Landlord experience

[GoatWithACoat]

Hi we are thinking of buying a small property to let out. There won’t be a mortgage on it and it will be there as an investment. We are new to this and some of our family are saying with dodgy tenants, maintenance and letting agent fees if we don’t manage it ourselves it’s not a good investment. I think property is good as a long term investment and I’m keen to go ahead.
Can anyone who has experience in this field offer some wisdom? I know there are ‘guaranteed rent’ agents we could use, are these a good option?
Thanks in advance.

[RhymesWithOrange]

I've been a LL for 10 years. I'm about to sell up. The changes in the tax regime on residential property letting in the last few years have made it not worth it for me.

I've dealt with everything over the last 10 years - fires, fraud, tenants doing a runner in the middle of the night, endless sob stories about why people can't pay rent, contraband pets...

Ask yourself how much you really want to deal with all of that and then stick your money into an ISA.

[specialsubject]

mn is full of knee jerk landlord haters (emphasis on jerk) and is not the place.

go lurk on landlordzone for a while - good advice.and no tolerance for bad landlords but without the playground jealousy you get here. and site not aimed at women so works much better.

guaranteed rent usually means the kind of tenants no one else will take.

isa? either lose money in cash or risk an overpriced stockmarket.

[Neweternal]

I have done stock and share and property. Commercial property such as a shop might be a better investment now that the laws have changed on residential. I made a big return on a commercial property when I sold it and the capital gains was a pittance. I get a return of about 6% on having a financial wrap of isas and stocks and shares. Suits me fine.

[GoatWithACoat]

guaranteed rent usually means the kind of tenants no one else will take

Oh really? That surprised me as I always assumed the letting agent would take some risk giving guaranteed rent so would have low risk tenants. How does the guaranteed rent scheme work?

[GoatWithACoat]

And thanks for the excellent advice so far. I will look on the suggested landlord site, check out commercial property and seek independence financial advice before making any moves.

[jackstini]

I have been a landlord for 11 years and with 9 properties I have only ever had 1 nightmare tenant

We do it ourselves, no agency
Never had an issue getting a tenant - usually have multiple enquiries on the 1st day I mention a vacant property!

I still think the likely growth of my investments makes it worth it but the tax implications of gradually losing the ability to offset mortgage interest have been a pain
We are in the process of moving everything to a Ltd company in the next few months

If you will have no mortgage then the vast majority of the rent will be taxable profit. Do you work or will this be your main income? Have you looked at the taxes yet?

If I were in your shoes and could afford a property with no mortgage, I would probably split that cash and buy multiple properties with mortgages to make it more worthwhile

Feel free to ask any further questions

[specialsubject]

google 'guaranteed rent agents problems' and see what you think then...

[pacer142]

There were a few "guaranteed rent" agents in my city. All have gone bankrupt because they couldn't meet their promises, i.e. not enough tenants to rent the properties to, so not able to pay the landlords, hence bankruptcy as their escape of their liabilities. Lots of unhappy landlords around here, moreso that the same agents have sent up new firms as management agents, but not making the same promises this time around.

Definitely manage it yourself, chose your own tenants, vet them yourself, etc. Management agents aren't regulated and many firms have no experience and just set up thinking it's an easy way to make money. Same with "property maintenance" firms who make out they're experts - most are little more than odd-job-men doing botch after botch. Get proper tradesmen when repairs/improvements need to be made - it's worth it in the long run - do it properly once, rather than have to keep getting people back to solve problems caused by earlier bodge jobs.

[Rebecca36]

I have three properties owned with my husband that we let unfurnished. All white goods are included in tenancy. We've never had problems, everything is managed by an agent and it is well worth the fee. They collect the rent (& pass most of it on to us regularly), inspect the properties once or twice a year and let us know if anything, eg washing machine, needs replacing.

Find a reputable managing agent and then forget about it.

[GoatWithACoat]

Yes we both work full time and were considering it as it would bring in a small extra income and a long term investment. It seems we have a lot of research to do beforehand and might not be worth it in terms of tax. Thanks all.

[specialsubject]

you absolutely cannot forget about it even with the best agent!!! the buck stops with you and mistakes can cost big money.

[BritInUS1]

jackstini - presumably you have ensured you then won't fall foul of an enveloped property rules?

I imagine HMRC will find a way to clamp down on residential properties in limited companies soon too

[Littleelffriend]

It’s awful I am one. My tenant is lovely I still hate it. If you’re looking to buy in ne Scotland I’ll sell you a bargain

[jackstini]

BritInUS1 - got my IFA looking into at the moment!
Such a different situation than we planned when we started

[daddy2kids]

kackstini just wondering how you are transferring them to ltd company as the rates seems far higher than as a sole trader, also do you have to pay capital gains tax on them all as you are selling them to ltd company

[SouthLondonDaddy]

Where would the property be? I wouldn’t touch UK property with a bargepole, with all the Brexit uncertainty and what not, but of course other people will have different opinions and no one has a crystal ball.

Why do you think property is a good long-term investment? In London it’s been a phenomenal investment till very recently; in other parts of the country, not so much. In my experience, investing in properties tends to have an emotional and irrational side which should play no role in the decision-making process; also, many people tend to underestimate the costs and risks of being a landlord, like works needed every x years.

To begin with, you need to open a spreadsheet (even a free one like google sheets) and run some numbers. The money you are investing is not only the purchase price of the property, but price + stamp duty (are you a homeowner? Would you be paying the 3% additional stamp duty?) + legal fees + cost of refurbishing / furnishing the property.

Let’s say you buy a property for £300k. Stamp duty, with the additional 3%, will be £14k. Even with minimal works or furniture to buy, you’d very easily get to at least £320k (including legal fees). Let’s be hopeful and let’s say that the rental yield is 4%, i.e. £300k x 4% =£12k of rent per year. However, you have not spent £300k, you have spent £320, and £12k/£320k = 3.75%, not 4%. Should the property stay unoccupied for only 3 weeks a year, the rental yield would drop even further to 3.5%. Start adding other costs, like ground rent or managing agents’ fees if it’s a leasehold, the cost of annual gas safety inspections, the odd repair here or there, the cost of a letting agent, and your rental yield will easily drop below 3%. All of this is pre-tax, of course. I don’t know what your tax situation is, but, if you compare this with an investments in stocks and shares, investing in property is not necessarily a slam dunk, as the Americans would say.

People often compare investing in properties vs investing in a saving account, but it’s like comparing apples and oranges. Yes, even if you paid the highest 45% marginal tax rate, 3% pre-tax would still be 1.65% post-tax, and you won’t find many saving accounts paying that much after tax (you can’t invest 300£ in an ISA in one go). It’s not impossible to invest in a stock portfolio with a dividend yield higher than these rental yields, and tax on dividends is typically lower (tax is complicated and depends on many factors).

So far we have talked about income only. Then there’s the matter of capital appreciation or depreciation. No one really has a clue what’s going to happen, but don’t expect property prices to rise at 5% or more every year like they did in most of London till 2015 or so.