehold properties. But purely fixating on the lower ‘cost of entry’ is often a fatal mistake, because leaseholds generally come with added complications and ‘running costs’, which can make the proposition… not so profitable in the long-run. Most leaseholds add restrictions, which in many cases include regular ‘service charges’ and ‘ground rent’, both of which can quickly spiral out of control.

I’ve already written a blog post on whether I think leasehold properties are good for BTL. But in short, be wary of the fact that leasehold properties do come with extra running costs. So if you plan on buying leasehold, be sure to read the lease carefully and fully understand the costs. All the costs.

The round up

Relatively speaking, there is a lot to shell out for, and potentially much more than a lot depending on individual circumstances. It may even seem like blow-your-brains-out expensive (especially with inevitable and unpredictable maintenance issues), and I wouldn’t entirely blame you for feeling compelled to completely abandon ship and throw your money into penny shares instead.

Being a landlord definitely isn’t as easy as many believe, and that’s primarily because, as said, it’s a business based around people, and people are idiots… they’re often filthy, disruptive and generally irresponsible. I’ve had tenants break everything from bathtubs (literally) to my soul (by falling into arrears).

But don’t be discouraged, there is profit to be made (obviously), which can be summoned by purchasing the right property for the right price, and stuffing it with the right tenants. Sounds easy, right? it’s not. Fortunately, I’ve written an in-depth guide for new landlords that cover the essentials. Enjoy it (but only after you’ve finished with me here).

It’s also worth noting that being a landlord is like any other business, the more experienced you are, the cheaper it becomes as you master the craft. I’ve noticed that over the years my expenses have drastically reduced purely through experience and gained knowledge. Essentially, I’m not as stupid as I once was.

One particularly significant example of enlightenment, was when I switched from high-street agents to online agents. It’s the best thing I ever did.

For the first couple of years I was using a high-street agent to find tenants. I’d say, on average, the acquisition would cost £700. I paid that excruciating amount for a couple of years. But then I discovered online lettings agents, and my cost tenant acquisition cost reduced to £50. Massive difference, right?

“I was blind, now I see.”

Another example of how experienced reduced my costs is when I realised letting agents are generally the middle-man for most services. For example, I often used to acquire things like gas safety certificates and EPC’s from letting agents.

That’s without a doubt one of the most expensive ways of acquiring those things, because agents put a mark-up on the price on the products and then hire third party suppliers. In reality, I could have just gone direct to the suppliers and saved myself a buttload, which is exactly what I do these days.
If I sat here counting how much my inexperience cost me, I’d be a blubbering, incoherent mess. I’d rather just chalk my losses up as lessons well learned, and opportunities to help others.

Lastly, I was just to clarify, a lot of the spiralling costs will be depending on YOU, the landlord, not just tenants. For example, if you use cheap materials and fittings that aren’t fit for purpose or durable, you’re likely to spend a lot more than necessary on repairs. But that’s a lesson new landlords usually learn through experience, because it’s hard to sway new landlords away from spending as little as possible when they’re starting out. However, for more information, you maybe interested in the how to renovate and decorate your buy-to-let property article.

I often become teary-eyed when I think of the money I wasted – not just with online letting agents – but in general. But that’s something wisdom and experience can help iron out. In the mean time, I hope my little nuggets of advice will prove for a good starting point in what you should expect.

Have a contingency

One of the biggest mistakes most new landlords make is that they don’t put measures in place to deal with unforeseen expenses. Being financially ill-prepared can literally cripple a landlord’s business and cashflow, usually in the form of expensive debt, or even worse, negligence of their duties (e.g. ignoring tenants maintenance issues).

The “grab and run” approach can be extremely appealing, and you wouldn’t be the first to fall victim to its appeal. We’ve all done it. As in, when we see money in our account, we just grab and run. But that could lead to expensive mistake.

If you’re able to make profit every month after paying all your expenses (e.g. insurance, mortgage), don’t be tempted by the devil- don’t grab and run with all of what remains. Leave a percentage in there every month, and allow it to build up, which will allow for a nice contingency, to cover (or at least help contribute) any of those unforeseen mishaps. ALWAYS have a contingency in place.

If anyone can think of any other costs, please let me know. I’m pretty sure I covered all of them though, or at least for the mandatory part anyways.