If you are thinking of becoming a landlord and renting out a property for income, you can easily become a CEO of your own company. But, if you have no idea about the costs involved then you may be surprised at just how much there is to consider, including insurance for real estate. More importantly, knowing what to expect in terms of the costs will put you in a much stronger position from which to make a success of your venture.
If there is one thing that you probably will not have anyone prepare you for, it is the endless amount of possibilities for real estate investors to throw money away without even thinking about it. One such example are the real estate resources, like books, courses, seminars and audiotapes, that almost everyone thinking of investing in real estate purchases in the beginning. You should definitely learn as much as you can about real estate investment before you get your foot in the door. In fact, there are many business advisors that specialize in giving advice on investing in real estate. However, it is important to know when enough is enough. Try looking for free real estate investing courses and books before you throw money away on what will wind up being bookshelf clutter in just a year or two.
Preparing For Closing
When investing in real estate, the are many costs associated with the closing of the property. The seller has to pay the brokers fees and commissions. However, you are still responsible for all of the appraisal fees associated with the home. This way, you can ensure that you are getting a fair deal for the property. The cost for a real estate appraisal can run around $500. Although, it could save you thousands if the appraisal ends up affecting the selling price. On top of that, the closing costs include fees for attorneys, underwriters and title insurance. Especially if you are looking to benefit from buying a foreclosure, you should consider title insurance. Otherwise, you could end up with a major liability on the property. These fees can cost upwards of $10,000 on investment properties. In order to keep your real estate investment secure, consider how much the closing costs will end up being.
Buying the Property
Buying a property is much different than buying a small business. Properties in the UK are far from cheap to buy; average house prices are approaching £300,000 and once you factor in the cost of buying the house, you could be looking at a whole lot more. If you need a mortgage, then the first big cost is a deposit and the bigger the deposit the better. You should look to have a deposit of at least between 10% and 20% of the properties price and so for an average house up to £60,000.
On a £300,000 house you will have to pay stamp duty of £5000, then there’s the valuation fee and the survey costing around £1500 and on top of that there are legal fees of around £1000, estate agents fees £3000 and an electronic transfer fee £50. This comes to a grand total of £310,550 and so it’s important, when looking for a property, that you account for these hidden costs.
Preparing the Property for Tenants
Costs for the preparation of the property will differ greatly, depending on the size and condition of the house when you buy it. Making sure you have a pot of money to get any work required done quickly will mean you can get the property on the rental market quicker. As well as structural and cosmetic work, you’ll need to have a gas safety check (once every 12 months), these cost around £30. Other safety costs will include smoke detectors that cost as little as £8.
Normal buildings and contents insurance is not adequate for a rental property, but luckily companies like homelet.co.uk, provide bespoke insurance for landlords that covers buildings, contents and a range of other things, such as legal expenses, should you incur them.
Once the property is ready to let, then just make sure you have set aside some contingency money that you can use for repairs and replacements.
The final cost, or financial definition, to you when renting out a property comes from the taxman and you will pay between 20% and 45% of gross profits to HMRC. Don’t forget however that there are several allowances that you can deduct before you calculate the final gross figure.
Being a landlord really isn’t all about financial definition and costs, but being aware of these well in advance is a must, as it will enable you to set a competitive rental price for your property and at the same time ensure you aren’t left out of pocket.