- Buy to let costs include a 25% deposit, stamp duty, legal fees, and other potential costs like mortgage fees and surveys.
- To prepare a property for rental, costs like re-decorating, electrical safety checks, and agent fees (2-4 weeks of rent) are incurred.
- For a £100,000 property, the expected rental income is £650 per month, with mortgage payments at £287.50 and other expenses like insurance. Monthly profit ranges from £259.50 to £337.50.
If you’re anything like me you probably want to have a good idea of how much a buy to let will cost you – both purchasing it and running it. Having a good estimate in mind will help you better prepare yourself for your inevitable plunge into being a property investor/landlord.
I’ll keep this BTL costs breakdown short and sweet – we’ll kick off by looking at the costs involved in purchasing a buy to let (including a short explanation of what each cost is) followed by the set-up and monthly running costs. To end things off, we’ll look at a real buy to let example.
Buy To Let Purchase Costs
We need some numbers to work with throughout this breakdown as a lot of the costs are tied directly to the value of the property – let’s base these figures on the purchase of a £100,000 two-bed house in the North West of England. As most investors likely will, we’re going to be using a buy to let mortgage to fund the purchase of this property. Here are the costs involved:
|Buy to let deposit (25%)
|A 25% deposit is required when using a buy-to-let mortgage. This is by far your largest cost.
|Visit our Buying a Second Property To Rent Out Guide for a stamp duty tax breakdown. Use this calculator to work yours out.
|Solicitor / legal costs
|£600 – £1500
|In my experience, you’ll usually end up paying closer to £1500. Especially if you want an experienced solicitor who will get the job done well.
|Property Valuation Survey
|£0 – £500
|Your mortgage lender will require you to have a property valuation survey completed. Sometimes they may add the cost onto the monthly payments instead so that you don’t have to take the expense upfront.
|Mortgage Arrangement Fees
|£0 – £1995 +
|Some mortgage lenders will require you to pay an arrangement fee – these can vary greatly. At the time of writing, the highest one that I could find was £1995. In general, it’s likely that you’ll be better off opting for a lender who adds the arrangement fee to the monthly payments instead.
|£0 – £500
|Opting to pay for a mortgage broker is recommended but optional. I always like to use one because they can find the ideal product for my needs and often at a cheaper rate than you’ll find on comparison sites. We’d recommend Lendlord’s online mortgage brokerage.
|RICS Survey (Optional)
|£0 – £500
|A RICS level 2 homebuyer survey will identify any structural, drainage, heating or damp issues with the property. It’s highly recommended as it can save you from purchasing a property with major issues.
|£28,600 – £32,995
A property worth £100,000 would require £29-£33k in order to purchase it using a buy to let mortgage. However, this may not be the end of your upfront expenses. Next to consider are the set-up costs – the expenses involved in getting your property ready to rent out.
Buy To Let Set-Up Costs
We’re not here to live up to the stereotypical image of greedy landlords who don’t care about their tenants. No, we want to provide high-quality houses that our tenants will be happy to call their homes (an added bonus is that we’ll be able to charge more rent and the tenants will be of a higher standard). If your property is a turnkey, you should be able to skip the refurbishment. However, if it hasn’t been freshened up in a while or you wish to maximise your potential monthly rent, you’ll want to spruce the place up a bit along with ensuring that the property is fully compliant.
|Re-decorating and new flooring
|£1,100 – £2,000
|On the lower end, I factored in new paint throughout (we did it ourselves), new flooring and a few snags. On the higher end, I added in new internal doors and radiators to step up its appearance.
|Electrical Safety Check (EICR)
|£300 – £1,000
|If the property doesn’t have an up-to-date EICR, you’re going to have to pay for one. It’s a legal requirement to have one so don’t skimp out.
|Gas Safety Checks
|£60 – £100
|A gas safety check needs to be carried out at least once every 12 months so it’s likely you’ll need to do one when you purchase the property.
|PAT Safety Check
|A PAT safety check is an annual inspection of electrical appliances.
|2 – 4 weeks rent (£325 – £650 for this example)
|A lettings agent will help you advertise your property, conduct viewings and screen your tenants. Take my word for it, a good lettings agent is 100% worth it.
|£1,835 – £3,800
If you opt to skip the refurbishment, you’ll only need to spend an extra £735 to £1070 on the safety checks and lettings agent but we’d highly recommend sprucing the property up a bit for the new tenants – this should help you achieve a higher rent and attract better tenants.
Now that you have tenants in your buy to let property, let’s look at your monthly running costs.
Buy To Let Monthly Costs
Here is where we need to figure out how much rent we’d be charging – In general, a property worth £100,000 in great shape should be able to fetch around £650 a month. We’ll also be using the current interest rates which stand at 4.60% for buy to let mortgages as of May 2024.
|The amount our tenants would be paying us each month.
|Mortgage Payments (Interest Only at 4.60%)
|The amount we have to pay our mortgage lender each month.
|It’s always recommended to get some sort of insurance - for this example we’re only ensuring the property itself.
|Management Costs (Optional)
|£0 to - £78
|A good property manager will often charge 10% of your rent plus VAT. Getting your property managed is a good option if you live far away.
|£259.50 - £337.50
Depending on whether you choose to get a property manager, you’ll end up making around £260 to £340 per month in profit from this £100k property. It’s also worth considering that you’ll need to set some money aside for any in-prompt repairs that are necessary – most landlords will set aside around 10% of their money rent for these expenses.
Buy To Let Example
Now that we have a decent idea of what costs are involved when purchasing a buy to let property, let’s look at a real example – a two-bed terraced property in Liverpool L14.
Let’s breakdown the purchasing, set-up and monthly buy to let costs for this property.
- Deposit (25%) = £35,000
- Stamp Duty = £4,200
- Solicitor/Legal Costs = £1,300
- Property Valuation = £0 (included in the mortgage repayments)
- Mortgage Broker = £500
- RICS Survey = £350
Total Purchasing Costs = £41,350
- Re-decoration = £100 (it was newly redecorated, a few snags will be likely)
- Gas Safety Certificate = £60
- PAT Inspection = £50
- Lettings agent = £795 (One month’s worth of rent)
Total Set-Up Costs = £1,005
- Rent = £795
- Mortgage payment (4.6% rate) = – £402.5
- Landlord Insurance = – £25
- Management = – £96
Total Profit = £271.50
Overall, this property would cost £42,355 to purchase and get set up as a rental. Once there’s a tenant inside, we’d expect to make £271.50 every month in profit albeit some months may be lower as unexpected costs pop up.
As you can see, flipping this property delivers a superior ROI in the first year compared to rental property. However, once the property has been flipped, that’s that (Unless you go on to flip another property of course) but the rental property continues to earn a regular rental income and as capital appreciation of 3% per year kicks in from year 2, you almost double your money after 5 years.
Buy to lets are a great property investing strategy that should definitely be considered by any beginner investor. Now that you have a better understanding of the costs involved in buy to let investing, you should be better able to decide whether it’s something you wish to explore further.