True cost of being a landlord - Buy-to-let returns hit £16k per year as capital appreciation boosts profit margins.

Research by leading rental portal, Rentd, has revealed that, despite the government’s best efforts, the return on a buy-to-let purchase currently sits at £16,311 per year, up from £6,220 in 2019. 

Rentd looked at the true cost of being a landlord based on the ongoing costs associated with a buy-to-let investment and how this balanced against the return on offer on an annual basis. 

Initial start up costs

For those starting out in the buy-to-let sector there are some initial costs to consider when investing. The most notable being the mortgage deposit required, which at an average of 25% for a buy-to-let property, equates to £64,750 on the current average buy-to-let price of £259,000. 

There’s also the inflated cost of stamp duty versus a residential purchase, averaging £10,720 on the average buy-to-let property, with agency costs such as tenant finding fees (£1,277) and tenancy deposit registration (£40) bringing the total cost of this initial investment to £76,787. 

Ongoing costs

but once your buy-to-let investment is up and running how profitable is it in the current market? 

The largest ongoing cost associated with a buy-to-let is the annual rate of interest paid on a mortgage, which equates to £8,159 on the average buy-to-let purchase. Annual maintenance costs also average £2,590 along with £1,532 per year in agency management fees. 

Then there’s the smaller costs associated with a buy-to-let including void periods (£700) and landlord insurance, with this total sitting at £13,150 per year. 

Buy-to-let returns

In contrast to the outgoing costs, the average buy-to-let is estimated to return £12,68 per annum in rental income - a yield of 4.93%. This means that the average landlord is actually making a loss of nearly £400 when comparing rental income to the ongoing costs of owning a buy-to-let property. 

However, over the last decade, the average rate of capital appreciation on a buy-to-let property has sat at 6.45%, meaning an increase in property value of £16,693 per year. This level of capital appreciation boosts the annual return on investment to £16,311, considerably higher than the same total return of £6,220 in 2019 and £5,150 in 2020. 

Founder and CEO of Rentd, Ahmed Gamal, commented: 

“A Buy-to-let property can be a sizable investment and like any business, the key to success is fine tuning your portfolio to ensure that you cover the required ongoing costs while maximising your profit margins. 

For many this means investing in areas with above average rental yields, or high demand urban hubs that provide a lower chance of long void periods, all while negotiating with their agent on fees to keep ongoing costs at a minimum. 

Even still, the running costs of the average buy-to-let are likely to eclipse the annual rate of rental income and the real silver lining of the sector in recent years has been the high rates of capital appreciation seen on an investors portfolio. 

We don’t believe that this should be the case and removing the unnecessary costs involved in rental management has been the Rentd mission from day one. By securing tenants, reducing void periods, arranging viewings, carrying out referencing checks, sorting lettings agreements, deposits, ongoing rent and more, we’ve reduced the time and money required from a landlord so they can maximise the financial prosperity of their property portfolio.”

Data Tables (Image Format)

Average void period sourced from GoodLord

Mortgage interest sourced from Money Facts

Maintenance costs sourced from The Balance

Letting agent fees sourced from RentRound

Landlord Insurance sourced from Nimblefins

Agency fee sourced from Which

Rental values sourced from HomeLet

Average deposit info sourced from Money Helper

Average Buy-to-Let value sourced from Shawbrook Bank

Average rate of capital appreciation sourced from Gov.uk