There are costs, and then there are the hidden costs of empty buy-to-let properties
Whether you choose to leave a buy-to-let property empty or it remains so because of an error in rental pricing, the costs of it not being tenanted can quickly mount up. With a shortage of homes in the UK and demand for rental properties set to increase by 15% to 20% over the next 8 to 10 years, I was surprised to hear just how many properties in the private rented sector (PRS) are empty.
I’m not talking about those properties that are empty for just a few weeks, either. I mean those properties that haven’t had tenants for six months and longer. I can only assume that some landlords have very deep pockets.
In this article, I’ll attempt to show just how much an empty property costs the average landlord, and how much all the long-term empty properties are costing the PRS.
175,000 empty PRS properties
Yes, you read that headline correctly. According to government estimates, there are 175,000 properties owned by private landlords that have been empty for at least six months. If these properties were brought back onto the market, they would almost fulfil an entire year of the government’s target to build 200,000 new homes annually.
How much does it really cost to leave a buy-to-let property empty?
Analysis by deposit-free company Dlighted has calculated that the cost of leaving a property empty could be £774. We’re not sure this is right. We think it’s much higher because there are hidden costs that this estimate doesn’t include. Before we get to these, let’s look at how this £774 figure was calculated.
First, the buy-to-let mortgage. The Homeowners Alliance says that the average buy-to-let mortgage (based on a loan-to-value of 75% to 80%) costs £510 per month.
Second, council tax. As we wrote about in November 2017, the government has increased the council tax premium on empty properties. Now, local authorities can charge 100% of the council tax charge on an empty property. Based upon a band D property with an average council tax rate, this is a further £133 per month.
Third, utilities. Electricity, gas, and water suppliers still want their standing charge bills paid, even if there is no use of their services.
Fourth, property insurance. Most landlord insurance policies will become invalid if a property is empty for an extended period of time other than between tenancies. MoneySuperMarket data shows that the cost of insuring an empty property is around £65 per month.
Add up all these costs, and this is where the £774 per month cost comes from.
The 5 hidden costs of leaving your investment property empty
Here’s why we think that £774 is underestimating the costs of leaving your property empty.
1. You are losing out on rental income
The average rent in the UK is now £909 per month. That’s lost income which will never be replaced. Simply deducting the Dlighted estimate from this provides an average monthly net rental income profit of £135.
2. Empty homes can have higher maintenance costs
I know it seems unlikely, but empty homes can suffer higher maintenance costs. During the winter, for example, an empty property is more likely to be damaged by cold weather. Without people living in an empty property, pipes freeze and burst. Damp gets into the house, and mould and mildew growth spreads. Metal rusts, dust lays, and rodents find a warm home to call their own.
3. Greater likelihood of vandalism and squatters
The longer your property remains empty, the more likely it is to be attacked by vandals. Insurance may come to the rescue, but you are likely to have a sizeable excess to pay on any repair bill.
Even worse, you could find your property inhabited by squatters. If this happens, expect a long court process and expensive legal bills.
4. The value of empty homes tends to appreciate more slowly
Empty properties don’t receive the TLC of occupied homes. They tend to need greater renovation and refurbishment efforts by new owners. There may be hidden problems, too. All this is taken into consideration by the buyer when valuing your property. Leave your property empty too long, and it could cost thousands in lost capital gain.
5. Higher taxes and worse under Labour
Here’s the final kicker. If Labour should win power in the UK, they have promised to crack down on empty properties. Among the sanctions they have suggested are:
- Punitive taxes and unlimited financial penalties on landlords of properties that have remained empty for more than six months
- Giving local authorities the power to seize properties to rent to house homeless people
What is the real cost of leaving your buy-to-let property empty?
Simply adding the lost income into the equation increases the cost of leaving a property empty from £774 to £909. From here, working out the real cost gets more difficult. How much might extra maintenance expenses be? What loss from capital gains might you suffer? And what if your property is compulsory purchased by a local council to house the homeless? You can bet your shirt that you won’t get paid fair market value.
This is why we believe the real average cost of leaving a buy-to-let property empty is more than £1,000 per month. Across the country, the 175,000 long-term empty properties are probably costing buy-to-let landlords £175 million each month. That’s an annualised cash burn of more than £2.1 billion. It’s an eye-opener, isn’t it?
If you would rather not subsidise your empty property to the tune of more than £12,000 per year, contact one of the Ezytrac team today on +44 01522 503 717. More than 90% of the properties under our management find quality tenants within two weeks.
Live with Passion,
Brett Alegre-Wood