Landlords Face Increasing Rental Property Operational Costs

Wednesday, May 6, 2015
Landlords Face Increasing Rental Property Operational Costs

Landlords Face Increasing Rental Property Operational Costs

Landlords Missing Out On Vital Income Because
They Fail To Calculate Rental Property Operational Costs Correctly

According to recent data gathered independently by a UK based property investment company and a national letting agency chain, almost 1 in 8 landlords fail to calculate many of the true running costs of their rental property portfolios when examining the financial performance of their rental property assets, leading them to misjudge their actual end of year returns.

The data gathered shows that as many as 84% of all UK private rental sector landlords receive less money than they thought from their monthly rental income due to unexpected costs, such as tenant rent arrears, repair costs and for part-time landlords, the unpaid absence from employment to deal with tenant problems and issues with their rental properties.

Typical expenses such as tenant referencing, landlord insurance, letting agent fees, property repairs and maintenance, marketing fees and buy to let mortgage interest are often ignored by amateur and accidental landlords, risking the over estimation of the profitability of their rental property assets.

The potential costs associated with owning and operating a rental property by a landlord add up to approximately £8,500 per year.The research by discovered that there is a distinct gap between the proportion of naïve property investors and small time landlords who incur different types of rental property expenses, and those professional landlords who source useful specialist products and services to save them time, stress and money and who bother to include such financial costs in their measurement of a rental portfolio’s financial performance.

75% of UK landlords fail to include even the most common rental property operational costs and don’t account for them when calculating their portfolio’s financial performance at the end of a financial year, often ignoring the impact that any void periods have on their rental income, meaning that the potential returns on their investment properties could actually be lower than they first calculated.

In fact additional research conducted by a national lettings agency chain discovered that void rental properties, tenant rent arrears and unexpected repair and maintenance costs are just a few of the many things that result in the average landlord having to pay out over £1,500 a year in unexpected costs, adding up to an average of £2.1 Billion (GBP) across the private rental sector as a whole over the year.

The average costs associated with operating just a single rental property can add up to around 52% of the gross annual rental income generated by the property.

The most accurate way to measure the performance of a rental property is by calculating the return on investment (ROI) to take into account gross profit, any potential capital gain, and the operational costs of running the property in the private rented sector, including any amounts spent on property refurbishment, repairs and maintenance.

Avoiding the void periods is something that particularly impacts on PRS landlords financially, with almost 50% revealing that they did not receive any rental income on their property for up to 3 months due to void periods, and 10% suffering for 6 months or more without tenants in their properties.

Avoiding void periods in rental properties is essential for all UK landlords operating in the UK’s private rental sector, and this can be achieved by ensuring that landlords follow the correct procedures when offering new tenancies, such as:

  • Comprehensively Tenant Referencing all potential applicants, including employment, credit and rental history
  • Using Rent Protection insurance to guarantee a continued rental income for the landlord, even if the tenant’s circumstances change suddenly.
  • Using Tenant Liability insurance to protect both the tenant’s hard saved deposit and the cost of repairs for accidental damage to the rental property

These insurance costs can be built in to the monthly cost of the property’s rental price.

Property investment is extremely attractive right now, with the recent pension reforms and a wealth of buy to let mortgage products available to investors at the moment, encouraging budding landlords to start renting out properties to generate an income and good level of capital growth from rental property.

But investors should be wary, as becoming a landlord isn’t always the dream career for many people because they don’t have thick skins and running a successful rental property portfolio takes a continued investment of time and money on top of any initial investment sums.

Property investors need to be aware of all additional rental property expenses to make sure they are evaluating their returns correctly.

If landlords don’t use specialist products and services that have been specially designed to help save them time and money, they are taking unnecessary risks and will be at a disadvantage when it comes to assessing their potential revenues.

The data gathered shows that on average:

  • Over 50% of tenants are late with their rental payments
  • 59% of landlords have been forced to chase tenants for payment at some point in the last year.
  • 91% of UK PRS landlords are concerned about increasing tenant rent arrears over the next 12 months.
  • 82% of landlords have experienced inconvenience and cut back on social activities due to being a landlord
  • 20% of landlords say they have been called out to their rental properties up to 5 times per year.

Landlords usually get a raw deal from the British media, with accusations that more and more tenants are becoming victims of greedy landlords, but the research conducted by two independent sources highlights that landlords also face a number of difficulties.

Landlords face increasing operational costs every year and the amount of money being paid out for unexpected issues each year is reaching staggering proportions, any specialist product or service that can aid landlords in the private rental sector should be explored thoroughly and implemented without delay.

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This was written by Mike Clarke. Posted on at 11:30 am. Filed under Insurance, Landlord News. Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Follow comments here with the RSS feed. Both comments and trackbacks are currently closed.