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Cost of starting in Buy-to-let

June 26, 2018

In our previous blog, we discussed financing a BTL property.

If a landlord buys using a BTL mortgage, they typically need a 25% to 35% deposit.  This is generally the largest cost associated with acquiring a BTL property.

However, there are significant additional acquisition costs than just the deposit, and we have listed these below.

1. Solicitors fees

Depending on the solicitor you choose and the complexity of the transaction, solicitors charge between £500.00 and £1500.00 to undertake the conveyancing process.

It is worth getting quotes from three different solicitors and checking if they have the capacity to act expediently on your behalf, as a quick completion is one of the levers you can use to secure a discount off market value of a property.

2.  Lenders valuation

Lenders will typically charge a valuation fee ranging from £250.00 to £450.00, depending on the lender, the property, and the amount of the loan.

This fee is for them to undertake a valuation to ensure the property is suitable as their security.

Lenders will then make an offer based on the market value or the purchase price, whichever is the LOWER.

It is important to understand that this is the lender’s valuation, not an independent valuation undertaken to ascertain the structural integrity of the property or an independent market appraisal.

Should you wish to undertake these, there will be additional costs.

3.  Searches

Your solicitor carries out searches for anything unusual or untoward, such as rights of way, environmental, water, or clauses linked to the use of the property.

Costs are usually included in the solicitor's fee, and unless there's something seriously amiss or time-consuming, estimate from about £300 to £500.

4. Land Registry Fees

There are some small fees to pay for having the title registered in your name. Your solicitor will pay these and add them to your bill.

5.  Stamp duty

If you already own a property and are buying additional ones, you will become subject to the 3% stamp duty surcharge.
There is useful guidance from the Government here:

6. Mortgage arrangement fees

There may be fees associated with your mortgage. These can be quite substantial. They can be paid as a lump sum or added to the loan. Most BTL investors add them to the loan.

7. Mortgage broker fees

If you are using an intermediary to help you arrange your mortgage, they might charge a fee.  These typically range from £250.00 to £500.00, but you should check with your mortgage broker how much they will charge you to raise a mortgage and factor that into your costs.

8. Insurance

It will almost certainly be a requirement of your mortgage Terms and Conditions to take out buildings and landlord insurance from the day of completion. This is based on the value of your property.

Even if you are a cash buyer, you should still ensure that you have the correct level of protection for your property, in the event of a fire or other insurable peril.

9.  Dressing the property

A new build property or one where the vendor has stripped everything bare may need "dressing" such as lampshades, hooks behind doors, towel rails, loo roll holders, mirrors, shelves, window coverings etc. Some of these costs, such as new blinds/curtains, can be significant, so it may be worth negotiating with the vendor that they are included as part of the sale.

10. Professional cleaning

Your property may need a very deep clean prior to letting, including carpets. Allow around £200 to £400 for this.

11. Gas Safety Certificate

To let a property compliantly, you will need a valid Gas Safety certificate.  This can cost from £50 to £150 depending on who you use. Find a Gas Safe Engineer at the Gas Safe Register.

12.  Remedial works and preparing a property for letting

There may be costs associated with repairing fixtures and fittings in the property, and bringing it up to habitable standards, such as putting in new carpets, decorating, having a new boiler installed, etc.

13.  Council tax and standing utilities 

When you complete on a property, you immediately become liable for the council tax payment.*

(*Check with your local authority if they have any exemptions for empty properties, as each council has a different policy in this regards*).

It may take you a couple of months to get the property into a lettable condition and find a suitable tenant, so, during that time, you may be paying the council tax and standing utilities.

Removing the worry.

The great thing is when buying a tenanted property through the Vesta platform, you will not have to worry about the costs of point 9 onwards!

The property is already tenanted and you can check that all the legal and compliance issues have been properly attended to.

The tenant is already living in the property, so presumably happy with the condition.  Obviously, if you are aware of any repair and maintenance issues, it would be prudent to arrange with vendor to get them resolved before the sale completes.

There will be no void period, so no mortgage going out when you don’t have rent coming in, no council tax, no standing utilities - no worries of vandalism or asset theft either.

So buying a tenanted property means that your acquisition costs could turn out to be significantly less and you have no worries associated with an empty property. 

The Vesta way is “with tenants included”, and, as property is a business, you should be thinking of your bottom line right from the first day of ownership and how you can minimise costs.  That is why more and more landlords are seeing the benefit of buying a tenanted property.

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