To ask about the reality of buying to let?

[ScotsHumphreys]

We're considering buying a second home. I've always loved the idea of property development and we think we're in the position to try it.

Live in the north east, household income of £55k. £100k left on our mortgage and no other debts.

I'm thinking of buying a 2 bed house to do up and rent out. However people tell me it's not as simple or rosy as it sounds.

So has anyone done it and what's the reality of it?

Also, thinking DS might want to rent it from us - is that as simple as it sounds?

watching with interest. DP is thinking about investing in a buy to let. I think it will be too much hassle.

My friend's Dad has four properties and my friend lives in one and has done for the past seven years. His Dad manages the properties himself and it's a lot of work.

My friend covered for him once when he was travelling and said he was very stressed.

You can be lucky with tenants or unlucky. There are many people needing long term lets these days though so you shouldn;t go short of tenants. Try to choose wisely though.

Buying in low income areas will get you low income tenants...nothing wrong with that generally but you will of course then attract more people on benefits....buying in areas near good schools will get you families which are hard on houses...I know...I'm a tenant! We try to be kind to the house but wear and tear is heavy when you've got children.

I'd like to say...don't fit carpets! Have laminate throughout!

There is a property/landlords section- am sure you'll get some ideas there.

(be warned though, in MNworld, buy-to-let landlords are hated more than Donald Trump and Farage combined ;-) For some reason being a landlord is akin to eating children alive, bones and all here!

(am a renter btw)

Fees on btl mortgages can be high. You can easily pay 2K every two years to remortgage. Risk of non-payment of rent cab be high too and very difficult to evict. We were accidental landlords for a while and used a guaranteed rent scheme with an agent so they dealt with everything and guaranteed to pay us every month so no risk at all but they took a hefty cut.

It can and does work but there is much to know to make it all decent and still make money.
How much have you looked into your options and strategies?

It's a mixture actually. We had awful tenants, and also really great ones. Touch wood, current ones are great. It tends to be when we let it ourselves that they are good. But it could be the luck of the draw. We have had a let for 25 years, so we have lots of tenants.!

We have just bought a holiday let as our pension. I think that as long as you buy in a popular tourist area this is a better bet at the moment. Your mortgage is based on what the house can earn, you get mortgage interest relief on your mortgage payments and you can be eligible for business rates. It's also a lot more fun! It's still risky, but no one can run away without paying the bills, or with thousands of rent arrears.

I have a friend who has loads of buy to lets (it's his job) who says he wouldn't buy one at the moment. He would do a holiday let though.

Some mortgages won't allow you to rent to family.

If you want to rent to a relative then there are very few mortgage providers who will lend. I assume you need a mortgage. I would do your sums very carefully and then compare against yield of a wide index tracking equity fund to see whether you really make money.

I have a btl flat where I lived before we bought our family home. Just looking at rental income i probably would have been better or equal of investing in funds or etfs. However I have benefited massively from the price increases in London over the past few years.... If you don't think house prices will go up in your area then I wouldn't do it.

We have 2 Btl properties. Neither make us any income to speak of, but once the mortgages are paid off the intention is they will provide a decent retirement income (either by selling or continuing to let out). Hoping to buy at least one more if we can eventually.
One really important thing I think is to know your area and know what will let easily. We haven't bought in the cheapest of areas but the type and size of houses we have let easily and are relatively easy to keep maintained.
Tenants, its luck of the draw. We have been extremely lucky. Our first property we have had the same tenant in for almost 12 years now. The second one the tenant had been living there for 10 years already and has no intention of moving.

Two BTLs here, and my home is about the become the third as we move to somewhere bigger.

I'd really, really recommend starting with an agent to manage, and definitely using an agent to find tenants. I thought I was too smart for that kind of thing, but the best way to get bad tenants out is not to let them in in the first place.

There's a lot of applicable legislation - from checking nationality through CO2 detectors, PAT testing of electrical goods, deposit protection, smoke alarms, tax-related stuff and more. There is simply loads, and you're responsible for full compliance with all of it. Landlord insurance including non-payment cover is a must.

You need to have £3,000 (IME) sitting around to repair roofs, boilers etc, and as a legal fund for when the tenant refuses to pay (or can't). You'll also be delighted to know that if you ask a tenant to leave and they go to the council re re-housing, the council will tell them to stay put until the bailiffs are literally at the door, or they won't be re-housed.

I think area is key. Somewhere where people are broadly in work, with good amenities and transport nearby, is really important.

If you have a btl mortgage it is illegal to rent to family. Otherwise parents up and down the country would be buying houses for their children. BTL mortgages are cheaper than most FTB mortgages however there is normally a 5k arrangement fee to be paid upfront Also another 3k every 2/3 years to mix in again.
Look at The mortgage works as they are probably the best btl mortgages around. You have to put down a deposit of around 50% and have the income to pay ( they dont consider the tenant pays the mortgage)
We have 9 properties worth 2.5million in our portfolio and yet we got turned down just after brexit, due to shortfall in our rental income. So it is not easy to just go and buy a house to rent out.
If you buy a do upper you will have to pay 40% capital gains tax so unless you buy very well, the profit margins are low.
for instance we bought a derelict house ( unmortgageable without bath/kitchen) for £170,000 spent £40,000 making it habitable, took a year of our time, £17,000 in legally fees/Estate agents/Contractors etc and sold for £252,000. profit 25k which we had to pay tax on. We would have both earned more by both of us woking full time!!!
Do your sums very well and be prepared for a loss as well as a gain as doing up houses is a gamble- remember you wont get a btl mortgage to do up a house.
Good luck :)

Also think about what your reaction will be if you get a call at 7am on 25 December to say that the boiler's packed up - your investment is someone's home and repairs etc need to be dealt with promptly.

Essentially it is an investment activity, if you are over leveraged you can lose your shirt
Govt is currently legislating to make it a less attractive proposition, if the property bubble bursts, if rates rise things could get ugly

Yes BTLers should be ashamed of themselves - if they did not remove so many houses (a limited resource) from the market then young families would be able to buy instead of paying your mortgage for you
It is a selfish action to take - but smacks of much of the 'I'm all right Jack' attitude so prevalent on certain sections of society (and mumsnet)

Have a look at the provisions of chapter 24 of the Finance Bill. It will make but to let less attractive due to the changes in taxation, starts from April 2017 and phased in over 4 years. You will no longer be able to offset all mortgage interest against tax owed. I'd have a look on places like landlord zone for the full details as I know that due to the way they will be looking at income and profit it will tip some people over from being basic to higher rate taxpayers, impact on eligibility for tax credits etc. I'd think very carefully and do the calculations based on the new tax changes before I would go near it.

We don't get any tax credits anyway, we don't get any benefit at all apart from child benefit which will end soon anyway.

Mollie, I was once a person struggling to get on the housing ladder, I had numerous houses swiped from under my nose by buy to let landlords - nobody felt sorry for me!

This would be our retirement income.

Mollie makes some good points. Landlords often snap up all the cheaper houses. Wouldn't it be nice if everyone could afford a home rather than some having multiple.

Mortgage adviser here.

You need a 25% deposit. Income looks ok. If you're going to rent to family you'll need a consumer buy to let mortgage.

Get yourself to a whole of market mortgage and protection broker they will be able to go through literally everything with you. Including the pitfalls.

We remortgage our home to get the finance. Never bothered with btl mortgage. Mortgages are cheap and flexible.
We have a few rentals and a holiday let now. We are getting a nice income which we partly use to overpay our mortgage. It has a snowball effect, at the start it felt like a big gamble but not now as we have so much equity compared to what we borrow. All our properties have gone up in value and each time we pay the debt off quicker as we have more income and add another house that we own outright. Last one took about 4 years this one should take 2-3 years. Then we might get 1 more and will have enough for what we want. We intend to retire early and help our dc. Hopefully will be able to pass them on to dc.
It's not a get rich quick scheme but I can only say from our experience that it's working for us.
One tip is always get boiler cover, it's worth every penny.

Do can you get a second mortgage without getting a buy to let?

I mean, what's to stop someone just applying for a normal mortgage on a second property and then just renting it out?

Same here. We bought our first home without me even seeing it! Houses were going within literally hours of being up for sale (2001). OH managed to get out of work to see a house and put in an offer.

Both of us are self employed. Neither of us have a pension for our own reasons, so this is our retirement plan. I'm not out to make a quick buck. and the fact that both tenants have been so for over 10 years and do not want to buy ( both have said this) shows that not everyone wants to own their own home.

ScotsHumphreys nothing but it's called mortgage fraud.

Although if the house is specifically for your son to live in and you are not taking rent from him you can have a second residential mortgage with some lenders.

We have a second house which we rent out, but it's just because DP and I both bought on our own before we met. It's turned out to be not as simple as it sounds and does cause a bit of hassle. We don't make a huge profit after agents fees, costs of unexpected repairs etc, and there is a lot of admin (especially when agents are useless and you have to chase them all the time).

We originally thought we would keep one of them on as a buy to let but personally I am leaning towards selling both of our places in the next couple of years and combining the proceeds into a decent family house. Obviously that's just our circumstances though.

It could still be worth doing (my parents have loads of buy to lets and it works for them) but I think there is a lot to look at re tax and fees etc to make sure you're not missing anything. The additional SDLT would put me off a bit now, depending how much you are planning to spend.

I agree with mollie im not a fan of buy to lets. Landlords charging thousands of pounds for a shitty one bed flat riddled with damp and mould.

There is a house on my mums street that has old windows, kitchen, bathroom, heating and they are charging 200 pounds more a month than my mums newer furbished property.