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.