Entering the world of property investment can be a risky affair, and that is why it is vital that you know all the risks and drawbacks before you take the plunge.

One of the most common mistakes made by investors and landlords, is to miscalculate the total cost of a buy-to-let project. While a deal on paper may look very attractive, failing to take all the additional costs and fees into account can lead to disaster.

There are various costs and expenses that you will need to consider when purchasing a buy-to-let or investment property.

The Price Paid for the Property

Although it cannot really be described as a ‘hidden cost’, the purchase price is probably the most important figure, when calculating the total cost of a buy-to-let project. There are various fees associated with purchasing a property which may apply when looking to buy a BTL property. These may include:

• Reservation fee – this is a fee paid to reserve a unit from a new development
• Agent’s Finder’s Fee – this is a fee that is typically paid alongside a reservation fee but may not apply to all BTL investors
• Deposit – this is required for all property purchases and will depend on the lender as to how much deposit is required
• Completion fee – this is when the remaining balance of the buy-to-let property 

Stamp Duty

This is the tax levied on all land transactions in England, Northern Ireland and Wales. The amount of Stamp Duty Land Tax (SDLT) due will depend entirely on the purchase price of the property.

• Up to £125,000 – 3%
• £125,001 to £250,000 – 5%
• £250,001 to £925,000 – 8%
• £925,001 to £1.5 million – 13%
• Over £1.5 million – 15%

These figures represent an additional 3% levy on standard stamp duty rates on properties not intended for rental. 

Solicitors Fees

All property purchases require some sort of legal work and therefore it is important to consider these fees in your calculations. Legal fees are generally paid for the drawing up of contracts, conducting property searches and conveyancing. The cost of this will depend entirely on who you employ for the job, however it is advisable to use a solicitor who has both experience and expertise in the buy-to-let sector.

Renovation and refurbishment 

The majority of buy-to-let properties will require some form of renovation to get them ready for the rental market. Ensuring that you have done all your homework in pricing up the jobs that will need to be done will factor greatly in whether you are successful or not. Another consideration for landlords is furniture if the intention is to rent the property out furnished. 

Miscalculating or underestimating the cost of renovations, fixtures, fittings and furniture, will significantly impact your bottom line when it comes to being profitable. 

Applying for a financial product such as bridging finance can help you secure the finance you need to complete these improvements.

Mortgage Interest Rate

The amount you pay will be decided by the following factors:

• The amount you are borrowing
• Loan-to-Value
• Credit history
• Type of loan (repayment, interest only, variable, fixed rate)

It is always wise to consult with a broker who will be able to find the best rates on the market as they typically have access to lenders and deals not available to the general public.

Service Charge

This is a fee that is usually attached to landlords who have invested in apartments which is used to maintain the building and communal areas. It is typically paid annually.

Ground Rent Charge

This is a fee that must be paid when the property that has been purchased has a leasehold, meaning that although the investor owns the building, they do not own the land it sits on. It is most often only a small fee that is paid annually.

Management Agent Fees

If the landlord decides to outsource the management of the buy-to-let property, he will employ a management agent who will typically charge a monthly fee but will handle maintenance and repair of the property for you. This could save a considerable amount of money in the long run.

Maintenance Costs

As with all properties, a certain amount of general maintenance will be required as minimum. In rental properties, the landlord is responsible for the upkeep of the home to a liveable standard and if he has not retained the services of a management company, then he must arrange for any repairs or maintenance himself.

Craig Upton supports UK businesses by increasing sales growth using various marketing solutions online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to rank in organic search. Craig is also the CEO of iCONQUER, a UK based SEO agency and has been working in the digital marketing arena for many years. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, djkit.com, UK Property Finance, Serimax and also supported UK doctors, solicitors and property developers, gain more exposure online. Craig has gained a wealth of knowledge using Google and is committed to creating new opportunities and partnerships

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