Property, like any other business, is a numbers game and it is paramount to be fully aware of the financials.
The great thing about numbers is that they will always tell you the truth if you provide the right figures. This is obviously very important in property when you are looking for a return on your investment.
Don't make mistakes
A common mistake of many people when buying and selling a property is not to factor in all the costs of buying, holding, and selling a property, and by not doing this, you could find that your project’s margins are much slimmer than you originally thought.
There are two things that could make a difference to your costs:
- Whether the property is freehold or leasehold
- Whether you are buying with cash or mortgage finance. If the latter, you will be paying an interest rate on the debt.
Buying a property
- Stamp duty - you will pay the marginal rate and if this is a 2nd property, there will be a 3% surcharge. You can click here to calculate the stamp duty land tax.
- Solicitors fees - typically between £750 and £2500, dependent on the complexity of the transaction and the valuation of the property. You will need to ask for a quote from solicitors.
- Valuation - this is typically between £300 and £500 and charged by the lenders panel valuer.
- Searches - Your solicitor carries out searches for anything unusual or untoward, such as rights of way, environmental, water, local authority search, or clauses linked to the use of the property. Costs are usually included in the solicitor's fee, and unless there's something seriously amiss or time-consuming, estimate from about £300 to £500
- Finance arrangement fees - these will be payable if you take out a loan, and can often be added to the loan.
- Mortgage broker fees - Your broker may charge you for organising a mortgage for you. These fees can be a percentage of the loan or a fixed fee.
- Survey fees - You may decide to have an independent survey done to check the property for structural issues. This could be a Home Buyers Report or a full structural survey and you would be advised to use a RICS member to undertake this work for you.
- Mortgage Interest costs - you will need to input your finance rate. The higher the rate, the more expensive your payments will be.
- Finance exit fees - there could be a exit fee when you settle the loan.
- Insurance - your freehold property should have a buildings insurance policy in place from exchange of contracts.
Holding a property:
If freehold:
- Council tax
- Utilities
- Bridging or mortgage payments
- Renovation costs
If leasehold
- Ground rent
- Service charge
- Council tax
- Utilities
- Bridging or mortgage payment
- Maintenance
- Repairs
- Security (if vacant)
Selling a property:
- Estate agent fees - if using a High Street estate agent, these are typically 1.5 - 2% of the selling price plus VAT at 20%. If using an online agent, there are some fixed fee options.
- Legal/solicitor fees - these are similar to when you are buying a property although you won't have to pay standard fees for searches.
- Early repayment charge - Usually fixed and discounted variable rate mortgage lenders impose a charge if you repay the loan early. The charge can be 1-5% of the outstanding loan. This can have a huge impact on the sale of your property, so check with you lender and request a loan redemption statement so that you are sure.
- Exit fee - Another charge levied by mortgage lenders, this time when you finish paying off your mortgage or switch your mortgage to another lender.
- Capital gains tax - investment property ONLY - Any capital gain made from an investment property is subject to Capital Gains Tax. This will be calculated on what you paid for the property compared to what you sold it for.
- EPC - In order to market the property for sale, you will need a valid EPC. This typically costs from £60 to £100.00. An EPC is valid for 10 years.
- Deep clean - in order to achieve the highest possible sale price, it may be prudent to have your property professionally cleaned, including carpets. This can cost between £150 and £300.
- Garden tidy - In order to achieve the best possible sale price, the garden should look presentable. This could cost from £100 upwards, depending on how much work is needed.
- Management company fees - leasehold only - some management companies charge for a “vendor’s pack” and this can cost between £300 and £500.00, depending on the individual company.
When we buy, hold, and sell properties, we create a profit and loss spreadsheet itemising all the costs so that we can clearly see the return on investment.
