To think buy to let sounds almost fool proof?

[ProverbialOuthouse]

I accept I might be being naive here but I can't see how buy to let isn't a bit of a money spinner?

I want to buy a second property instead of paying for a pension.

I've found a one bedroomed flat for £45k (I live in a cheap area of the country).

If I put £10k down on it the mortgage would be £35k and would work out at £200 a month. Rental value is £300 a month.

So as far as I can see you're getting the mortgage paid each month plus an extra £100 a month which could be put away for repairs, insurance etc.

In two years you would have nearly £5k paid off the mortgage leaving you with £30k left to pay. So you've basically made £5k in two years. Hold onto it for another two years and you have £10. If you sold it at this point for what you paid for it you get your £10k deposit back plus the £10 that has been paid on the mortgage.

I know it's not massive money but it's still a profit?

What am I missing other than the fact that you could end up with arsehole tenants that don't pay their rent?

Rental income tax relief not as good as it was.

£100pm for repairs is not nearly enough

If the market collapses you could be in negative equity on a home you don't even live in

"Arsehole tenants" (or those in genuine financial difficulties) take MANY MONTHS to evict.

Those are the risks.

That tenants can end up with arsehole landlords who see their home as a money spinner. I would be doing a lot more research into housing law, knowing exactly what your legal obligations are before seeing pound signs. Unless you're just posting this to wind people up.

Also, interest rates.

Off the top of my head - finding tenants (no tenants = no income), the cost/fees of finding tenants, insurances for the property, repairs to the property (be it little things or big things like heating), redecorating the property between tenants (and always the risk tenants will wreck the place - a friend had to spend over £10k fixing a rental property after tenants trashed it), getting tenants to actually pay (& it's a very long-winded process getting g them out if they don't), interest rates going up...

You sound so incredibly naive. Please don't become a landlord.

Have you thought about insurance?

What will you do when the property is empty and you have to pay the associated bills.

You don't sound like you have any contingency for th ings not going personally.

Also -forgive me if I'm wrong - you need more than 10% deposit on a bit morgage.

That the property might not rent out immediately. The people that come in might trash it and then leave after 6 months and then it stand empty for a few months until you find More tenants.

my friend ended up with a drugs gang in her house that she rented. They knocked down walls, removed all the doors, but up great big lamps to help the stuff grow quicker. It cost her massively, both financially and mentally to sort the mess out. That's the worse case scenario obviously.
Morally, that you are stopping a first time buyer from buying their first step onto the ladder.
Would you have to pay tax on some of the profits and when you sold it at the end?

They're no money spinner but are usually a good long term investment. You have to pay tax on that income, pay for repairs/upkeep, you need to bear in mind of your tenants atop paying rent, it will cost you to have them evicted.

Theres a lot of fools around

I saw peoople lose their own houses for taking part in these foolproof plans

You clearly have no idea at all about doing it so until you actually do some serious thinking and research about it then i would put you in the group of fools

In two years you would have nearly £5k paid off the mortgage leaving you with £30k left to pay.

0% interest mortgage, sign me up.

I am naive about it, that's why I'm asking!

Dont forget you get taxed on that, not the £109, the whole lot. You used to be able to deduct the mortgage interest off it, but now can't.

You need gas safety certificates each year, plus insurance, you need to pay letting agents fees (even if you only use them to find and vet the tennent).

What about void months, e.g after one tenner moves out and you can't get another, either because you can't find one or need to do repairs. What about evicting a non paying tenner? It takes on average 40 weeks to evict someone.

And don't forget to put their deposit in a government approved scheme.
It isn't for the faint hearted.

Bigger deposit that you've budgeted
Insurance
Tax on the income
Repairs way more that you've budgeted
Agents' fees
Times when the property is empty
Times when the tenants are difficult
Interest rate rises (which are coming, possibly from as early as November)
Negative equity risk

capital gains tax,

agents fees

insurance

maintenance and repairs

council tax

income tax

legal costs of eviction

damage and vandalism to property

loss of earnings when you need to attend

travel costs

mortgage, which still needs to be paid, even when you have no tenants in.

etc

Its a huge gamble. It might work out for you it might not. I have a friend with three houses that are buy to let, rarely makes a profit, even if he makes a profit on two of them in a year, it is wiped out by the losses made on the third.

He can't sell them because of the capital gains tax, so is a bit stuck at the moment.

Just please don’t

The deposit has already been approved.

I wouldn't want to be a landlord. Saw too many houses near me done up, rented then trashed in some way. And I'm stuck with a house with negative equity that I'm not living in that is draining money.

Done it for years, never had any problems at all. Useful inheritance for the DCs too.

If you want to be a landlord, do it. If you just want to make money and contribute to a society where future homeowners are being priced out of the market by BTLers, then.... sure. Go ahead.

You also need to factor in purchase fees for solicitors etc which could wipe out most of your 'profit' for the first year. Depending on where you live in the country you may also have extra tax to pay on the purchase. I live in Scotland and the LBTT supplement for a buy to let property means you pay 3% tax on your purchase, which would wipe out any 'profit' for your second year as well.

Until you get a tenant who trashes your property or won't pay the rent. Then it costs a bloody fortune to evict them, and takes months.

If the house is £45k your pool of good tenants is going to be VERY small.

What, like single people or couples?

No one has mentioned the Additional Dwelling Supplement if you currently own a property. This is 3 per cent of the purchase price. This was specifically implemented to stop all the buy to let landlords.

It only takes one bad tenant to wipe out years of profit. Some friends have just managed to evict their tenant for non-payment. They're already a huge amount down on unpaid rent and the damage she left is going to cost way more than the deposit. Another friend had the police break down the door of his flat because the tenants were dealing drugs. He was left with a repair bill running into thousands of pounds.

Buy to let is a high risk investment strategy. You could do well, if you buy the right property and get good tenants. Or you could end up massively out of pocket.

It is possible to do it as a long term investment. Most newly-acquiredBTLs don't actually net a monthly profit these days but if you want a savings vehicle long term it can work.

You have to factor in a BTL mortgage.. usually higher rates than owner-occupied.

Also there is stamp duty on properties BTL.

Is there a solid rental market where you are? If houses are that cheap, are your tenants going to be regular / in work ?

Lots of things to consider.. you need budget for immediate repairs - you can't 'make do' with a tenant, like you might have to in your own house, don't do it if you can't afford to be without rent for 6 months.. but it is possible.