The hidden costs of a landlord’s responsibilities

What are the main financial risks and hidden costs of a landlord’s responsibilities? Alice Guy investigates and exlores ways you can protect yourself.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Have you ever thought about becoming a landlord? If so then you’ve probably already crunched some numbers to work out what you might earn. With mortgage payments, tax, possible periods without tenants and repairs to your property, being a landlord can be expensive. But what are the main financial risks? And are there any hidden costs of a landlord’s responsibilities?

It’s important to know about the risks and costs you might incur before taking the plunge. Here I take a look at some of the main financial risks for landlords and investigate extra hidden costs, as well as ways to protect yourself. 

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Top financial risks for landlords

Like any investment, owning a rental property comes with risks. Here are some of the most common and potentially expensive financial risks for landlords:

  1. Property repairs – As a landlord, your responsibilities include making sure the property is in good condition. As well as day-to-day repairs, you may also face bigger bills if tenants damage your property. 
  2. Unpaid rent – Tenants don’t always pay on time. Think about how long you could afford to pay the mortgage in a worst-case scenario if your tenant stops paying rent altogether. It can take a long time to secure an eviction.
  3. Empty periods – You will have to cover the mortgage yourself from your savings if your property is empty. It can take weeks or even months to sort out repairs and decorating between tenants. If the property market takes a downturn, then it might take a while to find new tenants.
  4. Rental prices – Despite recent rises in rental values, it is possible that they will go down in the future due to a recession or financial crisis. This could be an issue if your rental income only just covers your mortgage.

Top hidden costs of a landlord’s responsibilities

A recent report by home repairs and services company Rightio found that the hidden costs of a landlord’s responsibilities often mount up. They include responsibility for gas and electrical checks and providing an energy certificate for your property. Here’s a more detailed rundown:

  1. Annual gas safety checks – Landlords have to carry out these checks with a Gas Safe engineer, costing between £35 and £90.
  2. Electrical safety checks – These checks need to be carried out every five years, and they don’t come cheap at around £200 each.
  3. Energy efficiency rating – Landlords need to give new tenants an energy efficiency rating for a property. Getting your property on the EPC register costs between £60 and £120.
  4. Licences – Landlords who rent out houses in multiple occupation (HMOs) must acquire a licence to do so. Previously, only properties with three storeys or more and more than five tenants required a licence, but this has been extended to all HMOs.
  5. Selective licensing – This is the one that trips up a lot of inexperienced landlords. Currently, over 70 councils in England can apply selective licensing, which was brought in to improve the standards of landlords in certain areas. Licencing allows councils to run a ‘fit and proper persons’ test on landlords, and a licence typically costs around £400.

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How to protect yourself

So, as a landlord, how can you protect yourself from these financial risks and hidden costs? How can you make sure you discharge a landlord’s responsibilities while still making a profit on your property? Here are some of my top suggestions:

  • Take up references and perform credit checks on new tenants. This minimises the risk of problems collecting rent.
  • Set money aside in a savings account to pay for repairs and cover your mortgage in an emergency. Do you have enough money to pay for a new boiler or a problem with the roof? Can you afford to cover the mortgage during an empty period between tenants?
  • Make sure you have up-to-date home insurance on your property.
  • Consider getting specialist landlord insurance. This will cover your property itself as well as your furnishings. You can also add further cover for lost rent, periods of no occupancy and accidental damage.
  • Think about using an agency to manage your property. Depending on your agreement, the agency will perform checks on new tenants, collect rent and organise repairs on your property. This will hopefully identify problems quickly before they escalate into more expensive issues.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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