To buy a small property to rent out - would you? Have you? How have you found it?

[opalplumstead]

I am currently about to apply for a buy to let interest only mortgage to buy a small house to let out.

I have had the mortgage illustration and it will cost me about £280 a month, (I already have a repayment mortgage for the house that I live in that is £600 a month).

I have had a rent estimate done and the estate agent thinks that the approximate rent would be £600-700 pcm.

I am new to all this - I only bought my own house 6 years ago! Is it worth doing? Or is it more hassle than it is worth? And any other advice or words of wisdom would be amazing.

TIA

I'd like to know too. It's something we've fancied doing for a while although I have the fear too.

I’m a landlord, I would say go with a good letting agent who will deal with everything for you, I never have to worry about it really. Just be aware of the tax implications beforehand too and remember if you move from your own house you are liable for a higher rate of stamp duty.

Yes YABU, buy to let landlords profit out of the misery of overpriced housing and low wages. It's a grim aspiration.

Property should not be a profit making scheme. Let others have the opportunity to buy a house rather than you extort £££ from them, repressing them in a never ending rental cycle… and then no doubt complaining when you can’t be bothered to landlord correctly. Sounds like you’ve enough dosh, why don’t you start a charity instead or just enjoy your one house you need to live in.

Me too! I watch programmes like Homes Under the Hammer, and they make it look so easy.
I think that one needs a larger deposit for BTL properties; about 30%?
Also, the news mentions mortgage rates increasing soon, so maybe something to consider.
I wish I’d been braver years ago and taken the plunge!

@Salmakia

Yes YABU, buy to let landlords profit out of the misery of overpriced housing and low wages. It's a grim aspiration.

I agree. I think it's greedy and selfish to do this when so many first time buyers are struggling to get onto the property ladder,

I haven't done it myself but my mum and her sister kept their father's house and rented it out after he died. They sold it within two years due to the huge costs associated with it. The tenant broke the boiler, cracked the outdoor oil tank, broke the locks in the front and back door and broke enough tiles in the kitchen floor to warrant a replacement. She wasn't a bad tenant but had lots of accidents. There was something nearly every month. My mum and her sister decided the maintenance wasn't worth the hassle and that the outlay almost outstripped the rental income, so had enough.

The house next door to me is newly rented and the landlord refurbished it beautifully this summer. She will have to do it again before the next tenants judging by the sounds and smells that drift over my fence from them.

It's all down to the quality of your tenants and how well they look after the house.

If you can make a profit using a letting agent who will also do repairs, it’s worth considering. Most of the laws are on the tenant’s side, and evictions can be difficult.

silly comments above. Plenty of people.want to rent and not buy and you need a good supply of rented housing with good landlords.
Just consider tax implications, maintenance costs and time, and additional stamp duty.
To make it worth while realistically you should be looking at repayment mortgage rather than interest only, unless u are picking up a house for next to nothing and charging huge rents somehow.

We could afford to do it but find it unethical.

Maybe it depends on where you live - possibly acceptable (to me, we all need to have our own sense of values and ethics which vary for everyone) in a student area or an area with quite a transient workforce. In our area, we'd basically be depriving a family who happened to have the misfortune to be setting up home together 10 years later than us from getting their own mortgage, by making them pay off ours instead. It'd pretty gross when you think about it.

You might be better off overpaying your own mortgage and clearing it early instead. You'll save money on interest and be mortgage free sooner.
What if your rental property needs repairs, maintenance, or is vacant for a while (or a tenant became unable to pay)? Would you be able to comfortably cover costs & pay both mortgages? I'm not sure how much of the income would be lost to letting agents & tax.

I did this and I rent the property to my DC, it’s working out well.

You will get ridiculous responses asking that on here, there are a lot of people on MN who seem to lose any sanity when it comes to talking about landlords/rental properties because they are too filled with hate.

I am a landlord but I use an agency to deal with everything. It makes life easier but the fees take a big chunk of the rent. Think about whether you’d want to manage yourself or have it done for you, and what exactly you want to achieve from it.

Do you want to make profit now, or would you see it as an investment that you won’t profit from for years?

If you’d be paying a mortgage, it would be unlikely to make you much, if any profit any time soon.

I wouldn't. The Government have been making noises for ages about removing S21 of the Housing Act 1988 and amend the grounds for repossessing the property to stop no fault evictions. It would still be possible to get rid of tenants who are damaging the property or not paying rent (on time or at all) but very much more difficult to evict tenants because the property could fetch more rent (for example).

assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819270/A_New_Deal_for_Renting_Resetting_the_Balance_of_Rights_and_Responsibilities_between_Landlords_and_Tenants.pdf

I think it is very brave to invest in a BTL while this is settling - it is quite likely that a large number of people will decide to offload in quite a hurry if this goes through, which could damage the capital value of the property as well.

Would you be able to easily afford to cover the mortgage repayments in case the house is unrented for several months? Or if the tenant doesn't pay? How long would you fix the interest for (bearing in mind that rates have been historically low, and likely to rise).

You'll need to save up some of the rent money to use as a slush fund, for redecorating, boiler replacements, fixing fence panels, general repairs, etc.

You can go via an agency, but they'll take a cut of the rental income.

Calculate the costs of annual landlord insurance, any ground rent & service charges, gas safety checks, electric checks, in a couple of years there will be new EPC rules coming in (property should be at least a band c), etc.

As long as you're confident that house prices will continue to stay stable/rise then an interest only mortgage might be the way to go, especially if you plan to pay off chunks before remortgaging.

According to Mumsnet landlords are akin to puppy killers, so don't expect balanced replies here.

Personally, I would carefully consider the tax implications, and possible costs, including maintenance, tenants not paying rent and damage to the property.

I have 6 properties, have done fir some years so I have git the T shirt.

Do not do this unless you have considerable savings that would cover the worst possible scenario you could think of (perhaps boiler blowing up, causing an internal flood, you get my drift) PLUS the legal fees that you will need to shell out if you have to evict a tenant.

There is very little profit in the Lettings game now as you cannot deduct mortgage interest from your income for tax purposes, there is an increasingly long list of landlord requirements (quite rightly) and other costs are high. If you decide to manage the property yourself Sod’s law dictates that you will get a call about an essential repair when you are sitting in an airport departure lounge. If you pay an agent that’s another 10% cost off the rent. So make sure you have a reliable plumber, electrician, handyman, appliance repair person etc on hand.

I could bang on. The reason why I have property is to take advantage of capital growth not for income, and my portfolio is not mortgaged so I have high reserves.

Honestly you would be completely mad to take on extra debt to do this at a time when interest rates are rising.

If you do it, make sure you budget in all the associated costs of maintenance, unexpected repairs and appliance replacement, taxes, estate agent fees, etc etc. All these things can really add up. Get good insurance for things like boiler, repairs etc.

I probably wouldn't.

We moved from our old house during the pandemic in a hurry due to job loss/change, not knowing if we would need to come back, and got tenants in the meantime. Our mortgage on it is about £600 pcm and we get rent of £1100 from two lovely doctors who haven't been any trouble, but compared to just investing the £600+ in stocks and shares each month there's a fair bit of admin throughout the year including self assessment and lots of costs. Once our current tenants decide to move on, now we know we won't be going back, we will sell.

If you're passionate about doing it, really want to be a landlord, can weather it being empty a few months and still pay the mortgage, don't mind getting a call in the middle of the night re. repairs (or paying an agent every month for management) then it's a model many use to invest but I'd make sure you're absolutely sure you understand CGT, income tax, listing/management costs, insurance, mortgage arrangement fees every X years, how much you need to set aside for repairs, and all the legal obligations such as electricity and gas testing. There are so many costs involved, it is often slim margins, plus the gov't are likely to increasingly make it harder as a business model to deter buy to lets.

I did it for a couple of years but some tenants moan about everything and the agents were crap.

TAX

Additional stamp duty when you buy.
Tax on rental income while you own it.
Capital gains tax when you sell.

Make sure you've factored all of those in.

Then compare the actual income you'd make against the value of overpaying your current mortgage by the same amount you'd spend on your btl.

(Btw for the avoidance of doubt I think you should pay all if the above)

@Salmakia

Thats very unfair not everyone is out to make a quick buck

We are going to be letting our house out because we would take a major loss if we sold it
We need to move to the other end of the country and need to pay a property company to look after our let so once you take out the cost of them the mortage itself and money aside for any problems broken boiler for example your not left with much

Obviously they are paying your mortgage so in the long run you do well but not everyone can get on the ladder in the first place and believe it or not some people don't want to

Thanks for all the responses, really helpful.

I do understand and was expecting the landlord hate, I hated them passionately myself when I was renting!

DH rented out his parents’ house for a few years, firstly while MiL was in a nursing home and then after she died. It was a lot of work (even with an agent), lots of expense - even with no mortgage to pay it really wasn’t a good ‘investment’ versus other things. And then he had a tenant from hell, the stress of dealing with him (together with inadequate agents) resulted in a heart problem.

Taking out a mortgage to let (especially interest only…. You’re not really ‘buying’, are you) seems like a risky move, especially as there are signs that the era of rock bottom interest rates may not last forever.

I have a few properties and it's worth it for me, but you have to go in with your eyes open

Make sure you understand the tax implications
Make sure you have funds for repairs, if it's empty, if the rent doesn't get paid, etc