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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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

108 replies

opalplumstead · 29/10/2021 13:02

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

OP posts:
User112 · 29/10/2021 15:23

@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

Which area is this OP?
VanCleefArpels · 29/10/2021 15:23

My taxable income for the tax year 19/20 (that is after deductions of all costs that are allowed to be deducted) worked out at an average of just over £7k per property. This is for rents of between £1000 and £1500 pcm with - in that year- no void periods. I’m doing the tax return for 20/21 year now and I had at least 4 months void in each property due to the pandemic (I allowed tenants to move out, I was lucky they all were able to pay rent until they moved). This I hope illustrates the small margins we are talking about.

Does your net income plus any savings allow you to pay the mortgage, the council tax (which may attract a penalty for empty properties depending on your local authority), the utilities, the insurance (expensive for an empty property), the everyday maintenance, the emergency maintenance, the service charges and ground rent (if leasehold) for both your properties? If the answer is no then you cannot afford to do this. You must consider the worst case scenario.

iwanttobeonleave · 29/10/2021 15:24

@Salmakia

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

Those starting out have no chance.

Whatwouldnanado · 29/10/2021 15:25

Evil landlord here (bash away). We invested a completely unexpected family inheritance in a tiny rental apartment.
We did this to have something which will keep its value (and it will where we live) to pass on to our kids. The tenant is happy, we are happy. Don't borrow money to buy a rental place if you haven't paid off your own mortgage.

Forgothowmuchlhatehomeschoolin · 29/10/2021 15:32

I kept my house after dh and l bought together ....it was more of an insurance policy for me if we split up bit after having bad tenants, l couldn't wait to get rid of it.

DandyHighwayWoman · 29/10/2021 15:35

@Salmakia

Yes YABU, buy to let landlords profit out of the misery of overpriced housing and low wages. It's a grim aspiration.
It’s also ‘grim’ having to deal with tenants who trash the place, don’t pay, cost a fortune in legal fees to remove them. Let dogs defecate and urinate in the property. It’s also grim when you’re contacted by the Police to say they have broken the front door down looking for a drug dealer. This all in a lovely house in a quiet street.
ILoveAllRainbowsx · 29/10/2021 15:37

This reply has been deleted

This has been deleted by MNHQ for breaking our Talk Guidelines.

TabithaTiger · 29/10/2021 15:39

There's some silly answers on here. Loads of people can't get a mortgage (or don't want to) so need somewhere to rent and there's a massive shortage of decent rental properties.

OP, as you've rented before, please consider how you would like to be treated as a tenant and ensure you're a fair landlord and get repairs done in a timely way.

Cosyblankets · 29/10/2021 15:40

*Those starting out have no chance.
*
I live by a large hospital where many staff are from out of the area and work on contracts of a year or so as they rotate. Where do you suggest they live?

hotmeatymilk · 29/10/2021 15:42

Yes YABU, buy to let landlords profit out of the misery of overpriced housing and low wages. It's a grim aspiration.
This with bells on. You’ve got a house. You don’t need another one, FFS.

thatonehasalittlecar · 29/10/2021 15:42

I have a BTL and honestly can’t decide if it’s worth it or not. It’s sometimes a lot of hassle and doesn’t make me much money (and my margins are healthier than yours).

Only apathy and the (naive?) belief it’s bound to go up in value, being in London, makes me keep going.

That said, even the modest profit helped shield me from the worst of the past year, so I’m glad of it right now.

But at your figures, unless you were looking for a long term capital gain, I definitely wouldn’t bother.

BillMasen · 29/10/2021 15:43

@Simonjt

We have, its a holiday let (year round occupation isn’t allowed), we also use it ourselves.

We have gone with an agent who specialises in respite breaks for families of lac children and families with a member with a disability. It has been fine so far.

My husband used to rent his flat out when he had to move for work, he didn’t use an agent and everything again was okay, he had appropriate insurance etc, and it was close enough that he could go to the property if needed.

This is something I’ve half considered, a holiday let that I and family can also use.

Do the let’s cover the costs, so your usage is effectively free? That’s what I’d be aiming for if possible, but the chunky deposit always makes my maths not quite stack up as value for money

Veryverycalmnow · 29/10/2021 15:44

@Salmakia

Yes YABU, buy to let landlords profit out of the misery of overpriced housing and low wages. It's a grim aspiration.
This.
YoungGiftedPlump · 29/10/2021 15:45

@Cherrysoup

One of the best investments you can make, I’d say. Do it.
This amuses me

We are looking to buy a central London flat. They are almost all ex buy to let. They are selling at the same price as 2017 and some at the same as 2014, one the same as 2009. A few are slightly lower than their purchase prices. The sellers will have made a loss on buying and selling- hopefully they made enough on renting to make it worth while.

Saskatcha · 29/10/2021 15:47

We have a small two bed house we rent out. A good yield but by the time we pay tax, interest, letting agent etc I think we make about £100 per month and we put our own money in as a deposit too. I expect it has gone up a bit in value over the years but not hugely. We do however pay the balance down aggressively out of our own (employment) income so it is is just a savings vehicle rather than an income generator really. We know we will need the house in the future to help support a family member and this is the only way we can make things work in terms of numbers. If we didn’t do this we could afford a far better house to live in (probably on a much bigger combined land mass than both of our houses put together for those saying landlords are the only people blocking first time buyers…). We would prefer that option really but I will need to be on hand to support a vulnerable family member moving forward and we need to be set up for that so that we can act quickly when necessary and we can’t all move due or relocate them due to our different nationalities. In the longer term I expect we will use the house to help our daughter get on the property ladder. In real terms we are putting aside approx £1000 a month for her over a ten year period to pay off the balance. Hope that helps.

ErrolTheDragon · 29/10/2021 15:48

I’ve not read all the thread since my previous post, but one of the other factors in DH deciding to get shot of his DMs house was that (as I understand it) rentals may have to undergo quite a lot of upgrades for energy efficiency etc.

2bazookas · 29/10/2021 15:53

You will also be paying monthly fees to the letting agent + property and contents insurance + council tax. Plus, landlord insurance to cover your liability for tenant injury, emergency rehousing,eviction costs, etc.

In addition, there will be wear and tear on fittings (tenants are rarely as careful of LL's property) repairs to washing machine, replacing china, worn carpets , stained bedding etc.

You can deduct some of the paragraph above against the tax due on rental income (if you have to employ an accountant , add his cost)

This is not your main residence so when you sell the property, you could be liable for capital gains tax.

Rent is only payable for let and occupied periods. If a tenant leaves early, defaults, or you just have a gap between one leaving and the next moving in, there's no rent income. But you still have to cover insurance, CT, and possibly a minimal heating bill to prevent freezing protect water papes etc.

Getting rid of a tenant who went bad,  can be  time consuming and expensive and a gigantic headache. 

You need to do a lot more sums and a lot more homework.

In your shoes, paying a mortgage which is a substantial proportion of the monthly income, I doubt the net rent will provide a worthwhile income. A substantial high in mortage interest rates ( highly likely in near future) would erode rent income even more and you should not rely on a rent rise to cover it. IF property values rise, you might see it as a longterm investment when you eventually sell ( but potentially liable to Capital Gains tax).

    You also need to fully educate yourself about  Landlord responsibility  and liability.  In Scotland, all private LL's must be registered  and approved  by their local council. and it's  possible other parts of the UK may follow suit in future.
MrsWooster · 29/10/2021 15:55

We invested the kids inheritance from GPs in property, so no mortgage. I worked on the idea of 10 month year rental income, with two months rent paying the agency 10% and some left for maintenance. It turns out to be more like 7 months rental income, with 5 months going to agency, gas certificate, electric check, landlords insurance, window locks bust, wants new carpet…. With the figures you mention it should still make a profit but it’s not a simple /lucrative as you might assume.

ArseInTheCoOpWindow · 29/10/2021 16:04

Plenty of people.want to rent and not buy

Ime the majority want to buy not rent. It’s this stupid buy to let thing which is causing my 27 year old ds unable to buy a house despite saving like mad.

opalplumstead · 29/10/2021 17:22

This reply has been deleted

Message withdrawn at poster's request.

opalplumstead · 29/10/2021 17:25

@User112

Leicester, just outside the city centre. It is in a popular area

OP posts:
opalplumstead · 29/10/2021 17:26

Thanks again for all the help I really do appreciate it.

OP posts:
GenderAtheist · 29/10/2021 18:03

I’m not sure you are going to make any money out if this , in fact you will probably make an annual loss. Though of course you can hope for a capital gain.

I don’t know any of your capital costs, but of course you will need to cover

Purchase price
Survey costs
Legal costs
Mortgage arrangement fee
Stamp Duty / LBTT/ ADD
Renovation costs
Compliance costs.

In terms of revenue

Your income from rent is £7,800 pa ( I’m assuming 750 rent ) . All other figures are estimates of course

Costs you can set off against this - agents fees of 936
Insurance 280
Annual compliance costs 200
Repairs 300
Holding costs ( while you renovate and wait for tenants to move in ) 500

Total costs in Y1 £2,016

Tax due £1,157 . That assumes you are a basic rate tax payer of course . Otherwise that’s higher.

So income is 7800

Minus

Revenue Costs of 2016
Income tax 1157
Mortgage 3360

So after everything costs you are making £1,267 in the first year .

But that’s not realistic as it assumes you get rent from day one when you put in on the market and it will be at least 6 weeks. So that’s 975 of income you have lost in year one. And most of your first months rent goes to the agent for letting costs. So that’s you already in the black .

And I’ve allowed only £300 for repairs, which isnt nearly enough. And nothing for maintenance. And it assumes no voids or rent arrears . Again not realistic.

Of course you need some savings to pay the mortgage for a hear if your tenant stops paying rent and you have to evict them.

Of course if your revenue costs go up you will make less profit and pay less tax. And the same applies if you have no other job so have your personal allowance . But I’m guessing you have employment income as you have your own mortgage. And you will need another source of income to pay costs on the years that you make a loss ( which could be quite often ).

Just rough figures to give you an idea of course.

Cosyblankets · 29/10/2021 18:07

@ErrolTheDragon

I’ve not read all the thread since my previous post, but one of the other factors in DH deciding to get shot of his DMs house was that (as I understand it) rentals may have to undergo quite a lot of upgrades for energy efficiency etc.
You need EPC of at least a grade E
Whammyyammy · 29/10/2021 18:09

Get your tin hat op. MNers loathe anyone that owns more than one home.