Britain’s property market has always been a prime target for investors as options such as owning an investment property UK may offer strong capital appreciation. However, investing in UK property incurs several costs which the investor must allow for in their calculations.
These costs are on top of mortgage interest payments. The mistake that many beginners make when assessing property investment opportunities is not allowing for all investment costs. It disrupts their cash flow projections, and what they originally calculated as a positive cash flow, yields less than anticipated or may even turn into a loss-making venture.
The common costs involved when investing in property, include:
Depending on your budget and planned level of involvement with your investment property, you may, or may not, want to use a letting agent.
Letting agents’ services include anything from sourcing and carrying out credit checks on a potential tenant, drawing up a contract and compiling an inventory, and following up on late rent.
There are also mandatory gas safety and energy efficiency checks to be carried out, which an agent can handle for you.
For lettings-only, you might be charged one month’s rent, while the ongoing fees for managing the investment property UK may vary.
Property research is imperative to investment success. You’ll need to ensure that you buy the best property in the best places. For this, you must assess the property fundamentals associated with a location – shops, schools, transport links, major employers and major investment.
Property research takes time, knowledge and experience. The more you do, the better you’ll get at it. You’ll need up-to-date data when compiling your location assessment. There are several databases and research firms that offer subscribers their research. Many of these charge for their services.
After your offer on a residential investment property is accepted, you should have the property inspected. Older properties may hide their faults. You may not realise this on your first appraisal, so it’s important to have a professional make an in-depth assessment.
Issues that might come to light may be small and inconsequential. However, they may also be major problems, perhaps structural in nature. The earlier you discover these, the more leeway you’ll have in further price negotiations.
A building inspection may cost a few hundred pounds but could save thousands down the line.
Property valuation costs
Before a bank or mortgage lender finances your investment, it will carry out a property valuation. Some lenders may ask you to pay this fee, while others may add it on to the mortgage amount with any other charges (such as arrangement fees).
The lender requires valuation as it wants to know that the property is worth enough to repay the loan should you default on the mortgage.
Mortgage broker fees
Most buy-to-let mortgage brokers earn their money from the lender. You won’t have to pay them directly. However, make sure you ask before signing. The last thing you want is to be faced with a bill you weren’t expecting.
As a buy-to-let investor, you really should take out landlord insurance. It usually costs no more than two or three hundred pounds a year. The cover could include defaulted rental payments, damage caused by tenants, and public liability insurance. Though, there is no legal obligation, but not having landlord insurance could cost thousands of pounds.
Whether you use a conveyancer or a solicitor to negotiate the legalities of a more complex property investment, you’ll have legal costs to consider.
Especially when purchasing off-plan property, you may want to use a solicitor. They will ensure the process is conducted legally, and that the contract is written to protect you as a well as the developer.
Property management fees
Once you’ve done the deal and completed on the property, you need to get it let, and then maintain it. You’ll need to find tenants, conduct property inspections, compose property inventories, and collect the rent.
If you don’t want a second job of being a landlord, you’ll need to hire an investment property manager. They will do the day-to-day work for you, allowing you to enjoy the returns on the investment property. But this, of course, costs. Typically, you’ll be charged a part of your gross rental income.
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There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.
Please remember that investments of any type may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.