Becoming a Property Investor: The Hidden Costs to be Aware | By Dr Emmanuel Eni Amadi

According to the most recent trends in the UK property market, this is a good time to be a landlord. According to Rightmove's research, the average asking rent outside of London has increased to £1,126 per month, an increase of 11.8% from the same time last year.

The capital has an average yield of 4.8% and the North East has an average yield of 8.1%, so there are plenty of opportunities, especially for investors with a portfolio of multiple properties.

However, there are other things to think about, including the various landlord fees that can reduce your profit margin. In order to adjust your strategy for investing in real estate, you need to know what these are and how much they might cost.

Here, we'll go over the typical costs, including the fees charged by letting agents, which can change depending on the level of service you want. Please do not hesitate to get in touch with us if you are interested in learning more about how we can assist you in managing your portfolio and finding you the ideal tenants. We have lettings specialists located all over the country.

The initial purchase.

There are expenses associated with every stage of becoming a landlord, beginning with the initial purchase. Some of these are likely to be listed below.

Deposit

You will need to get a buy-to-let mortgage unless you have enough money to buy the house outright. This requires putting down a deposit, which can be as much as 40% or as little as 25% of the property's value. Visit - www.gov.uk/

Mortgage Payments

After that, you'll have to pay the mortgage each month. These will vary greatly based on a number of factors, including the type of property, its location, and the amount of your down payment.

Your mortgage payments will include interest, which is likely to be higher than the rate on other types of mortgages, typically between 2% and 3%. It also means that you will have to pay back more money than you borrowed during the term of your mortgage.

Fees for arrangements

Your mortgage provider will determine whether or not this particular landlord fee applies to all purchases. It will be assessed either as a flat rate or as a percentage of your mortgage (typically between one and two per cent). It can also be included in your mortgage payments instead of being charged separately.

Fees for a valuation

Your lender will want to know if the property is worth the asking price and if you can charge enough in rent to make it work. They will conduct a valuation and charge you for the service, typically around £150, to accomplish this.

Land and Buildings Transaction Tax (LBTT) in Scotland or Stamp Duty Land Tax (SDLT) (England)

You will be charged a higher rate of LBTT or stamp duty—an additional 3% above the standard rate—because you are purchasing a property that is separate from your primary residence. For instance, you would be required to pay £10,000 in stamp duty on a home worth £250,000.

In Scotland, an "Additional Dwelling Supplement" (ADS) was introduced in April 2016 and applies to all property transactions concerning the purchase of an “additional property”. Types of “additional property” may include buying second homes and buy-to-let investments, and as such, surcharges may apply.

In line with the rest of the UK, the surcharge applies to the full purchase price above an initial threshold of £40,000. From 16th December 2022 the Additional Dwelling Supplement has increased from 4% to 6%. To find out more about LBTT in Scotland, Click Here.

Solicitors – England and Wales vs. Scotland.

To handle the legal aspects of purchasing a property, you will need to hire a conveyancing solicitor. However, when it comes to property purchases, you will understand that England and Scotland and not the same, even though they are in the same country.

When my wife and I moved home from England to settle in Glasgow, Scotland, we discovered that Scotland is different from England in many aspects. Although “united” in the United Kingdom of Great Britain and Northern Ireland, they are, two separate nations (countries), with different cultures, different languages or dialects, different weather, separate bank notes (currency), separate Banks (Bank of England vs. Bank of Scotland), separate legal systems, and. WOW. History comes alive.

So, to hire a Solicitor, their costs or fees can range from £750 to twice that amount. Due to the separation of powers or simply, the Devolution of Powers from the UK Government in London to the Scottish Government in Edinburgh (i.e., two Governments operating in Scotland), you cannot use the services of a Solicitor registered in Scotland for the purchase of a property in England and Wales, and vice-versa, you cannot engage the services of a Solicitor based in England and Wales to buy a property in Scotland. In our case, Amadi Global Properties LTD uses two Solicitors.

Landlord’s Rental Property Insurance:

Landlord's Rental Property insurance can cover a variety of things, such as accidental damage to your buildings and possessions, rent loss, and so on. A policy is not required by law, but standard home insurance will not cover you. Additionally, your mortgage provider may suggest the type of insurance to purchase to meet their requirements.

If renting out a property in Scotland in some circumstances you will be responsible for insuring the reinstatement of the building housing the tenement/flat. Tenements and flats must be insured, these are defined as buildings with two or more properties that are divided from each other horizontally. For example, split villas and blocks of 4 flats must be insured, while semi-detached houses and terraced houses do not need to be insured by the landlord. The Tenement Scotland Act outlining the full details came into force in 2004 . Visit the website by clicking here.

What to do with Tenant’s Deposit?

The answer is Deposit Protection Scheme. Within thirty (30) days of receiving your tenant's deposit, the landlord must transfer it into a deposit protection plan. You can use a few different schemes, each of which might charge you a different amount for the service. Using a custodial plan, for instance, is free, but using an insured plan will cost you money. The amount of the deposit may also have an impact on how much it costs. I must say that depending on the region of the property – England or Scotland – you must choose a different Protection company in each region. At Amadi Global Properties, we use Deposit Protection Service (DPS) for our England-based properties, and SafeDeposits Scotland for properties based in Scotland. To access the full details, click here.

Landlord Registration Scheme

Prior to advertising the property for rental, you must apply for registration. The registration will need to be renewed every 3 years and all personal information must be kept updated at all times.

For England, check this link:

For Scotland, click here.

 Information regarding the application criteria can be found at:

Registration for private landlords (Scotland) - Click here for the Scottish Landlord Register and Here.

Fee information can be found at https://landlordregistrationscotland.gov.uk/fees-information

As a landlord, you are obligated to ensure that you are aware of your responsibilities for Common repairs and the Repairing and tolerable standard.

Repair rights and responsibilities: if you rent from a private landlord or letting agent - Shelter Scotland: Private renting: Repairs - GOV.UK (www.gov.uk)

The Repairing Standard - this is a basic level of repair that all privately rented properties must meet. More detail about the standards a property must meet are outlined here.

The Tolerable Standard - this is a basic level of repair your property must meet to ensure it is fit for a person to live in. Local authorities can force you to carry out work to bring your property up to tolerable standards. More detail about the standard can be found here

Registration with the Information Commissioner's Office (iCO)

As a landlord, you will need to register with the iCO. As a data controller under the Data Protection Act, you will be handling the personal information of your tenants. The ICO charges £40 to register, or £35 if you pay by direct debit annually. The direct debit can be cancelled at any time.

Electrical safety - As a landlord, you are required to ensure that regular electrical safety inspections are carried out by a competent person and that anything that fails to pass the inspection is replaced or repaired immediately.

 As a minimum, an electrical safety inspection must be carried out:

·         Before a tenancy starts, and

·         During the tenancy, at intervals of no more than 5 years from the date of the previous inspection.

A copy of the most recent electrical safety inspection reports must be provided to both new and retained tenants.

The landlord is responsible for ensuring the person completing an EICR/EIC is suitably competent.

Using members of an accredited registration scheme operated by a recognised body will give some degree of confidence that this has been achieved.

Electrical appliance test

Portable Appliance Testing or PAT Testing is the process of checking electrical appliances for safety through a series of visual inspections and electronic tests. The best way of ensuring that your appliances are safe is to have a PAT test carried out on them. This is a good way for you as a landlord to ensure that you are meeting your legal obligation to maintain high standards of electrical safety in your rented property.

FIRE, SMOKE AND HEAT DETECTION

As a landlord, it is your responsibility to comply with the repairing standard order concerning fire, smoke, and heat alarms. In order to comply there should be at least:

·         one functioning smoke alarm in the room which is frequently used by the occupants for general daytime living purposes (normally the living room/lounge).

·         one functioning smoke alarm in every circulation space on each storey, such as hallways and landings, or in the main room if no landing in the upper storey.

·         one heat alarm in every kitchen.

·         all alarms should be ceiling mounted, and

·         all alarms should be interlinked.

 For further detailed information please see https://www.gov.scot/publications/fire-safety-guidance-private-rented-properties/

Carbon Monoxide (CO) Detector

In order to alert occupants to the presence of levels of CO gas which may be harmful to people, you as a private landlord have an obligation to ensure that a detection system is installed in all properties you rent where there is:

·         fixed combustion appliance (excluding an appliance used solely for cooking) or

·         a fixed combustion appliance in an inter-connected space, for example, an integral garage.

·         a combustion appliance necessarily located in a bathroom ( advice would be to locate it elsewhere ).

The CO detector should be sited outside the room as close to the appliance as possible. The detectors should be powered by a battery designed to operate for the working life of the detector. The detector should incorporate a warning device to alert the users when its working life is due to expire and should be replaced on or before the expiry date. Hard-wired mains-operated CO detectors with fixed wiring (not plug-in types) may be used as an alternative, provided they are fitted with a sensor failure warning device.

For further information please visit https://www.gov.scot/publications/carbon-monoxide-alarms-in-private-rented-properties-guidance/

Energy Performance Certificates (EPCs)

EPCs provide information on how energy efficient your property is, and how this could be improved. Buildings are rated on a scale from A to G, with A being the most efficient. Information is also provided on measures which could be made to improve energy efficiency and an estimated cost for each improvement.

Obtaining an EPC can set you back as little as £60, but the exact cost will depend on your property's characteristics. The EPC expires after ten years and must be renewed thereafter.

Gas Safety Certificate

A Gas Safe-registered engineer's Gas Safety Certificate is required for any gas-powered appliances. This needs to be done every year and depending on how many appliances need to be checked and tested, it can cost as little as £60.

Legionella assessment – The landlord has a duty to ensure a legionella risk assessment is carried out on their properties. This is to help guard their tenants against any risk of getting the illness from contaminated water. For more information please see https://www.hse.gov.uk/legionnaires/legionella-landlords-responsibilities.htm 

Makeover.

An additional cost will be incurred if your property requires some makeover, which can vary greatly depending on the nature of the project. Repairing a leaking roof or rotting window frames, for instance, will cost you much more than just redecorating. This must be done before even marketing the property. After your tenants have moved in, you may also be required to pay for maintenance work. Having a safe home, on the other hand, is crucial and a smart long-term investment.

Credit checks/Tenant Referencing

Before renting your property to any tenant, credit checks, otherwise known as Tenant Referencing, must be conducted to provide assurance that the potential tenants are able to fulfil their rental obligations by paying their rent in full every month, and on time. Credit checks could set you back by £20 per applicant, depending on the credit agency used. This cost must be taken into consideration when calculating your ROI for a new property. At Amadi Global Properties LTD, we use the services of OpenRent for our referencing and other services.

Tenancy Agreement

Last, but not least, is the Tenancy Agreement. The tenancy agreement should be a Private Residential Tenancy – further information can be found at: Private residential tenancy: information for tenants – gov.scot (www.gov.scot)

Written by Dr Emmanuel Eni Amadi

Founder and CEO