Here’s the thing about being a landlord: While you can generate good income from letting your property, you will also incur costs.
The activities landlords carry out in their business will often determine how much they spend on various expenses. The most important thing is they should be prepared for these.
1. Landlord Insurance
Landlord insurance is an essential expense that protects you and your tenants from losses arising from damage or accidents in rental properties. It works much like a regular household insurance policy. But it needs to provide much more cover as there are unlimited possibilities of what may go wrong with your property.
The insurance premiums are based on the value of the rent, the location of the rented home or flat, and the age of the building, among others. The average can fluctuate every year, but usually, it doesn’t go beyond £300 annually.
Renting out a property means that you are providing a service to the tenants. Because of this, it is only normal to expect wear and tear on the home over time. That’s why depreciation is an inevitable cost for all landlords.
Unlike with other expenses, you cannot negotiate the depreciation of rental property value with your insurance company since it is considered an act of nature. Fortunately, you can claim this cost as part of your rental business expense when tax time comes.
If you’re using certain types of equipment to manage the property, you can claim capital allowances for residential property letting. According to HMRC, the allowance reduces the cost of certain equipment and other assets used in your rental business.
3. Professional Fees
Aside from lawyers who specialize in real estate contracts, landlords need to work with other professionals, such as plumbers, electricians, and locksmiths.
Every professional you hire to work on your rental property must be licensed and registered with the local authorities. Simply by checking their licenses, you can weed out fake contractors who will only scam you of your money.
4. Property Repairs and Maintenance Costs
Even if you have carefully selected your tenants, there are still situations that will ask for repairs and maintenance of the property. Possible problems include broken sinks, broken doors, burned-out light bulbs, or faulty electrical outlets.
The good news is that you can claim the cost of repairs for tenants’ damage to your property as a business expense while reducing your taxable income. Keep in mind, however, that you need proper documentation for this one.
If you are hiring someone to do the job for you, make sure to keep all receipts and invoices, especially if they come from an approved contractor, as this could also be covered by the insurance policy.
5. Marketing Expenses
When you’re about to put up a rental property for rent, one of the initial things that you will need to do is market your home or apartment. You can post an ad on classified sites and social networking sites, but it is more effective to have a website that showcases your property in today’s technology-driven world.
Having a website will not only speed up the process of finding qualified tenants, but it can also allow you to invest less in marketing expenses as you can easily spread the word about your rental through social media sites and blogs. Depending on the services provided, the cost of online marketing can be a few hundred to thousands a month.
6. Council Taxes
Council taxes are taxes imposed on all residential properties in the UK. Since your rental property is a business asset, it is not exempted from paying council tax. The amount you pay will depend on where your property is located and if there are any empty homes around it.
Although you can already include council tax in your monthly rental income, you can still claim the amount you paid as an expense. Use your council tax bill as a receipt and file it under your tenant’s ledger.
7. Legal Expenses
One of the most expensive costs for landlords is legal expenses, especially if you happen to end up in court over a dispute with tenants or other people involved like neighbors and relatives. But you can take steps to avoid these disputes altogether.
Since no law can help you avoid disputes, one of the best ways to minimize legal expenses is by having a good and complete contract signed by both parties.
The contract should include all terms and conditions such as termination period, the amount of security deposit and rent, and general rules like smoking and pets. The more complete the contract is, the fewer disputes you’ll have with your tenants.
Every business needs to generate a profit to exist, and rental properties are no different. But even if you make a decent living from your investment property, you still have to focus on expenses as much as the income from your tenants.