UK landlords could be overestimating the profitability of their buy-to-let investment due to them neglecting to take into account key running costs, according to new research from Platinum Property Partners.

The total potential cost associated with the annual running and upkeep of a buy-to-let property – including letting agent fees, maintenance, repairs, marketing fees and mortgage interest – amounts to an average of £8,359.

However, Platinum Property Partners said that 12% of landlords do not take any costs into consideration when calculating the financial performance of their buy-to-let portfolio, leaving them particularly vulnerable to misjudging the returns they will make from their investment.

The research also shows that for all costs, there is a gap between the proportion of property investors who incur the different types of costs, and those who include them in their portfolio measurement.

75% of UK landlords incurring the top 10 most common costs don’t account for them when calculating their portfolio’s financial performance, meaning the returns on their investment could be lower than they think.

Based on a typical portfolio of two rental properties, the total bill associated with running a buy-to-let portfolio could stack up to £16,718 every year, which in turn equals 52% of gross annual rental income (£32,388).

In addition to these regular maintenance and day-to-day upkeep costs, encountering void periods is often an inevitability for landlords at some stage.

In any one year, up to 60% of landlords face void periods, however, only 12% of these take this into account when assessing the ongoing health of their property portfolio. This means 88% aren’t acknowledging the impact this has on their rental income, Platinum Property Partners said.

By including estimates of void periods in their financial measurements, landlords will have a better picture of the potential net returns they will get from their investment.

Steve Bolton, chairman of Platinum Property Partners, said: “The buy-to-let market is a hot ticket investment at the moment for budding landlords looking to generate an income and good level of capital growth from rental property. This is particularly the case now that new pension freedoms have opened the gates to alternative financial plans for retirement.

“But becoming a landlord isn’t a walk in the park, and running a successful buy-to-let portfolio takes continued investments of time and money on top of your initial lump sum investment. Many landlords appear to be burying their heads in the sands and are seriously in the dark about the ‘true’ value of the returns from their buy-to-let investment if they don’t take into consideration regular outgoings such as letting agent fees, repairs, redecoration costs, and mortgage interest. Property investors need to keep note of all these additional expenses to make sure they are evaluating their returns rigorously, as that’s the only safeguard to check if they’re still on course to achieve their goal of retirement income or to supplement or replace their salary.

“If landlords don’t have all the information at their fingertips, they can’t properly assess market risk and opportunities to make informed decisions about the future of their portfolio, or plan effectively. It also makes it extremely difficult to compare the performance of a buy-to-let portfolio against other forms of investment.”