Recent statistics show that the number of landlord repossessions in 2012/2013 was 33,000, up 7% in one year and has been rising year on year since 2009.
This is mainly due to the growing problem of rent arrears and void periods and 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, according to property investment firm Armistead 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,’ said Peter Armistead, director of Armistead Property.
He believes that landlords need to ensure they have are funds for redecoration, which may be needed every three to five years. Kitchens, bathrooms, boilers, interior doors etc will probably have to be replaced every five to 15 years. New windows, external doors, barge boards, guttering, pathways, driveways, radiators etc will be required every 15 to 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,’ he explained.
‘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,’ he said.
‘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,’ he added.
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. These include expenses like an EPC certificate, gas safety certificate, letting agents fees, landlords insurance, ground rent, white goods, and furnishing as well as bigger and longer term things such as repairs.
