If you are looking for a way to save for your retirement, buying a second property and renting it out can be a great option. Provided you buy wisely, you can secure a regular income from the rent, which you can put away in a high-interest account to build up cash assets for your pension pot.
In addition, the property is likely to increase in value. When you retire, you can sell the property to release the funds or continue renting it out to give you a regular income.
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However, before taking the plunge you need to do your research and make sure that you understand the true cost of being a landlord. There are quite a few costs involved in running a rental property, which are not obvious to everyone. Here is our overview to help you to determine whether becoming a landlord is a viable option for you.
If you buy your property using a mortgage most lenders require you to take out a special insurance policy. It is called landlords insurance UK property owners who plan to rent to others can benefit greatly from taking out this kind of policy even if they do not have a mortgage. This is because these policies cover far more than the building and contents. The best policies cover landlords for lost of rent, providing tenants with alternative accommodation in the event of a flood or fire and many other situations.
Advertising or letting agent fees
You need to deduct your letting agent’s fees from the amount of rent you can expect to be paid. If you decide to rent out your property yourself you can avoid these fees, but often you will need to pay to advertise for tenants. In addition, when the tenant has an issue you will need to find the time and petrol money to go and sort it out.
Property maintenance can work out expensive. The landlord has the responsibility for keeping the property properly maintained. Every now and again, something big is going to go wrong and you are going to have to take hundreds or thousands out of your profit to get it sorted out.
In addition, when a tenant leaves, you may need to freshen the property up. That usually means re-painting or at the very least hiring someone to give the property a good clean.
Loss of rent
It is very rare to be able to rent your property out for 12 months of the year. This means you will face periods without any income from your property. It is vital that you factor this in when deciding whether to buy a second property or not. If you have mortgage payments to cover this can be a big issue. Even if you do not have a mortgage to cover you will still have to pay rates, standing charges for services, safety checks and insurance.
In the UK gas and electrical appliances in rental properties have to be inspected on a regular basis, this costs money. If you own a larger property, you may also have to pay for other health and safety inspections.
As we said earlier investing in property as part of your retirement plan can be a great idea. Just be aware of the above costs and factor them in, and it will be a good investment.