Can the cost and profit factors of my buy-to-let property change over time?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 29 to read through:

Can the costs change over the next few years? That is a very interesting question. And I can tell you, they not only can change, but the costs of a rented property are guaranteed to change, if only because of inflation. I'll give you an example regarding management. If we approach this sensibly, we'll put in professional management that takes care of all the work so that you don't have to deal with it.

Imagine you have a tenant who reports that the light bulb in the stairwell is flickering. Instead of someone contacting you, a professional on site takes care of the tenant. The annual service charge statement, collecting the rent, forwarding the rent to you every month – the management takes care of all of that. Good management costs around €15–20 net per month, and that is a worthwhile investment because you then have absolute professionals looking after your property.

Now let's assume that you believe costs can never change. That would mean the management company would charge the exact same net amount of €15 or €20 a month for the next 10, 20 or 30 years. However, that is not realistic, because if there is inflation, the management company will say at the latest in five to eight years: "Dear customer, dear investor, dear property owner, postage has become more expensive, so we are sending you an annual statement. Our qualified employee now earns a bit more, so we have to adjust the costs by €1-2 every three to four years." It is therefore completely normal for the management company to occasionally propose increasing the costs by one euro in order to factor this in reliably.

For example, if you contact our Immobilien-Einkommen team, we will create a long-term calculation and plan for your property. In this calculation, we factor in a baseline inflation rate of 1.5 per cent. Over many years there will always be a certain amount of inflation, so we continuously adjust all costs for inflation over the years to ensure that everything is taken into account.

Of course, income also rises with inflation. You know yourself that the landlord sends the tenant a rent increase when there is inflation, and that way your income goes up too.

So the answer to the question of whether costs can increase is: Yes, costs will rise over the years, particularly due to inflation. But that is precisely why you are investing in tangible assets, because you will then be among the winners. You benefit proportionately more, because rental income is, for example, €700 and management costs are €20. You can imagine what happens when the income of €700 rises due to inflation and the costs of €20 do so as well.

So that will be a good deal for you. If someone advises you, make sure you are charged fairly. You also have to assume that costs will rise over the next few years. Even so, an investment property will be worthwhile for you if you go about it sensibly.

Keywords:
Costs, property, management, inflation, income, tangible assets, tenants, rent increase, advice