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?

OP my LL tried that one: he's now awaiting trial for fraud, plus the 5 houses his accountant allegedly told him would make him a millionaire by 40 have all plumetted in value - and he had interest only mortgages.

I can see 10 years ago my neighbourhood looked like a good bet- but no-one foresaw the impact of the changing nature of the area. It was already multi-ethnic and hugely diverse, but now even HAs are selling off homes below even the market rate, as their tenants don't want to live here, because of this further change. It's not an easy route to income at all.

And as a lifelong renter, I'm grateful to private LL - I won't ever be able to buy, even here, and private renting enables me to have a home.

We have two. Relatively simple and we don't regret it.

Btl has driven up prices and siphoned money out of people who ought to be able to buy
Landlords have perpetuated the conditions that make private renting the only option for so many people
They saw an opportunity and milked it good and proper🐄

You are grateful to a landlord for providing a home because you can't afford to buy??
You are a turkey and you are voting for Christmas

I have a btl mortgage. It's in a cheap area; nice house. I've had a long term tenant for 3+ years.

I'm hoping to get out, though. I'm in Wales, where a recent Act has made it compulsory fir landlords to be registered, and licenced. For me, the added hassle and cost is simply not worth it.

It can work, though, if your property is appreciating in value. Otherwise, I wouldn't touch it with a bargepole.

Ask some agents for the current hot rent areas. Get a survey done. We didn't and spent more than we wanted doing it up.

I've been doing it professionally for over 20 years. But I do it in London, and I think that makes a big difference. For me it's been amazing. I was able to 'retire' in my early 40s (and work only part time prior to that).

However I don't understand how people outside London manage to make ends meet. My maintenance expenses average £3000 per house per year. With rents as high as London rents this amount can be quite easily absorbed as the annual amount of rent per house is so high. But if your annual rent is only around say £6000 per year, then £3000 per year on repairs will take away most of your profit.

Then there are the other expenses - insurances etc and, outside London particularly, the need to factor in void periods.

And then there are tenants who don't pay - it takes approximately 8 months from when they stop paying to when you can get them out, and you will never see a penny of that rent.

So while I think it's a very good thing generally for an individual to do (and I'm not getting into the ethics of it) you need to think about your sums very carefully.

Another thing to consider is the fact that if you have half an eye in letting go your DC you will not be able to be as objective as you need to be in the doing up- you will overspend on getting it "nice" as opposed to "serviceable". And think about your potential tenants- are they likely to be young professionals or people on benefits? What will your yield be? Anything less than 4-5% is absolutely not worth it- as Pp have said you can earn this in investments if advised properly. BTL mortgages are going to be assessed far more harshly from now on on affordability grounds- would you qualify? And what is the likely capital growth for the property?

I have a small portfolio of 1 and 2 bed flats in very desirable commuter locations aimed at young sharers. I've been lucky enough to do it mortgage free so far and have the properties managed so it really is an arms length thing for me, I'm not involved in the day to day nitty gritty. I have a friend who does manage her own portfolio and dies get the awkwardly timed phone calls from tenants, has had to get non payers out and has had to clean up after tenants have trashed the place. It's not the easiest option to create a retirement income!

Yes, had forgotten that the Prudential Regulation Authority is making lenders apply much stricter lending criteria, stress testing at much higher interest rates and higher rent coverages 145% I think. Underwriters will also have to take into account the tax changes. I think the days of making much money on BTL has passed. The Govt is gunning for non corporate landlords - I think it sees them as a sitting duck and a cash cow. Combine that with the entry into the market of the likes of Legal & General and other insurers who will be building and renting properties on a huge scale.
I'd echo what others have said, do a lot of research on this!

This is a brave thread to start on LL-hating guardian reading MN....BTL is a crime here because it involves making money out of a human need. It is ok to sell food, get paid to nurse and so on though. Go read landlordzone for advice and the horror stories. They will hand bad landlords their arse on a plate.

yes, you can make a profit - no point otherwise. MN oversensitivity disclaimer - most tenants are normal human beings and all goes well. But if you get one that isn't you are in for big big bills.

not easy money, but with inflation double and more savings rates you have no alternative if you don't want the money you worked for to vanish. I would LOVE to know of investments (not savings) that make 4% or more.

Be aware:

being a landlord is the ONLY service where you are compelled to keep providing it if the customer stops paying, and have to pay further to be able to stop providing the service. Get any paperwork wrong and no eviction.

a tenant can commit no crime related to the tenancy. Even dealing drugs in the property is not a reason for a speedy eviction. Landlords can commit lots of crimes, including harrassment. Oh, and if your tenant is imprisoned for something else you still have to go through the legals!

Tenant can smash the place to pieces, if you forgot to get malicious damage insurance there is no cover.

most policies exclude damage from illegal activity. Cannabis farm...

if your tenant wants a council house, they will be told to stay until evicted. They will be told to keep paying rent until that day. They will be liable for the eviction costs (£1k - £2k) but the LL will never see that. Most legal expenses policies do not cover this situation. The tenant does nothing wrong in not leaving until eviction. There are also lots of ways to delay the bailiff. Shelter will advise your tenant.

ditto if your tenant just doesn't want to go and stops paying. Don't chance it in London where it is a year's wait for the bailiffs. That said, in London any tatty mouldy dump will rent for a fortune. This is NOT the case elsewhere but no-one can see that because UK = London.

Government policies mean that BTL with a mortgage is probably not worth it now. Screwing down on nasty private landlords (while letting housing agents rent out shitholes, ditto for large corporates) is also great for hiding bad news; witness Hammond's IPT increase hidden in the autumn statement below the babble about agent fees. Great move, no-one noticed.

BTW haters - go cry to Mark Carney (like he will listen...). The low interest rate policy for years is almost TOTALLY responsible for the BTL boom among cash buyers.

the filth that I have just had to deal with (because I'm in not-London and there is no way I can afford to pay someone else to do it) for zero pay is not my idea of easy money. It was immaculate before and will be again.

being a landlord is the ONLY service where you are compelled to keep providing it if the customer stops paying, and have to pay further to be able to stop providing the service
if you are a landlord your primary economic activity is investing and you still make gains irrespective of whether your tenant pays or not.

Unless you are unlucky and property prices go down, or the govt moves the goal posts.
Buy hey, you took a punt, you win some you lose some.

You feel lucky, take a gamble.

Wanting to get a good return on your money is understandable but the growth of the PRS has had a destructive effect on the economy and on the lives of the many people who are now unable to afford a secure stable home.
The govt allowed it to happen, people piled in and now those who bet the whole farm are going to get a damn good spanking from hmrc

The low interest rate policy for years is almost TOTALLY responsible for the BTL boom among cash buyers
of course, Special people piled in because it was the best return on your money, it was a no brainer.
But to deny that it has a detrimental effect on society at large, to portray yourself as a philanthropist providing shelter for the needy, well you're just having a laugh with that arent you.

Landlords dont provide housing, the monopolise existing housing stock so that those who dont own property have to hand over most of their hard earned money for a roof over their heads.

Or landlords purloin property and use it as a conduit to channel public money (in the form of housing benefit) into their pockets.

What magicians you landlords are, you transmute tax revenue into a safe cosy retirement for yourself.
Sod generation rent, I'll be on a cruise all year

Yup, buy to let, let the poor pay for your retirement, we'll be on the streets having paid off several peoples mortgages. How do you all sleep at night?
LL's the only people who can make every moment of a hard working, bill paying families lives utter hell so they can line their pockets.

God I utterly detest BTL landlords.

It is ok to sell food, get paid to nurse and so on though
oh come on, I'm sure you're bright enough to see the differences between the housing market and other markets

we'll be on the streets having paid off several peoples mortgages
but we'll have a warm glow inside, knowing that the clever people who bought up all the houses can relax and not have to worry about where to live, how to keep warm in the winter.

I'm sure the govt will come up with some sort of barracks, or dormitory for the property-less to live in, or perhaps the landlords will just cram all us old folks in, several to a room, mattresses on the floor in return for most of our pensions?

What utter bollocks. 'Let the poor pay for your retirement'. Jesus!

I rented before I bought a house- for 13 years. I left home at 18. I wouldn't have wanted to buy, nor could I have afforded to. I wanted somewhere to live though. So I rented.

Our tenants are certainly not poor. They earn more than us. But they are young. They don't have a deposit. So they are saving up whilst living in my house.

Would you abolish rental totally?

I agree, there should be good local authority housing for the poor. We can blame Thatcher for the demise of that.

But seriously, blaming people who have invested in property for their retirement...

If you have a private pension, or work pension scheme, where do you think they invest? Many of the shares that form part of pension schemes will be from companies who truly do exploit the poor. Arms, tobacco, coca cola you name it. In the west we all exploit the poor for our retirement sadly.

Our tenants are certainly not poor. They earn more than us. But they are young. They don't have a deposit. So they are saving up whilst living in my house
exactly, the property bubble is such that even well paid people who want to own are unable to get a mortgage, so their only option is to service someone elses mortgage while they try and save up a deposit.
BTL, has been one of the drivers of the property price bubble

"It is ok to sell food, get paid to nurse and so on though
oh come on, I'm sure you're bright enough to see the differences between the housing market and other market".

I await what I have repeatedly requested on MN, a reasoned and non-whiny explanation of why BTL is immoral when charging for other human needs is not.

Insults are not explanations, or not outside the playground.

go on - reasoned argument please.

If you have a private pension, or work pension scheme, where do you think they invest?
If you invest in property you are a rentier, you monopolize a resource and make a profit to the detriment of wider society
investing in business via the stock market is not the same thing, investing in business leads to innovation and economic growth.
Investing in a property bubble sucks money out of the productive economy, it is a parasitic activity

supply and demand, people. This country does not have enough houses for its population, especially as so many of them just have to live in the bottom right hand corner.

council houses sold off and not replaced. (MN doesn't hate those who bought their council houses). Lots of property left to rot because of stupid taxation rules. Buy to leave problem in the holy city of London. Negative real interest rates so no alternative but to buy property with cash. Taxation too low to allow building of council property.

go on MN, campaign for the higher taxes we need!!

I doubt it. Reasoned argument on this topic has as much chance on here as regarding the EU.

go on - reasoned argument please
sure, try this:
en.wikipedia.org/wiki/Rent-seeking

I've got two BTLs.

Both lots of tenants are great.

It's not about paying off my mortgages-both are interest only anyway.

But yes we are the devil on here. I don't think my tenants think that of me, both are not in a position to buy nor would want to-some people prefer renting at least on a temporary basis.

I think if you're careful about where you buy, you're more likely to get decent tenants. If I am honest it has been easy. Of course you get the hassle of 'The window's leaking, the banister's broken, this/that'-I'm careful with the rental income, always have a buffer zone-I've never had to go and sort things myself I simply make the telephone calls and foot the bill for things like that.

.

shining, with respect, a link to a Wikipedia article isn't an argument. How are landlords rent-seeking in the strict economic definition of the term? Have you read the examples in the article you linked to, particularly re the restriction of supply*?

*Restriction of supply, ftaod, doesn't mean "a landlord bought X before I could", in the context of the economic theory.

You could, I suppose, argue that landlords increase demand through their purchasing activity, but you haven't.