Talk to me about becoming a landlord

[AllTheWayFromLondonDAMN]

Hey all

Putting this is chat for traffic!

I wonder if anyone can give me any advice.

Me and DP own a house in London with a mortgage (and a help to buy loan). He works full time and earns circa £60,000 with the potential to earn a bit more (middle leadership, public sector). I have an autoimmune disease which made me give up my teaching career, but I tutor and do a few other jobs freelance. Earn about £12k a year.

It may just be middle of the night and can’t sleep chat, but the announcement about 5% mortgages got me thinking. I obviously won’t have a pension if my illness means I never work “properly” in a professional job again, but I’m wondered would it be worth buying something in a cheap area and renting it out. This would obviously be provided we could get finance or save to buy outright.

Landlords of Mumsnet- I want to run some numbers past you to see what you think or if I’ll being wildly optimistic about costs.

So if we brought a house in somewhere like Middlesborough it seems like we could buy a decent 3 bed for about £36,000. By my estimations through browsing RightMove it looks like I could charge £350pcm rent.

So looking at the figures various mortgage calculators have suggested with a 5% deposit of around £2k the mortgage would be circa £180 a month. Then that having a letting agent do everything for the tenants (obviously, because we are 300 miles away) would cost around 15% of the rent, so £60 a month. Leaving us with a profit of circa £110 a month.

Obviously I know that I’d have to pay for anything and everything that goes wrong in the property and gas inspections/certs etc. But if we saved all of that “profit” each year for say... 10 years maybe that would cover all of that and we do have disposable income we could save too and a bit of (circa £5k) savings now.

Here at 3am this seems like a decent plan, keep the house ticking over and okay, never really make a profit for 20years or so if you’re saving it all to reinvest in the house, but then hopefully sell up once I’m retirement age (about 30 years or so) and you’ve got a decent chunk of pension money there.

What are the pitfalls I’m not seeing? This probably all sounds hopelessly naive and the idea of being a landlord sits poorly with my politics, but I know I need a long term plan.

And if this is utterly fanciful, please don’t flame me, as I say it might just be 3am chat on painkillers (I’ve got an inner ear infection, hence being awake!)

Thanks for all your help in advance.

I am quite encouraged by this thread, now that landlording is no longer such an attractive investment perhaps we might see property prices move towards something sustainable 🤔

As others have said you have to treat it like a business.

My partner is a landlord, he manages the property himself rather than using an agent.

Things to consider
BTL mortgage requires a 25% deposit
£££ to get the property in a fit state, if you wouldn’t live in the property yourself neither should a tenant.

Then you have things like landlords insurance, EPC etc.

My partner just about breaks even on his property, it was originally his home but he changed jobs, he didn’t want to sell so he gained consent to let and became a landlord. He is now selling and due to complete on Saturday 🤞🏽 He gave notice to his tenant well before the property went on the market as he knew selling a vacant property would be much easier, it also meant he could organise decorators etc to get it sale ready without having to inconvenience a tenant. Obviously during this period he had to pay the mortgage as it wasn’t being covered by rent and of course pay for decoration etc.

@oil0W0lio

I am quite encouraged by this thread, now that landlording is no longer such an attractive investment perhaps we might see property prices move towards something sustainable 🤔

Sadly more likely that the rental market will become even more dominated by the big players only in it for quick profits.

I'd far rather have "normal" people with a rental property for their pension than institutional investors or the likes of those two teachers who had hundreds of properties and treated their tenants like muck.

My dd has just got her house back and spent £5k putting it right after letting it out to a professional couple in a nice area.
No mortgage so she had the money to put it right.
A £36k house in middlesbrough while you live in London is a definite Nono
Plus you’re giving part of your profit away to an agency

Don’t do it
I’ve rented my two houses out successfully but I’ve been lucky

At least with long-term renting, the house remains in the housing stock. It gives people geographical mobility & a safety net with benefits.

More difficult to justify is the loss of houses to holiday homes. Whole communities lost, where houses may be party-central or left empty.

Problem with property in the UK is that it is a scare resource, as planning is nationalised. Beautiful towns have individual properties, now pretty much all housing is now built by the big companies.

I'd far rather have "normal" people with a rental property for their pension than institutional investors or the likes of those two teachers who had hundreds of properties and treated their tenants like muck
I see your point but you are presenting this as a choice between amateur/hobby landlords and big players who only care about profits. What about an efficient and properly regulated rental sector which works for the benefit of all parties... is that just an impossible dream?

Got to a whole second page before some guardian-swallower leapt in with the usual playground concepts of economics. Fortunately someone else has explained the realities.

This person will of course also disapprove of mortgages as that makes money for others. Must be a bit chilly in the yurt today...

Have a watch of Nightmare Tenants, Slum Landlords on Ch5, it’ll put you right off.

@oil0W0lio

I'd far rather have "normal" people with a rental property for their pension than institutional investors or the likes of those two teachers who had hundreds of properties and treated their tenants like muck I see your point but you are presenting this as a choice between amateur/hobby landlords and big players who only care about profits. What about an efficient and properly regulated rental sector which works for the benefit of all parties... is that just an impossible dream?

It's an impossible dream. There are loads of "regulated" sectors that don't achieve the "benefit of all parties". Often all that happens with regulated sectors is that you have a small army of pen pushers and box tickers making it look as if regulations are being adhered to, but if you scratch the surface, they're not.

Look at Grenfell Towers - the inquiry is awful viewing with all the professionals arguing and blaming eachother re the regulations around cladding.

Look at household gas and electrical installations - still loads of unqualified/inexperienced workers doing the work being signed off by those with the certificate doing a quick/cursory job of checking what's been done (if that).

Look at accountancy - a "regulated" industry, but you don't need to be qualified nor even experienced to trade as an accountant - the "regulation" for non qualifieds is just a simple application form and payment of a modest fee.

Look at Charities - heavily regulated but that didn't stop the "Kids Company" scandal and collapse.

DH and I had a portfolio of about 6 rentals that we’re starting to sell.

Some are in a company name, those are more tax efficient but it’s quite difficult to touch the equity without getting slammed for tax and the mortgages more expensive.

The ones in our personal names barely bring in any profits after tax.

All the tax benefits are going now - I dont think they’re great investments anymore.

Also that’s not profit, you haven’t factored in any repairs, annual gas safety, annual electrics, a new fence every 5 years or whatever. New carpets, redecorating, voids.

@LemonSwan

Oh and most landlords dont have a repayment mortgage. So your 110 profit is not what it would be. Most have interest only. I would not buy in a random area though. 36k sounds too good to be true. Someone could afford that working a few shifts in a pub so why would they rent?

Whether interest or repayment is entirely a personal choice. We have repayment on all of ours as we wanted to benefit from the capital growth not the immediate income.

What others have said. At the moment there's unlikely to be money in it unless either you manage it yourself which means you need it to be nearby and either good at DIY or have a number of tradies on call, or you do it full time with lots of houses.

I do the former (my house has a granny flat which doesn't have a granny needing it yet) and it goes for a couple years of being money for old rope, then a couple months of taking up all my and DP's time and energy to resolve. We go for lower rents and tenants who look like they'll stay a long time, which makes it easier.

We made a good income from re-mortgaging and renting my husband's apartment when we got married. This was 15 years ago, and we benefitted from a massive drop in interest rates, which increased the rental profit hugely.

It was a high rental property, and the tenants were all professionals. There was a bit of wear and tear, but generally they kept it in a good condition. Estate Agents vetted the tenants, but we managed the property ourselves.

It worked well for the time it lasted, but things have changed a lot and we sold up last year. As others have mentioned, the tax liabilities are now negating any benefit.

I would also keep away from cheap properties. Tenants tend to be less reliable than those we had. It is almost impossible to evict anyone, even if they haven't paid rent for months (which happened to a friend of mine).

Those very cheap properties in Middlesbrough are not in nice areas. You would probably need to accept DSS, which makes insuring them virtually impossible for a start.
Due to low employment/desirability of those areas it’s actually really fucking hard to find a tenant and they can sit empty for ages.
If you aren’t local you’ll need to pay a management company and just go along with their contractors etc.

The value of that area crashed hugely in 08 and pretty much stagnated since so you probably won’t see much profit selling it on. There’s no major investment on the horizon hot Middlesbrough either.

Chances of making money out it are slim to nill.

Oh I missed the bit where you were getting a mortgage. You won’t get a 5% deposit for a BTL. They will want about 20% and will be interest only.

Also we had two properties in not so desirable areas and they were difficult to let. We always compromised by having students and tenants with less stable jobs etc. We had quite long voids. Whereas the other properties were in desirable areas and you’d be inundated with requests to rent.

Honestly I can’t comment about anything landlord related but I’m born and bred a stones throw away from Middlesbrough, I know it well. There is a reason a house might be £36k and houses in those areas will ultimately attract certain types of people.

We’re talking about an incredibly deprived area with high unemployment rates. The town is facing a huge drug problem right now and people are being completely let down by universal credit and ongoing underfunding in almost every area of life. I would think very carefully about this, research the area extensively, and think about what happens if your tenants decide not to pay rent/refuse eviction notices/trash the house/bring drugs (and everything associated with hard drug use) into the house.

Of course, there’s many lovely people in the area who are just trying to get by but I feel ‘worse case scenario’ thinking is best here.

Aside from the 25% minimum deposit for a BTL mortgage how would you propose managing a property in Middelesborough from London. If using an agent you will rack up fees. All the other matters have been commented on above. There will be insurance, the ability to claim mortgage interest against tax has been drastically reduced. A break even situation whereby the income meets all outgoings is fine if perhaps you were expecting capital growth in the property but if a house only costs £36k in that area is that likely at all.

If you do not have enough income to reduce the capital amount outstanding from time to time then at the end of the day and all the hassle you will still be left with the same amount of capital in the property if in a low capital growth area. Remember too a second property will attrack stamp duty if it costs over £40,000

I have one rental property in a nice area which commands a rent of £950 pm. My mortgage is £200 pm. By the time I've paid taxes/voids/agents fees/gas cert/elec cert/maintenance & repairs/cost of finding new tenants when required etc, I make approx £2000 a year profit - less than £200 a month. And I've had it pretty much fully tenanted and no non-paying tenants or ones that trashed the property - one of those or a long void would likely wipe out several years profit in one go.

I'm actually selling up (at a small loss) because it's just not worth it - the stress and hassle and risk for such a small return is simply not worthwhile.

Also I always want to stress whenever I see one of these threads about people wanting to BTL or flip one property that they are so unlikely to make any money from one house.

I’ve been in property/construction for my entire working life and the only people I see making any money are people with several properties so they can spread their risk and usually some industry knowledge- ie a QS or an experienced estate agent. Who will have a really good working commercial knowledge of property and the industry around it.
Otherwise it’s generally a bit of a money pit and an awful lot of people lose fortunes watching one episode of homes under the hammer and thinking it’s a quick buck.

We've benefited from the increase in house prices. We've been lucky that we've had one set of great tenants for years. They look after the place and in return we've spent money upgrading it and keep the rent lower than market rate. A positive experience.

Would I do it now in this climate? It's far more uncertain. It only takes one set of tenants that you need to evict and can't. A possibly trashed house.That combined with the tax changes makes it far less an attractive proposition now than it was a few years ago.

I didn't think you could buy someone else if you have a home buy on your main residence?

We are renting an expensive, high spec apartment at the moment. The rent is expensive. Few seem to stay for more than a year. So apartments are empty, one just recently was empty for three months.

The landlord comes around once a month. The managing agent is supposed to do everything else. We dont see them doing anything though. The building is only three years old and he has had work done on the guttering, floodlights and our sink needed fixing. I think rental properties take more of a hiding than your own home.

Never mind all the costs, taxes etc you have to consider, it’s just not worth the shot that you can get. It’s great if you get a lovely tenant but in a £36k property, you’re unlikely to. We have fab tenants now but our last tenant was so awful. I practically became a social worker. She’s text at all hours of the day and night asking stupid questions like what temperature the fridge should be at. She kept asking to borrow her deposit back despite us telling her it was in a bond deposit scheme multiple times. She wouldn’t pay the rent on time, then she’d come round to our house and pay dribs and drabs that she’d borrowed off her family. She once paid the rent and then tried to claim it back, claiming that she’d paid it to us accidentally. The neighbours were constantly complaining to us about her partner smoking weed, her parties, the arguments, they claimed he was dealing drugs from the property, she’d go round to the neighbours trying to borrow money and things, the real social services had to be involved with her kids. When she left she didn’t clean the house at all, there was toothpaste in the sink and black mould in the grouting, ketchup all over the kitchen, she’d just ripped her washing machine out and left water all over the floor, ruined all the carpets and there were even skid marks in the toilet 🤢. While we were in lockdown and couldn’t do any checks, dh e’d also decorated the entire house with different colours of glitter wallpaper that was so badly fitted it was already peeling off the walls and took us 3 very, very long days to turn it back to white. Even every light switch had a glitter sticker cover over it that had to be removed. All the doors had been smashed up and the garden was full of rubbish.

I don't think you're in a position to afford it if say, your tenants refused to pay rent and you ended up dragging a section 21 on for 6 months, sorry OP