Landlords and letting agents are at risk of overestimating the profitability of Buy To Let investments by neglecting to take into account major running costs, according to BTL specialists Platinum Property Partners.
It claims the total potential cost associated with the annual running and upkeep of a BTL property - including letting agent fees, maintenance, repairs, marketing fees and mortgage interest - amounts to an average of £8,359.
However, almost one in eight landlords do not take any costs into consideration when calculating the financial performance of their BTL portfolio, leaving them particularly vulnerable to misjudging the returns they will make from their investment.
PPP claims that 75 per cent of UK landlords incurring the top 10 most common costs do not account for them when calculating their portfolio's financial performance- meaning the returns on their investment could be lower than they think.
Based on a typical portfolio of two rental properties, the total bill associated with running a BTL portfolio could stack up to £16,718 every year, which in turn equals 5 per cent of gross annual rental income, which is £32,388 says the company.
It states that the most accurate way to measure the performance of a BTL investment is by using Return on Investment' or Return on Equity', as these methods take into account gross profit, capital gain, and the costs of running the property - including the amount spent on refurbishment.
In any one year, up to 60 per cent of landlords face void periods but only 12 per cent of these take this into account when assessing the ongoing health of their property portfolio.
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Comments
I am pretty sure that using Return on Investment or Return on Equity are not even [i]preferred [/i] method to calculate the performance of a BTL investment.
I could do my property accounts by hand but I do not do this. Far better to pay up and use a landlords letting package such as Landlords' Property Manager which I have used for many years. Every cash transaction for my property goes in to this software which guides me to make the entries in the sections which correspond exactly to current tax law and accounting practise. When it comes to doing my tax return I simply press report and there it is- the years profit or loss to the nearest penny. The details I need for tax are also there, added up and in the order needed for my tax form.
These report figures can easily be juggled in a spread sheet to look for the effect of the usual imponderables.
These figures are seriously flawed. If you look at the breakdown, some 4000 thereof are lumped under 'other costs' with no further explanation, yet the remaining 4360 is broken down in some detail. Excluding London, the annual average rent receipt across the rest of the UK is 8688 (Homelet's figures as of Feb 2015).