A large number of buy-to-let landlords appear to have unrealistic expectations of what they will get out of their properties as well as what they need to put into them, according to new research.

The "Buy-to-let: Landlords and Mortgages 2013" report by YouGov shows that 51% of buy-to-let mortgage holders suffer from "money illusion" - confusing monetary gains with real gains.

Only 25% take inflation into account when assessing monetary gains from their property, while just 68% consider letting agency fees and 46% budget for other management expenses.

Buy-to-let landlords have also seen a drop off in both median rental returns and capital gains during the last decade, meaning confusing monetary gains with real gains can be even more damaging.

They received between 4-6% in rental returns between 2002 and 2006, but this figure has fallen to between 1-4% since 2007.

Capital gains, meanwhile, have plummeted to less than 4% since 2007, as opposed to over 15% before 2003.

Such contractions mean buy-to-let landlords who fail to consider all outgoing costs can find themselves in a difficult position, declared Simon Mottram, Financial Services Consulting Director at YouGov.

"The money illusion can mask a great deal of risk that people can put themselves in because of falling returns from increasing inflation as well as the cost of additional expenses," he said.

"Potential buy-to-let landlords should go into property ownership with their eyes open, being aware of the costs and potential pitfalls as well as the possible gains."

The reduction in rental returns and capital gains has gone hand in hand with a decrease in the number of buy-to-let landlords that see their properties as a long term investment.

Only 37% of them now regard their property as an investment which will pay dividends in the long-term, down from 52% in 2008-09.

Zoe Rose, Head of Lettings for Strutt & Parker, explains: "It is a false economy in the long term to prepare buy-to-let planning assumption on a minimal cost base. We have a few very well-rehearsed buy-to-let clients that are now paying the price for not building in proper costs for when their properties comes back to market. The market is constantly moving and in particular internal condition is becoming more and more important for tenants. You wouldn't run any other assets dry and expect to maintain the same returns. It is the same with property. You need to keep aside some funds to upgrade and reinvest in order to have a chance of keeping the returns optimum."

Meanwhile, the proportion of buy-to-let landlords who see their property portfolio as a short-term investment is now back at the levels seen before the financial crash.

Some 56% of new landlords currently consider their buy-to-let property as something that will return a decent amount of money in the short-term, similar to the 55% of those who have been landlords since 2008-09.

In addition, only 50% of those who became new landlords in 2012 saw their property as a short-term investment when buying.

Rose concludes: "Ultimately renting is like any other business exposed to both profit and loss. It is much better to prepare properly than be stung with an extended void period further down the line when you're desperately seeking a tenant."

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