The boom in the buy to let sector is seeing growing numbers of landlords not assessing properly the true cost of their outgoings, says one BTL specialist firm.
According to Platinum Property Partners, this means the landlords have no idea about whether a property investment will be profitable or not.
In addition, around half of buy to let landlords fail to calculate the cost of any potential repairs to the property as well.
From a study by the firm, they have calculated that the gross average cost for a buy to let property the UK is £8,359 every year.
This figure is calculated by considering letting agent fees, property repairs as well as mortgage interest.
Landlords may be overestimating their potential returns
Platinum is claiming that landlords may be overestimating their potential returns on a property investment by 50%.
They say that the best way of gauging an investment’s performance is to use either a return on equity or a return on investment calculation.
By doing so, a landlord will factor in the potential gross profit, the capital gains and all associated costs that come with maintaining a buy to let property.
The study has also revealed that many landlords do not consider their void periods when assessing a property’s profitability even though nearly two-thirds of landlords will have no tenant paying rent every year.
Being a landlord is not a ‘walk in the park’
One of the founders of Platinum, Steve Bolton, warns: “Running a successful property portfolio takes time and money and being a landlord is not a walk in the park.”
Mr Bolton also expressed his concerns that many landlords who are new to the buy to let sector are ignoring the true value of their returns.
In addition, he said, the buy to let market is still very popular for potential landlords who are looking to generate an income as well as enjoying capital growth from property price increases.
The situation is worsening since there are more landlords entering the market due to the new pension freedoms which means that people can access their pension pots to create an alternative financial plan for their retirement.
Property damage leaves landlords out-of-pocket
Meanwhile, a survey has revealed that around two-thirds of buy to let landlords will end up being out-of-pocket because of tenants causing property damage.
The survey from Fantastic Services, says damage is the biggest problem faced by landlords when a tenancy comes to an end.
The most common damage for landlords
According to their research, the most common damage for landlords is stained carpets for 76% of landlords, followed by dirty ovens for 67%.
Walls that need redecorating were also an issue for 58% of landlords while 47% said they had to fix garden damage.
A third of landlords believe that the property damage was from pets with the ripped carpets, scratched woodwork and marked floors being the giveaways.
