I’m a regular visitor – and occasional contributor – to the excellent 4Walls Property Tribes forum. I recently came across a thread started by Richard Greenland who was amazed to learn that many buy-to-let investors budget on spending up to £250 per month per property on maintenance and other costs. His post generated a response from a number of experienced investors (including yours truly!) The general consensus seems to be that although costs can vary quite substantially between individual properties, £250 is a sensible and fairly accurate reflection of the monthly overheads of an average buy-to-let property… IN ADDITION to the cost of any mortgage repayments.
In percentage terms, it was generally agreed that 30-35% of gross rental income should be put aside to cover management and maintenance costs.
A lot of relatively new investors will probably dismiss this figure as hugely inaccurate and inflated. They will tot up their monthly costs and conclude that their outgoings are much lower. However, as a number of the people who contributed to the discussion pointed out, it’s only after you have owned several properties over an extended period of time, that you realise how the costs begin to mount up.
Regular on-going costs such as management fees, vacant periods, property insurance, gas certificates etc are fairly easy to budget and account for. It’s usually these costs which a newbie investor includes in his budget. However, what’s often overlooked are all those relatively small, regular maintenance and refurbishments costs – repairs to boilers, appliances, ovens etc – which soon mount up to become a major strain on your bottom line.
But that’s only part of the story. The big shock comes when you have to start replacing worn out white goods, cookers, shower units, carpets and furniture. Each item on that list could potentially wipe out several week’s worth of rental income.
However, there’s worse to come. Redecoration will be needed every 3 – 5 years. Kitchens, bathrooms, boilers, interior doors etc will probably have to replaced every 5 – 10 years. New windows, external doors, barge boards, guttering, pathways, driveways, radiators etc will be required every 15 – 20 years. Depending on the age of the property and the length of time you retain it, rewires and re-roofs may be necessary. Obviously this sort of major renovation work isn’t cheap. Unless it’s been budgeted for upfront, many people find that their ‘investments’ turn into expensive liabilities.
Buy-to-let is a long term investment. Therefore it’s sensible to budget for all the costs you’re likely to encounter during the life of your investment. The maintenance costs for a new or recently refurbished property are likely to be minimal at first. But over the longer term those costs will grow in significance, particularly when larger scale refurbishment is required.
Buy-to-let can prove to be a very profitable long term investment strategy. But only if you do your sums properly, budget for the myriad of hidden costs that will crop up along the way and put money aside to pay for them when they do. Many people seem more interested in the number of properties they own, rather than the income they’re generating or the true long term value of their investments.
Due to the high cost and scarcity of finance, making genuine profits from buy-to-let is far, far harder than it used to be. I hope the advice provided on forums such as 4Walls will motivate more investors to take a long hard look at their strategies and to double check their figures. I suspect a fair few people may be in for a nasty shock.
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