Many landlords focus on rental income but underestimate the true costs of owning and managing a rental property. While rent can provide a steady stream of income, unexpected expenses can quickly eat into profits if you’re not prepared. In this guide, we break down the hidden costs of being a landlord and how to budget effectively to protect your investment.
1. Maintenance and Repairs
Even with reliable tenants, wear and tear is inevitable. From boiler breakdowns to leaking roofs, maintenance costs can be unpredictable and expensive.
What to budget for:
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Routine maintenance (painting, appliance servicing, minor repairs)
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Emergency repairs (plumbing leaks, electrical faults, heating failures)
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Property upgrades to maintain market appeal
Pro tip: Set aside at least 10-15% of your rental income for maintenance costs.
2. Void Periods
No matter how desirable your property is, there will likely be times when it remains unoccupied between tenancies. During these void periods, you’ll need to cover mortgage payments and other expenses without rental income.
What to budget for:
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Mortgage payments during vacancies
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Utility bills and council tax (if the property is empty)
Pro tip: Keep a contingency fund to cover at least two months’ worth of expenses.
3. Legal and Compliance Costs
Landlord regulations are constantly evolving, and staying compliant isn’t always cheap. From safety certifications to legal disputes, unexpected costs can arise at any time.
What to budget for:
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Gas Safety Certificates, EICRs (Electrical Installation Condition Reports), and EPCs (Energy Performance Certificates)
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Licensing fees for HMOs (House in Multiple Occupation) or selective licensing areas
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Legal fees in case of tenant disputes or evictions
Pro tip: Stay updated on new legislation to avoid hefty fines and ensure compliance with legal requirements.
4. Letting Agent Fees (If You Use One)
While managing a property yourself can save money, it also requires significant time and effort. Many landlords opt for a letting agent to handle tenant sourcing, rent collection, and property management.
What to budget for:
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Let-only services: Around 7-12% of the monthly rent
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Full management services: Around 10-15% of the monthly rent
Pro tip: Compare agent fees carefully and assess whether full management is worth the investment based on your availability and experience.
5. Tax and Accountancy Fees
Rental income is taxable, and landlords must factor in tax liabilities, deductions, and accountancy fees.
What to budget for:
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Income tax on rental earnings (minus allowable expenses)
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Accountant fees for tax returns (if using one)
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Potential capital gains tax if selling the property
Pro tip: Keep detailed records of expenses to maximise tax deductions and ensure compliance with HMRC regulations.
6. Landlord Insurance
Standard home insurance won’t cover rental properties, making landlord insurance an essential expense.
What to budget for:
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Buildings insurance
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Contents insurance (if the property is furnished)
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Rent guarantee insurance to protect against tenant non-payment
Pro tip: Shop around for policies that provide the best coverage at a competitive price.
7. Mortgage Interest and Finance Costs
Many landlords finance their properties with buy-to-let mortgages, and interest rates can fluctuate, affecting profitability.
What to budget for:
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Mortgage repayments (including potential rate increases)
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Re-mortgaging costs if switching lenders
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Arrangement fees and valuation fees
Pro tip: Consider fixed-rate mortgages for more predictable costs.
How to Budget Effectively as a Landlord
To avoid financial surprises, landlords should take a proactive approach to budgeting:
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Create a contingency fund: Set aside at least 6 months’ worth of expenses.
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Track all income and expenses: Use a spreadsheet or property management software.
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Review your costs annually: Assess insurance, mortgage rates, and service provider fees to ensure you’re getting the best deals.
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Work with a property manager if needed: A good managing agent can help streamline operations and minimise unexpected costs.
Final Thoughts
While being a landlord can be a lucrative investment, failing to account for hidden costs can quickly reduce your profits. By budgeting carefully and staying proactive, you can protect your rental income and maintain a profitable portfolio.
If you need expert advice on managing your rental property and keeping costs under control, get in touch with our team today!
Article by Andrew Overman | Partner | Location Location East
