Repairs and maintenance are the biggest expenses for landlords, according to a new interactive buy to let business tool.
The average cost of running a buy to let adds up to £3,632 a year before tax – a third of the rent collected from tenants.
Just over £1,000 is spent on maintenance – with letting agent fees (£870); voids (£652) and leasehold service charges (£312) the other largest drains on profits.
Other costs, such as insurance, utility bills, accountants, ground rent and licensing account for the remaining £770 of expenses.
The figures come from research by building society Kent Reliance, which breaks down the costs by region and local authority online. The list does not cover mortgage interest, which bites further into profits.
Tax relief for loans is phasing out for landlords paying income tax at the rate of 40% or more over the next two years, while profit calculations have changed that many fear will increase the tax burden for many.
“As the new tax changes take hold, it is all the more vital that current and prospective landlords understand running and set up costs, and how these have changed, and indeed, where they may be able to trim overheads to protect their margins,” says the report The Finance of Investing, issued alongside the web tool.
The report suggests that Britain’s 5.2 million private rented homes generate around £10.1 billion in mortgage interest each year.
The tax change capping mortgage relief is expected to divert about £970 million a year from buy to let profits into Treasury coffers.
He main impact could be on the £5.5 billion paid each year to tradesmen, letting agents, accountants and other service providers as landlords look to trim costs.
“Punitive tax rises risk undermining the contribution they make to the wider economy, should it stymie growth in the private rented sector, or landlords’ ability to invest in their properties, and support secondary industries,” adds the report.