Landlords in the United Kingdom are facing a period of lower profits. While rent costs are high, operational costs are harming landlord profitability, states a new survey. According to statistics, 1 out of 8 landlords do not calculate the true cost of running their rental property.
Ultimately, this leads to inaccurate end of the year returns.
Data shows that 84% of landlords receive less income due to unexpected costs. This included repairs, landlord insurance costs, and other expenses, such as:
- Marketing fees
- Letting agent fees
All of these costs will lower the potential income that a landlord will earn. According to statistics, the average landlord operating expenses are £8,500 per year. The landlords that are most affected by these numbers are the small landlords that do not have a large portfolio or the resources needed to ensure expenses are kept to a minimum.
In total, unexpected costs per year for landlords in the UK is £1,500 per year. These are costs that can often be eliminated with the proper insurance, or costs that can’t be alleviated because they are a part of ownership.
The average cost of ownership for a rental property is 52% of the income generated by the property. Calculating the actual return on investment (ROI) of the property must be done properly. This means:
- Gross profits added
- Capital gains added
- Operational costs deducted
Everything from refurbishment to repairs and maintenance should be considered an operational cost and be deducted from the total earnings for the year. Void periods are also a major concern, with many landlords facing up to 3 months with no rental income coming in.
A few ways to save on operational costs are:
- Tenant Referencing: A comprehensive referencing should be done. This will include screening all potential tenants to ensure that they are employed, have adequate rental history, and have adequate credit.
- Liability Insurance: Tenant liability insurance protects the tenant and the landlord. This will protect the tenant’s deposit while being utilized when accidental damages are seen on the property.
- Landlord Insurance: Many landlord insurance policies have add-ons. This may include void periods wherein the landlord will receive some of the income they normally would when letting out a property.
Insurance costs should always be rolled into the rental cost of the property. This will allow landlords to immediately recoup some of the money that is needed to properly insure a property.
Landlords should seek specialist products and services designed to save landlords time and money. These products and services will include landlord insurance policies that are lower priced, yet supply more than enough cover for a landlord to be properly protected.
If you own several properties, you’ll find that policies can often be combined into one larger policy that provides more than enough cover at a more affordable rate.
As operational costs continue to rise, it’s important for landlords to find ways to cut back on costs and boost profits at the end of the year. One way is combining insurance policies and adding insurance costs into your rental costs.