8 Costs You Shouldn’t Forget When You Go Into Real Estate
There will always be an element of risk involved when it comes to investing in real estate. It’s a business venture that can certainly be lucrative under the right circumstances, but there are numerous related costs that cannot be forgotten about. When it comes to making an investment in a property, it’s important to keep all of these costs in mind from the start. It’s not always a simple case of purchasing a property, renting it out and earning money right away; there will always be numbers to crunch and risks to assess. With that being said, it’s a great time to buy in the UK market at the moment, especially in certain suburbs where prices are in favour of the buyers. Before you jump into any real estate investments, you need to know how much you can afford, other related costs that go hand in hand with buying a property and other unexpected expenses along the way. As a buyer or businessperson, here are some of the most common costs related to real estate that you don’t want to forget about.
1. Stamp Duty
Any form of property exchange requires stamp duty to be paid. It can end up adding thousands onto your final amount, so it’s important to factor this into your mortgage application. There are some stamp duty discounts and offers which may be relevant to you, especially if you’re a first time buyer. Stamp duty certainly isn’t a cost that should be forgotten about, so keep this in mind when you’re looking into the asking prices of certain properties.
2. Conveyancing Fees
There will always be legal costs involved with buying a property; you simply can’t avoid them. Luckily, conveyancing fees are there for a reason and they will usually help the sale of your home go through smoothly and efficiently. Conveyancing Fees may add up to a few thousand pounds, depending on the type of legal checks required to bring your property through to completion. These legal costs are a vital part of the process and help to contribute to a stress-free sale.
3. Safety Checks and Inspections
All landlords are responsible for checking the safety of the gas and electricity in their property every five years. Obtaining an EICR report is a legal obligation that will need to be paid for. There may also be other necessary inspections to be had upon request that will carry an extra cost.
4. Letting Agent Fees
In order to find the right tenants for your property, you may need to list your building onto an online property platform such as Zoopla or Rightmove. This will not only help you to find the perfect match for your property, but it will also give you peace of mind that your building won’t be vacant for a prolonged period of time. This will incur a lettings agent fee as it covers the promotional costs of getting the right tenants to your doorstep. These fees will usually cover viewings and marketing activities associated with your property. Your letting agent may also be appointed to cover the management of the property, which can help you to save a lot of time and stress rather than dealing with it yourself. Keep in mind that this would usually cost around 10% of your rental income, so it’s an additional cost to be mindful of as a person in real estate. When you choose property management services from your letting agent, your tenant will go straight to them for any issues regarding the property. This can cut out the middleman and give you a more hands off approach to being a landlord, if that’s what you’re looking to achieve.
5. Landlord’s Insurance
As a landlord, it’s your responsibility to make sure that the building and property is fully insured. This includes taking out contents insurance to cover any additional items that are already in place in the property such as furniture, curtains and other appliances. There are bespoke insurance policies that are especially for landlords, and it’s essential to tell your insurance provider that you are renting out the property to tenants. There are also other types of insurance that can help to give you peace of mind, such as rent guarantee insurance and breakdown insurance for heating, electrics and plumbing. These can be very useful if you aren’t living closeby to the property in question, but it will also come at a cost.
6. Taxes
Real estate is a business, and will therefore require you to pay income tax as a landlord. Capital gains tax may also be relevant, which represents the difference between the purchase price and sale price of the property.
7. Credit Checks and Referencing Fees
Before you get the right tenants in place, you may want to conduct credit checks and detailed reference checks to reduce the chance of expensive rent arrears or difficult tenants. You can pay a provider to carry out these credit checks so that you know you’ve got the right fit for your property.
8. Maintenance Costs
If you’ve ever been a landlord before, you’ll already know that maintenance costs for a property aren’t cheap. You never know when your tenants will experience a leak, broken appliance or boiler issue that needs to be rectified quickly and smoothly. As a landlord, or real estate owner, it’s so important to remember maintenance costs as well as building service charges if you’re operating as a leasehold property owner. As a general rule, you should aim to set aside 1% of the property’s value for annual repairs and maintenance. Usually, this would cover any light maintenance, redecorating, servicing and general structural upkeep. Depending on the location of your property, you may spend more or less than average 1% of your property.
As you can see, there are numerous costs associated with buying and renting properties as a landlord or real estate owner. When you start to set your sights higher and higher, you will need to keep in mind that the costs may gradually rise along the way too. Whether you’re looking into stamp duty approximations, or the cost of a conveyancer, there are a handful of expenses you should never forget about as a real estate entrepreneur.