Renting
What renting actually costs a landlord
Rental yield calculations that ignore voids, maintenance and tax describe a business nobody operates.
What follows is the working version of the cost of letting: the decisions in the order you actually meet them, with the reasoning attached.
Before you start
- Gross yield ignores every cost and is a marketing figure.
- Voids, maintenance, compliance and management are the recurring reality.
- Tax treatment of mortgage interest varies and materially changes returns.
Gross yield is not a return
Gross yield is annual rent divided by purchase price and takes no account of any cost of operating. Net yield after voids, maintenance, insurance, compliance, management and finance is a very different number. Comparing properties on gross yield systematically favours the ones with the highest hidden costs.
Voids are a planning assumption
No property is let one hundred per cent of the time, and turnover between tenancies costs rent plus re-letting fees plus refresh. Assuming a few weeks of void per year is realistic; assuming none is why some portfolios underperform their spreadsheets. Longer tenancies are worth conceding on rent for, because a stable tenant is cheaper than a slightly higher rent.
Compliance is a growing recurring cost
Safety certification, energy efficiency requirements, licensing schemes and deposit protection all carry cost and administrative time. Requirements change, and retrofitting to a new efficiency standard can be a substantial capital cost with no rent increase attached.
These are increasing in most markets rather than decreasing.
Maintenance is not optional
A rented property wears faster than an owner-occupied one and repairs cannot be deferred in the same way. A common planning figure is around one per cent of value annually, plus periodic larger items. Responsiveness also determines tenant retention, which loops back into voids.
Adjust the size of it until it is something you would actually do tired.
Tax changes the arithmetic
The treatment of mortgage interest, allowable expenses and capital gains varies by jurisdiction and has changed sharply in several. A leveraged rental that worked under one tax regime can be loss-making under another with no change in rent. This is a question for an accountant in your jurisdiction rather than an article.
The takeaway
Model voids, maintenance and tax before you model profit.
Pick the one that costs you least, and let the rest wait.
Questions readers ask
What net yield is reasonable?
It depends entirely on the market, financing and tax regime. The useful exercise is calculating your own honestly rather than benchmarking against a headline figure.
Is a letting agent worth the fee?
For a distant property or an owner without time, generally yes. Compare full management against tenant-find only, since the price difference is large and the service difference is specific.
