Is Buy to Let a good use of a spare £100k?

[ChocolateWombat]

So, mortgage paid off (house value approx £500k) and no debts. We have £100k in savings.

Considering a buy to let property. Round here, can't get anything for less than £200k so would need to borrow £100k. Is this a good idea, what with stamp duty on buy to let and other taxes. Would be an investment for at least 10 years.

Would it be better to do it somewhere where a property could be bought more cheaply, but probably less capital growth potential and less rental income? Or is there a better thing to do with £100k? Interested in the future rather than generating immediate income.

What do you know about being a landlord? Even if you have a good agent (and they are few and far between imo) you need to know your obligations and how the law works. You need to know all of that before you can even work out if an agent is good or not.

Are you prepared to be interrupted about repairs? My tenants phoned on Christmas Day last year because another flat flooded them out. You can't just turn your phone off and make it not your problem.

I broke even last year because of the damage and a void (tenants found somewhere else because the repairs were lengthy - which was good for me as I didn't have to put them up and battle with my insurance who turned out to be shit for a big job) and I have no mortgage. Could you afford big repairs? Where would you stand if the boiler went the day after pay day?

If you do do it then my advice is this - let your tenants make it their home, let them paint with the caveat that it goes back to neutral (if you have that in the contract then you can claim back if they don't), don't expect more from them than you would yourself, be reasonable - the number of LL's that put fucking cream carpets everywhere then expect them to last 15 years is ridiculous - and know what you are obliged to do.

Always, always meet the tenants yourself. Trust your instincts. Don't automatically assume that professional and well paid equals a good tenant, just as on housing benefit doesn't mean a nightmare (although if you get a BTL you may be barred from taking HB tenants - be aware how much that reduces your pool of tenants as so many people have HB top-ups now in high price areas). The only time my flat was destroyed by a tenant in 14 years was a professional guy who on paper was perfect - turned into a gambler and it took me months to get him out. I went against instinct and trusted the agent's opinion.

Have you thought about premium bonds? You are allowed £50,000 each, so if there’s 2 of you that’s your £100,000 spent. And it’s risk free.

Thanks for all of the comments. Lots to think about.
Am going to look into it further. Definitely won't be jumping into it speedily or without research and accept the demands and costs involved in being a LL - that it's not 'easy' money.

Just wondered, has anyone done this a significant distance from their own home? Did you do it in an area you already knew or not? How did it/is it working out being further away?

MrsPicklesonSmythe, please could you recommend some

Pension. You'll get 20-45% tax relief (that's free money on top). You can withdraw at 55 and 25% is tax free.

Unless you've already maxed out, or are likely to reach your Lifetime allowance?

We are currently both lower rate tax payers and also both in public sector pension schemes which are a mixture of final salary and defined benefit - so end results predictable, unless gov significantly alters them again (not unlikely).

Do these things make being a BTL landlord a better/worse use of the money? I understand being a lower rate taxpayer means we would keep more of the income from rent.

Yes, wouldn't want to spend all of our savings on this and leave ourselves with nothing. Would always want a decent contingency both for the BTL voids and repairs etc, but also the emergencies in our own lives. Currently we are probably accumulating savings in the region of £1.5k per month and would expect to continue to do so, so would replenish some savings quickly, plus this would give us some buffer - although obviously if we buy round here and need to add a mortgage of £100k then we will need to repay that. In all liklihood, the rental income (before agency fees, insurances and other costs,moles putting into a pot for repairs/voids) would be around £1k per month, so I would expect to have to use some of our own money monthly to pay the mortgage and that rental income after all the costs wouldn't fully cover it. This would assume getting a mortgage with. 10-15 year term rather than 25 years. Is sound like a good idea?

Have you considered philanthopy instead?

Giving money away in that amount? Is the op bill gates?

Remember premium bonds ,like savings accounts, mean your money is vanishing with inflation.

Pensions are good but remember that high stock market. And you can only invest so much relating to your salary.

You would need more than 100k. Even if you hot a flat for that, what if major work needs done before you have accumulated rent. Any problems will not wait if it is tenants. Need a bit of a nest egg as back up.

I did this last year. I had wanted to buy a house in Manchester but instead bought in my area (south east).

I was cash buyer and property was tenanted so I’ve been ok so far.

Be wary of mortgage as no tax relief now (I think). Buy local as when things break or go wrong you should deal with quickly.

A return on a rental property should be much higher than leaving it as savings (even if it’s a leasehold). But it’s important that you get a good constructive relationship with your tenant and ensure the property is safe/well maintained.

With that kind of capital I'd be getting advice from a financial expert.

Imo you have to play the long game with it. My old BTL wasn't in fact a BTL, but my old house which I bought to live in and then rented out when I relocated to an area I couldn't afford to buy in. Once you factored in the mortgage (I paid interest and capital), annual income tax on my rental income etc I actually had to subsidise it out of my salary at the time....but obviously built up equity by doing so and then made a profit on it when I sold it. So it was worth it in the long run, but not the short term. I think with th changes on tax rules etc it would be even tougher in the short term now. If you do it, definitely rent out through an agency who will deal with credit checks, manage the property (including maintenance requests, chasing late rent etc) and previous landlord checks for you, as that makes it a lot less stressful.

Good luck if you do go for it!

X

Our family home is rented while we are abroad.
We pay a hefty chunk to the letting agents, who will organise all repairs etc. It's "easy money" because all I gave to do is authorise all the spending. But id say since september when the last tenants moved out, we have seen very very little money - void month after departure (agent will not advertise til previous tenants gone, so no viewings for current tenants), fees for new searches, contracts etc, and then replacing radiators which all suddently started leaking. Can you afford to pay the mortgage if there is no income for a few months?

I think you'd be better aviodung property - you already have 500k invested in property, why would you put your last 100k in property too??? Stocks and shares Is as for both of you this tax year, and max them out again in April would spread the risk a bit (imagine if house prices loose 10% this year, thats 10% of all your assets gone).

Do you gave a savings account in case you need to replace your current boiler etc? That is also a necessity before you make other investments.

Wow, some very bitter people on this thread.

I rent in the north. I don't have a spare 100k but there's no reason to be so disparaging. I think it sounds like a good idea, OP. Go for it.

Stocks and shares would be better I think. I've seen average 7% return each year, even including the crash of 2008. Seems pretty safe and also easy. Plus you can get your money back easily. You can invest quite a bit in isas - if you max out this year and again after April you can get 80,000 ish in. Look at eg. Hargreaves lansdown, they offer all kinds of options. You just pick a variety and then it's best not to look at how it's doing too often!

BTW don't put more than 50k with each s and s is a provider and check charges.

And yes, the bleating knee jerk landlord haters on mn ....ask them why they don't also hate grocers, nurses, teachers, paramedics and all the others who get paid for providing stuff. They also don't hate mortgage providers.

specialsubject why 50K per provider max?

I don't hate landlords. I hate unprofessional, hobby landlords that don't know what they are doing and moan about terrible tenants when they failed to do their due diligence. And I work in the area and see a LOT of this. And I have been a landlord, both non-profit and private.

And "grocers, nurses, teachers, paramedics" don't treat the customer/client like a problem. Bad landlords do.

Stocks and shares in the US and UK are at an all time high aren’t they? Start reading up on this OP.
Like the London housing market they might go on rising. But on the other hand their could be a correction. No one knows .
Buy a house in a place you know then you will
Not inadvertently buy in a bad / rough area. Do your sums.
Cost of house
Amount of mortgage
Interest on mortgage,
Expected rent -see estate agents for similar
Is it near a good school if a family home
Or near train station for commuter
Are you using A letting agent 12% of rent round here
What will estate agents fees, stamp duty on purchase be etc
Are property prices rising where you are, if not any gain must be from rent
Do all your sums and see if mortgage will be paid by retirement time so it provides an extra income for you.
Advisors tell you not to put all your money in one basket , so depends where your other savings are.

Wow, some very bitter people on this thread.

I don't think it's bitterness to point out that landlords who are only interested in their own finances don't make very good landlords.
Also, BTL is widely acknowledged to be part of the problem behind the housing crisis for first-time buyers. Why make others' situations worse just because you have more money than you know what to do with?

No, I'd get a great IFA and invest in stocks and shares.

ask them why they don't also hate grocers, nurses, teachers, paramedics and all the others who get paid for providing stuff

Possibly because those people aren't contributing to an endemic problem of unaffordable housing and rising homelessness?

@MrsTerryPratchett - bad tenants ARE a problem though. As you'd know if you ever have a tenant who consistently paid their rent late, or not at all, and then did a midnight flit leaving some very confused subtenants in situ who they never got consent to sublet the spare room to in the first place....

Don't get me wrong, I know there are some shit landlords out there, ive had at least one myself, but if you think that every time a landlord/tenant relationship goes pear shaped that the landlord is always the bad guy and the tenant is the victim.

OP - Being a landlord can be a massive headache and frankly I'm glad I'm out of it! But then I got out on top so with hindsight I'm glad I did it, even if it was a ball ache at the time. Good luck to you if you do go for it.

Property is a terrible investment. It costs money to maintain, sometime will make a net loss rather than a net gain (for example if you are paying off a mortgage an interest rates rise or if your remnants refuse to pay), is difficult to dispose of and, is liable to decrease suddenly in value like any other investment. I would only consider investing in property on a large scale with previous business experience. You are much better off investing in stocks. You don't have to put in any money or effort into maintaining the investment and if you fear a drop in value you can sell the stocks with a click of a button.

@another dunromin don't be silly. If there were fewer properties to let then rents would just be ridiculously high. The problem is a lack of housing stock not landlords.