New landlords need to look into the real costs of renting

Sarah Rushbrook of Rushbrook & Rathbone urges new landlords to look at the real costs of renting…

As well as financial restrictions that are perhaps forcing people to rent, many are actually opting not to buy and this decision is a lifestyle choice and not a market one. With this in mind, there have unsurprisingly been numerous recent reports of an increase in landlords applying for buy-to-let mortgages and Sarah Rushbrook, Founding Director of Rushbrook & Rathbone (R & R), a leading property management agency, encourages new landlords to do their research into how much it’s really going to cost them.

Sarah comments: “More people are considering investing in buy-to-let, but it’s surprising how many people only take mortgage repayments versus rental income into account when looking at affordability. All too often, they fail to remember that where rented property is concerned – unlike stocks and shares, for example – there is a need for continued, long-term investment in the form of maintenance.

“As a result we have seen a significant percentage of new buy-to-let landlords end up selling their properties again within a couple of years, simply because they have underestimated the costs involved. Others end up in court, chasing their tenants for unpaid rent which is being withheld due to lack of maintenance. Landlords therefore must remember that buy-to-let is a business and must be treated in this way so, before you invest, make sure you do your sums properly. This involves drawing up both a long and a short-term investment plan.

“Most buy-to-let landlords aim to hold their properties for 10 years or even more. In order to maintain capital and achieve the best rental, a landlord should expect to have to invest in one kitchen and bathroom refurbishment, probably three complete redecorations, and maybe replacement of all the carpets. All of these are expensive and need to be allowed for when setting out the initial purchase plan.

“An agent should be able to assist with costings but it’s up to the landlord to decide if they can then afford the property as an investment. I would advise to only ever budget for 10 months a year rental income to allow for void periods and to also allow 10pc for planned and 5pc for unplanned maintenance as well as 10-15pc for agents’ fees. For example, on a rent of £10,000 a year, £1,500 should be allowed for agents fees, £1,000 for planned maintenance and £500 for unplanned maintenance – a total of £3,000, leaving you with a monthly income over 12 months of approximately £575.”

Sarah also suggests that landlords should make allowances for buildings insurance and utility bills while the property is empty, an annual gas safety check and the initial set-up costs for the inventory. If the property in question is a flat, there will also be an annual service charge.

Sarah concludes: “Realistically therefore, the highest mortgage repayment you should entertain ought to be no more than 65pc of the rental income in this case – and probably closer to 50pc.

“Letting property should not be a lottery. Proper forward planning of this kind can help build stability in the market – which in the long term will benefit both landlords and their tenants.”

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