Costs a landlord will incur when letting

Landlords often underestimate the purchase, running and sales cost of owning a Buy to Let property.

Your buying and selling costs typically work out as follows:-

Properties under £175,000   1-2% of the purchase price
Properties over £250,001   4-5% of the purchase price
Properties over £500,001   5-6% of the purchase price

Your on-going rental costs will break down into three areas:-

1. Letting costs
2. Property costs
3. Service costs

Letting costs

If you are letting and running the buy to let yourself, it will probably cost from £400 per property including advertising costs, letting agreement, EPC and safety certificates and of course you should factor in your own time.

If you are letting via an agent they will typically charge a set up fee and a percentage of the rent as a management fee. Be aware that this is where letting agent charges can vary dramatically as some agents include the cost of things like an EPC, inventory and tenant referencing in their set up fee and others don't, you have to pay for them on top.

So, check what is included in your management fee. For example, some agents might include periodic visits every three or six months, others none at all. Some will carry out maintenance at no extra charge, whereas others will charge for this over and above the management fee.

Property Costs

These relate to the on-going running costs of the property, including mortgage payments, insurance and maintenance costs. If you include all the bills in the rent, then you'll have to pay the utility bills, water rates, council tax and any service charges.

It's a good idea to have a contingency fund of £2,000 for each property to make sure you have enough to cover you for any void periods, or maintenance costs. If the property is empty you will also need to budget to pay for bills such as the council tax, water rates and any service charges.

Service Costs

Unless you are an experienced landlord you are likely to need help from services such as a finance expert to ensure you are always on the best mortgage rates; a property tax specialist and in some cases a legal lettings expert. It's also worth considering joining a landlord association to help keep up to date with what's happening in the market place.

*Until September 2009 when stamp duty may revert to 1% on properties over £125,000.