Recent statistics show that the number of landlord repossessions in 2012/13 was 33,000, up 7% in one year and has been rising year-on-year since 2009.
Peter Armistead, Director of Armistead Property comments:
“It is unfortunate that buy-to-Let repossessions are on the rise, mainly due to the growing problem of rent arrears and void periods. If landlords do not have a contingency fund in place to cover these unforeseen circumstances, then they could fall into financial difficulty and potential lose their property.
To stay in the black, landlords need to put a aside 30-35 per cent of one year’s gross annual rental income to cover rent arrears, void periods, maintenance, repairs and refurbishment, white and brown goods replacement and the ongoing rental costs, such as gas safety certificates and letting agent fees.
Landlords need to ensure they have are funds for redecoration, which may be needed every 3– 5 years. Kitchens, bathrooms, boilers, interior doors etc will probably have to be replaced every 5–15 years. New windows, external doors, barge boards, guttering, pathways, driveways, radiators etc will be required every 15–25 years.
Depending on the age of the property and the length of time you retain it, rewiring and re-roofing may be necessary at some point. Major renovation work like this can be expensive, so unless you have budgeted for it in your investment calculations, you may not be able to afford to carry out essential work when required.
Buy-to-let is very profitable in the long term, but only if you do your sums properly and structure your investment wisely. A property investment is similar to running a business, so you need a business plan, cash-flow forecast, finance and funding. Therefore it’s sensible to budget for all the costs you’re likely to encounter during the life of your investment. The maintenance costs for a new or recently refurbished property are likely to be minimal at first. But over time, those costs will grow in significance, particularly when larger scale refurbishment is required. So it is vital that a contingency fund is available and that it is simply seen as part of the investment business plan, forming the investment protection.”
Armistead Property has put together a starting list of some of the costs to be considered when owning a buy-to-let property, which should be catered for from rental income and an appropriate contingency fund:
• EPC certificate
• Gas safety certificate
• Letting agents fees
• TDS scheme fees
• AST fees
• Landlords insurance
• Void allowance
• Council tax
• Ground Rent
• Service Charge
• Buildings insurance
• Utility bills
• White goods
• Furnishings
• Repairs
