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The true cost of a being a landlord: The average B2L investment makes a return of just £2k a year

Leading letting platform Howsy has revealed how the profitability of the buy-to-let sector is being squeezed due to the hidden costs of being a landlord, coupled with the financial penalties handed down from the Government via changes to stamp duty tax.

In recent times, the buy-to-let market has been considered a cash cow for those with the financial means to operate within it, leading to a number of Government changes to dent this profitability through initiatives such as an increase in stamp duty tax.

Despite this, landlords are still considered to be raking it in, but Howsy has found that the average landlord is left with just £2,000 from an annual return of £13,000 once the hidden costs of being a landlord are paid for.

The research shows that the initial start-up costs of Stamp Duty Tax (£6,663) and agency fees to find a tenant (£811) cost the average landlord £7,475 and that’s before the ongoing costs are considered.

According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy, that’s an average of £535 a year.

What’s more, 73% of landlords buy with a mortgage and each and every year will see £6,921 paid out in interest as a result. Couple these costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 and you’re talking £11,147 per year.

In a worst-case scenario, UK landlords may also find themselves forced to stump up for additional unforeseen costs, such as the legal process to evict a tenant. While this doesn’t happen to everyone, there is a one in 500 chance that you will have to pay for bailiffs to evict a tenant from your property.

What’s left?

Based on an average annual rental income of £8,112 divided by the average B2L property cost of £183,278, the average yield available is 4.4% – that’s an annual sum of £8,119.

Over the last decade, the capital appreciation of bricks and mortar has also averaged an increase of 2.85% a year, £5,223 in monetary terms. That means B2L landlords are seeing a return of £13,343 on their investment.

However, leaving start-up costs and unforeseen events out of the equation, once the average UK landlord has paid the ongoing costs associated with a buy-to-let property each year, they’re left with a profit of just £2,140.

Founder and CEO of Howsy, Calum Brannan, commented:

“Investing in an area with higher yield is one way to increase profit but you can also squeeze every last penny out of your property by shopping around on things like mortgage rates and which agent to use.

Today, the sector is ripe with alternative platforms and so you don’t have to be at the mercy of the traditional letting agent and the high fees they charge.

The new age of letting platform not only costs less where fees are concerned but many platforms, like Howsy, are now offering comprehensive packages designed with security and peace of mind as the motivation, not profit. These packages provide the traditional service aspects with the addition of guaranteed rent and also cover the cost of repairs and maintenance for one small monthly fee.

All of this can contribute to lower void periods, no rental arrears and an all-round happier experience for tenant and landlord which can be as valuable as the additional income.”

Howsy Protect is Howsy’s most comprehensive property management package and is available to Howsy landlords for £90 per month (£115 in London). It includes a free tenant-find service guaranteed rent, appliance cover, home & emergency cover, a handyman service, Rightmove premium listing as standard and a dedicated account manager along with a whole other host of benefits. This one-off monthly management fee could save the average UK landlords nearly £10,000 per year.

Cost Headings
Cost Amount (£)
One-Offs Costs:
£7,474.54
Ongoing Costs:
£11,147
Average Annual B2L Return:
£13,287
Average Annual B2L Return – Ongoing Costs
£2,140

Costs Explained…

Cost Headings
Cost Amount (£)
Notes/Sources
One-Offs Costs:
SDLT
£1,165.00
SDLT second home penalty
£5,498.34
Agency fees (tenant find)
£811.20
Total
£7,474.54
Ongoing Costs:
Void periods
£527
Mortgage Interest
£6,920.73
Agency fees (management)
£1,622.40
Maintenance & Repairs
£2,077.00
Average cost according to Pennington
Total
£11,147
Positives:
Basis:
Avg annual rent
£8,112
Avg B2L mortgage amount
£132,075
Avg house price
£183,278
Avg LTV
72.06%
Avg equity
£51,203
Return:
Annual Yield %
4.4%
Average annual rent divided by average B2L house price
Annual Yield £
£8,064
Average B2L house price multiplied by 4.4%
Capital appreciation per annum %
2.9%
Based on average property price change per annum over the last decade
Capital appreciation per annum £
£5,223
Average Annual Return
£13,287
Ongoing Costs
£11,147
Final Annual Return
£2,140

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