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

Yes I am a bit worried about rising interest rates @ErrolTheDragon (and anyone else who has mentioned this). However

I do also worry about house prices potentially crashing with all the brexit stuff and just how volatile everything seems atm :(

I meant to say as well, I am putting down a £30k deposit its not all mortgage

Can I also throw in increasing interest rates?

Haven't major lenders just upped their rates a little? And if inflation increases the rates may go up more.

You won't get a balanced opinion on here as many posters are of the opinion that landlords are the devil.
I've recently done this. Take financial advice and look for the best deal. You're paying more than I am for a similar return.
We have shelled out a fair bit on boiler and electrics etc so that we know it's all new. We did all the decorating ourselves but it was all day every day for a couple of months.
Our tenants do not want to buy for their own personal reasons so we are not depriving any families before all the haters start.
We used an agent to do all the background checks, credit references etc and then we took over. We have all the safety certificates and we know a plumber and an electrician that we can trust
We've taken out landlord insurance with legal protection.
We learnt quite a bit from doing it up. We learnt that things always cost more than you think, we learnt that sometimes it's easier to rip out than work with what you've got.
Shop around for the best deal on interest rates and broker fees. Even if you're using an agent go and do the viewings yourself. There was one in particular who would have passed the checks on paper but there was a few things they said at the viewing that stood out to me as they would be hard work as an individual. So I turned them down.
Would we do it again? It's early days and we'd need to work round our jobs when that allows but yes we would. In the same area. And definitely not a new build because they're not as well built

OP, you asked in the wrong place, you would be better off asking in Property.

There is a high demand for rental property at the moment, so it would not be a daft decision and property should always increase in value bar a few exceptions.

You need to look at the overall picture. You would get the rent each month, less agents fees if you use one. You need proper Landlords insurance and the property must have EPC and electrical certificate and smoke alarms and carbon monoxide detectors. If you don't use an agent then you will need to protect the deposit yourself.

I would use an agent certainly to find a tenant and do all the proper checks and credit referencing etc even if you don't want to use one ongoing.

You will need to do a tax return to declare the income. Interest can't be set against the rent any more, but you can claim a tax credit of 20% if you have paid tax elsewhere, and you need to factor in tax that might be due, plus accountancy fees (shop around). I would have the rents paid into a separate bank account and pay all expenses out of it and then leave the balance to cover tax and repairs. You will also need to pay utilities if the property is empty between tenants.

You are also responsible for all repairs and maintenance so if the cooker breaks down you repair/buy a new one etc.

You will need to pay stamp duty on the purchase as you already own a house.

and be aware that interest rates are only going to go one way which is up, so fix your rate for as long as you can, and consider whether it is still affordable if the rate goes up.

Have a look on local estate agents websites for fees, or ring round a few and ask what their fees and commissions are, how often they do inspections etc.

I had a rental , bad experiences even though the agency checked references. I would never do it again .

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

This. And as a result, don’t rely on capital growth. A lot of people are going to fall into mortgage arrears in the next few years and I predict property prices falling as a consequence.

you won’t get balanced replies from MN about landlords!
Do you have an FA? Ask them to go over the tax implications with you with a fine toothed comb.
If you aren’t an experienced landlord you’ll need to get it managed really which will be 10/11% so say £65pcm out of an already small profit of £300 add in repairs, certificates etc realistically looking spread out over the year about £100 profit a month?

It’s far too high risk for that sort of reward imo.

Yes you'd be better off asking or browsing through old threads on money matters or property and DIY, AIBU is good for opinions 😂 but not so much sensitive level headed advice. Look at some 'what should I do with my inheritance' threads for example, as buy to let is an option which often comes up and the pros and cons are well debated. My own personal view is that it really depends on your circumstances and can be a good option for an 'average' person looking to invest £25-30k, that has an existing moderate income from employment, minimal or no other savings and a basic occupational pension, an existing residential mortgage in the same or similar area as the planned BTL and no particular interest or skills in property management/refurbishment, there are much easier, safer and more tax efficient ways to invest your money. But there are people/circumstances where it's a good choice... Am happy to expand if you want to know more but it's all there in previous threads, it's a topic that comes up quite a lot...

There was a crucial 'but' missing in my post, but you get the gist, can be a good idea, often isn't is about it!

@PurpleFlower1983

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.

You don't pay the higher rate of stamp duty when moving yourself. As long as it's primary residence to primary residence, it's normal rate.

You do of course pay the higher rate on the BTL purchase.

We will be doing this when DD goes to University. I'd rather invest in accommodation for her for 5 years than pay someone else the rent.

I’m about to sell my old flat that I have rented out for the last 10 years as I cannot cope with the hassle anymore! I’ve not really made much money - the costs and the hassle of renting have been huge.

I did hand management over to a reputable agent 3-4 years ago prepared to take a hit on profit over less hassle but the agents have been a nightmare! Won’t go into the details but they charge such a lot and do almost nothing.

Are you going to have enough money for maintenance? If you have to instantly pay for a new boiler, plumbing work etc can you afford it?

I could also add it depends on the type of property- mine is very old Victorian basement conversion so high maintenance and repair costs. I I imagine a shiny new build would have less issues

You need a minimum of 25% deposit for BTL and more to get a better rate.

You are taxed on all of the rental income (almost all some slight allowance for renewal but not mortgage interest) at your prevailing rate

What tax band are you on?

@MaddieElla

We will be doing this when DD goes to University. I'd rather invest in accommodation for her for 5 years than pay someone else the rent.

But unless you can afford a 10 bed house then it can be very socially isolating and tough to be the landlord- I know I bought my 1st house at 19 when a student and with hindsight it was a mistake.

Plus if it is her house she will be taxed on income and it may trigger student loan repayments and of course if it it in your name you will have to pay 2nd home stamp duty and be taxed on the rental income

Plus what if she goes to Cambridge or London? You are looking at £450,000 starting prices for a small flat.

My DD went to a Northern University for 3 years. Her rental was about £60- £90 a week. So under £15k in total- hard to see how you wouldn't spend much more than that in buying and selling fees alone.

@DampSquidGames

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

Which lender with on a buy to let- that's a contrived tenancy and breaks most lenders rules?

We will be getting a buy to let this year, although it won’t be mortgaged. We currently live in military accommodation and would like a house to live in when my husband leaves the army, although that will be in about 15 years. I will be in my 40s and we will want a house that we own then. In a few years we will use the house as collateral to buy further houses for a portfolio. Hopefully when my husband retires we will sell all of the houses to buy It will also give me an income as we move every 1-3 years.

I’ll manage it myself (have experience managing hundreds of properties on country estates and studied landlord and tenant law as part of my degree). It’s not difficult to manage yourself but picking the right tenants is absolutely essential. Having worked for a referencing company while at uni, do more thorough checks that they do and take out their rent guarantee. The guarantee means that the referencing company will pay the rent and costs of eviction if anything goes wrong.

I’m sure I’m entirely devoid of morals but we are doing what is best for our family and think buy to let is best in our circumstances.

YoungGiftedPlump Leek building society, there are a few lenders that allow this.

@DampSquidGames

YoungGiftedPlump Leek building society, there are a few lenders that allow this.

Thanks. Interested as family member looking for a home and this is an option but the 3 lenders were approached said no

What do you want to achieve? In terms of making money I'm not sure it's a particularly good investment these days.

I also think it's a bit unethical

I rent out a small house.
It's been fine so far. It's not a huge money maker but I wanted to hold on to the house for sentimental reasons and didn't want it empty. I suppose I am also counting on the property increasing in value over the years.

Tenants want a modern kitchen and bathroom, neutral decor and decent flooring. It cost a fair bit getting the property up to scratch before rental, I was surprised how much these things cost, so factor that in too. Good luck!

YoungGiftedPlump I contacted a few mortgage brokers, they all knew straight away what I needed and were very helpful. I’m normally good at doing my own research but as this was quite specialised I needed help.

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

BtL landlords don’t decide the system though - that’s the British voters, and they keep voting for more of the same. The capitalist system isn’t going to change when people keep voting for “personalities” like Boris Johnson and bulking at any kind of slightly more radical personalities.