Would we be unreasonable to buy a property that already has tenants?

[notamum3210]

Posting here for traffic and perspectives, advice etc. Fiance and are are both really quite clueless

We are in the fortunate position of being cash buyers budget around £140,000. We'd like to move in together next summer and are both in rentals at the moment until then. Fiance has thought that it might be a good idea to look at purchase somewhere now(ish) that currently has tenants.

This, he argues, would guarantee some income which we could put towards refurbishment, furniture etc. Then, when tenants move out, we could move in. I love the sound of the extra cash but I'm sceptical over whether its really that straightforward.
I'm not sure whether this would make us liable for landlord insurance, letting agent fees or general management of the property.
Does anybody have any experience?

I'm finding the student area stuff really strange. Maybe there are some universities that have student only areas but not cities seem pretty mixed. I live near a uni and the vast majority of residents are not students. I used to live In oxford and whilst there are student areas they are highly desirable for locals too. Mind you the OP is obviously looking in a very cheap area so maybe things are different

Also it's not just about the interest but having a step on the property ladder whilst you can afford it. I bought my house a year ago and they are now selling for £100k more and I would
No longer be able to afford to buy it.

I think a lot depends on who the tenants are. If they are young childless professionals then eviction would be realitively straight forward. A childless person in a good job would never be entitled to council housing and would have no desire to go through ballifs throwing them out.

Next summer is a long away. Property is rising fast and your 140k will buy you more now. You can ask the tenants if there are any annoying problems, get things like dripping taps fixed and claim it off the tax.

I've just done the sums on the interest-paying current accounts, including the restrictions and the new Santander charge which comes in Jan 1st. The other banks are Lloyds, TSB, Clydesdale, Nationwide and Bank of Scotland.

Note that none of these accounts insist on the income being wages, it just has to come from another bank.

I make it that a couple can put a total of £75000 in these accounts, which will generate £2350 a year in interest, £196 a month. All before tax. You can get a few quid more with the associated monthly savings accounts but not much; for instance the Club Lloyds saver will net you a princely £80 after tax over the year.

the balance will have to go elsewhere, best instant access rate at the moment is about 1.6% before tax. (ISAs pay less). This will generate another £87 a month before tax.

will take a few hours to set up. Will bring in £300 odd a month for the first year before tax.

I make that an average of 2.5% return before tax on your £140k. You could do maybe 1.5% better than that on a rental but as you now know, it isn't that easy.

Can you not have two single accounts and a joint for the Lloyds? That and Santander makes £75k by themselves.

Don't forget that the OP and her fiance can both have help to buy ISAs starting from December (if they haven't used their ISA allowance for this year yet). They'd not get much in by next summer but they will get 25% extra from the government.

I'd love to know where you live Lush that your house has gone up £100k since last year. Are you sure that's not just asking prices? I'm seeing stuff come on at 2014+20% and get reduced back down to about 2014 prices before going SSTC.

This graph is what property prices have been doing recently. It looks to me like we'll be going year on year negative in a few months.

Read my current thread in property/diy as a cautionary tale against becoming a landlord when you aren't completely clued up.

Property isn't rising fast everywhere though. My house isn't worth much more than it was when I bought it 10 years ago. It was worth just over £100k then and it is probably worth about the same now.

The OP is talking about spending £140k, which suggests she is not in the south east.

OP I can't believe how rude some people have been to you on here.

I'm a LL. I own 2 UK properties as does my DH. My DH also owns a property in the USA.

We both live overseas. We manage these 5 properties perfectly fine despite not living in either of the respective countries.

It doesn't have to be a nightmare!

I'm actually in the process of selling one of my properties at the moment, it has a tenant (how awful I must be.) I can actually sell it at a higher price as investors like to see a tenanted stable property. My potential buyer is happy to keep the tenant as it's a guaranteed income.

Having said all that, if you are put off by the hysterical attacks on this thread, you could invest your cash in an offshore account or 5 year bond. These can make 13% a year.

Good luck with whatever you decide

actually yes; a couple can have 3 club lloyds accounts (£15k at 4%). Assuming the rules don't get changed again!

also I forgot Tesco at 3% for £3k, get one of those each. This also allows you to have tesco internet saver accounts. These pay bugger all at 0.75%, but they can be set up to 'pull' money from other bank's accounts - which the other account sees as a direct debit. This helps if you don't have enough direct debits, as both Club Lloyds and Santander need two per account.

can't find if a couple can have 3 Santander 123 accounts; that would indeed provide a home for £75k as you mention.

perhaps we can get the OP's money almost to 3% before tax?

I'm North London. I know OP is somewhere far cheaper and property isn't rising as quickly everywhere but even a. Few grand more is a lot of money to save

reminder to the OP that offshore accounts only work for those actually offshore; they are taxable in the UK if you are UK resident.

and of course they are completely outside FSCS protection.

funnily enough there are no safe easy ways of making money, or none of us would go to work!

reminder to everyone else that if a tenant is on a fixed term tenancy and the property sells, the tenant does NOT get evicted, they just get a new landlord.

The tenants may have been living there for years and wouldn't necessarily want to move out. As one would assume that you were not propsing to have the tenants continue to live in the property with you, the only alternative is that they move out, possibly against their wishes.

Again, isn't that one of the risks of renting. You're not guaranteed a home in perpetuity & if someone buys it, it's then their property to do with as they will....

Any bleeding heartedness would be for the current owner to reconcile, not a new purchaser.

Harsh but how it really works. And yes, I have been a renter for most of my life, as were my parents, sister, most of my extended family!

You can definitely have three 123 accounts per couple (unless they've changed the rules) - I've seen people on other forums say that they have three and you can definitely have a joint account because we have one. The 123 account also gives you access to an ISA with decent rates that accepts transfers for if they have money already in an ISA that they don't want to take out.

I'd say most of the £140k earning at least 3% is doable for a few hours work opening up the accounts and a few more setting up the direct debits and standing orders. All you have to do then is make sure you have the standing orders set up correctly after the first month and it will sort itself out.

Definitely a lot less hassle than dealing with tenants. We're pretty low hassle as tenants (pay the rent on time, don't annoy the neighbours etc) but we still need to call the landlord about four times a year for stuff that we either can't fix ourselves (e.g. damp) or stuff that we'd have a go at if it was our place but don't want to risk making worse.

queen paying the rent on time and not annoying the neighbours is normal behaviour. The point of rental is that you don't fix the property, the landlord does that. It is also concerning that the place is damp, too - any sign of that getting sorted? Not acceptable.

your landlord will also be paying insurance, possibly agents fees, gas safe - at least I hope so.

so you're quite right, along with everyone else; the OP can do better by spending some time setting up those current accounts. Also makes the asset liquid which property never is.

I know that's normal behaviour but not everyone is like that - that's why I said we were low hassle. Damp got sorted ages ago - it was the really wet winter a couple of years ago. Turned out that the guy who did the refurbishment of the flat had used internal wall plaster on external walls so as the Victorian bricks got wet it just sucked the water through. Outside has been treated with some sort of sealant as has the inside - not had a problem since.

When I say we try and fix stuff I mean ten minute jobs where it's easier to have a go ourselves than wait for the landlord to come around or send his handyman, if it seems like too much faff we call him. He'll often sort things out the same day but sometimes he's away or his handyman is busy so it takes a few days.

Anyway, all I was trying to say is that we're low faff tenants but even we sometimes have to call the landlord twice in one week when things go wrong. Some tenants will piss the neighbours off constantly (students can be bad for this), not pay the rent on time (or at all), phone every time something really minor breaks or worse, not phone when something breaks so that it turns what could be a small job into a massive job (according to my landlord students are pretty bad for this).

It depends on the rental income. I have a place up north that only turns around 425 pcm so it's not worth risk really but my other in SW London is £1400 pcm which swallows up the risk of broken boilers.

Limited companies are good for completing avoiding all tax on rental income legally which is an idea as you're buying outright

You can't avoid all tax on rental income by using a company wrapper. You're still liable for corporation tax on the profits, dividend taxes on any money you take out and income tax plus NI (don't forget the employers NI) on any money you take as wages above your tax free allowance. You're also opening yourself up for ATED - currently only payable on properties worth more than IRC £2,000,000 but will soon be payable on any property worth more than £500,000 and possibly properties in the same building that add up to more than £500,000 in value - there's no reason why the threshold could not be lowered to £0. There's a reason why most BTL landlords haven't incorporated. For the moment it will still mean that you'll be able to deduct all of your interest payments as expenses after 2020 (rather than just 20% tax relief even if you are a higher rate tax payer). Since Osborne is trying to level the playing field between BTL and FTBs and is also trying to disincentivise high levels of gearing in the BTL sector as it could be damaging to the economy, I doubt that landlords will be getting any sort of tax relief on interest payments for any residential property, whether they are incorporated or not, much past 2020.

It's also entirely unsuitable for the OP since she intends to only rent the property out for nine months. At the moment that would make her liable for CGT only on capital gains for the period that she was renting it out. If she bought it as a company then she would be liable for the whole time it was in the company wrapper plus stamp duty if she wanted to put it back in her name.

You can definitely have three 123 accounts per couple

I need to open one of those accounts and start earning more interest!

but why do they make people jump through hoops with all the direct debits and payments in and out?

loss leaders - the idea is to get you to use it as your main account and become a customer of the bank. With interest rates so low for so long, those with savings are forced to play these games. Inflation is not zero as you know.

I think the comments about kicking people out are harsh! And I say this as a private tenant! I would rather know far in advance when you bought than go to renew the contract and get told oh sorry no. You'd need to bear in mind they might find their dream home and move out with s months notice and leave you will all the cost and no tenants

It's not something to jump into blind. And for the short term you're thinking of it does seem an awful lot of hassle, risk and expense

yes, I suppose it must payoff or they wouldnt do it!

I found a report saying that 1.4% of tenants are at least two months in arrears on their rent (which is down from 2.9% in 2008) so the number of tenants who are regularly late paying their rent or constantly a month or so behind must be what 5%?