Buy to Let Investment

[Diablocircus]

AIBU to purchase a buy to let flat for my son?

Are they still a good investment and is it a good time to buy?

At the risk of not reading the room, and sounding incredibly privileged I’d like to add some extra info:

DS is nearly 2 and is in receipt of middle rate DLA due to a disability. I’m essentially looking to advance him his money to put down as a deposit.

I believe he will be able to live independently but I’m not sure of his working/earning potential although I am confident he will be able to work in some way, so we are looking to help him now rather than 18 years time.

It would be interest only as it’s not viable to have a repayment mortgage.

It would use all of my money with about £2k left over for emergency.

After all costs etc it would leave about £50pcm after putting money aside for all bills and repairs.

I would be a good landlady, I’m not looking to extort money and abuse tenants.

Thank you for any feedback.

People who automatically default to “buy to let” tend to be folk who have no knowledge of other investment asset classes, or who balk at the fees charged by investment platforms or managers and say “no thanks” despite the returns over time.

BTL will be lauded and championed by nearly everyone who replies to this thread, because Mumsnet and the UK in general think property is a one way street and the only safe ( understandable ) investment

I personally would look at other investments, but that’s me. I don’t hold any property other than my own, but my market based investments have well outperformed housing by a significant margin.

however friends often tease me that I don’t “own anything” so to speak, because they want the psychological aspect of “I own this investment” and they can see and understand it

horses for courses

Brilliant that you are thinking long term in support of your son.

I don’t know the answer to your question but if the house (or any other investment) was in his name I would look at:
How this could preclude him from any benefits or support
Tax situation incl Capital Gains
Whether the asset / money would be better set up as a trust
The implications if it is ‘his’ but bought in your name: Tax, CGT, etc

I think you need specialist advice to help with your planning.

Property always seems a good thing to me, it will always be worth the price of a house, a roof over your head.

I would hold off just now as prices are still high on property (at least in my area). Interest rates on mortgages are also set to increase a lot from what I've seen after fixed terms are up.

It's a great idea but I would personally hold off a year or two to see what happens with mortgage rates and property prices

Having seen so many properties trashed with rent not paid with landlords chasing money through the courts that they dont have a hope in hell of recovering, I wouldn't go down that route unless you're very tough and can cope with situations like those should they arise.

Have you thought about adding value to your own home in the form of an extension, loft conversion, annexe etc. Or could you move and buy something that needs renovation or that you can add space and value to.

I would worry very much that the mortgage is interest only. Do you have another financial product to take care of the capital sum. Some mortgage lenders would insist on that I think.

Tight budget, interest rates are rising and will continue too, due to inflation.

As PP said, could you wait a while to see the impact on the property market with increase in COL, interest rates rises etc.

Also, stamp duty is 3% on buy to let, so make sure you factor that in too.

Seek advice from a specialist lawyer that is experienced in setting up trusts, if you want to do that, legal work is expensive, but worth it to ensure your assets are protected, especially if purchasing for your DS.

Good luck.

I wouldn’t do it personally if it was literally taking all your savings and was only going to make you £50 a month profit.

Current impending legislation changes re EPC requirements and tenants rights, mean that you could have to spend a lot of money on improvements to be able to let the property, and it will become very difficult to evict tenants that don’t pay. So basically can you afford to pay out thousands in repairs and improvements, and potentially not receive rent for a year while you evict non paying tenants. Also you can be due quite a lot of tax on rental income, depending on your situation.

I would personally find a less stressful way to invest the money for now

I wouldn’t do it in interest-only.

My mum has one which she bought for £150 8 years ago . She now needs care and it's worth £250 when I sell it . She got £800 a month to support her retirement so I'd say for us it has been a very good investment .

She paid cash though so I think that is relevant

In 18 years you will laugh at the amount you paid for it and be so glad that you bought it.

@SavoirFlair makws a good point about other types of investment but I wonder if that comparison has taken into account the benefits of leverage that you get with a mortgage buy to let.

that said it can be stressful and you do need to factor in repairs, voids etc into the financials.

definitely don’t buy a new build. A good solid ex local authority from the 60s would be a good bet!

And interest only works well for buy to let - it means you are putting in less capital. Ultimately if it works well the end goal is to sell when your son needs the money. It’s not like interest only on a residential where you still need somewhere to live.

make sure you factor tax into your take home figures

If you do this and it ends up being in your son's name then it may significantly decrease his benefits when he is an adult and as a result prevent him from accessing the support he needs. At 2 you cannot predict how much support he will need as an adult. Invest the money in something else and make a decision later when he is secondary school age and you have a better idea of how he will function as an adult.

You do not need the additional stress of being a landlord if you have a child with a disability.

Also you may need the money unexpectedly as he gets older for other things like private therepies or legal support or specialist equipment or replacement items for things which have been broken etc.

We thought our son would be able to live independently but this is looking less likely. He is now 13. I think he will need to be in supported living somewhere.

Have you factored in all costs? New carpets every 5 years of so, new boiler every 8 to 10 years, new kitchen and bathrooms every 10-15 years, new windows every 15-20 years, new roof etc....

Then you add potential non payment going to court, void periods, having to pay council tax in between rentals etc...

It's now become really expensive not worth it for a large majority of landlords hence so many selling.

What happens if you have a void and have no rent to cover the mortgage?

If you have a good financial buffer and can afford a property where you make no profit, simply cover costs most of the time then they can be a good investment if you think property prices with continue to rise.

If you can’t afford to be without tenants for a couple of months, can’t afford to be without the rent if you get a non-payer or if a goosed boiler that needs immediate replacing in the middle of winter would ruin your finances then it’s not.

I think you should be very cautious. Especially as it seems like your child’s path isn’t clear yet. When my youngest was 2 it seemed like she’d have a few difficulties, but that was it. It’s now clear that’s she’s never going to be independent, probably won’t outlive me, and her care needs increased so much one of us had to become a full time carer.

This is a great post . Most people don’t factor in these costs because their obsession is with the perceived capital gains upon sale “my house has made (ugh) X amount in 8 years”.

Meanwhile the FTSE never sleeps so to speak, doesn’t trash your house, doesn’t leave it empty for 3 months, doesn’t need constant expenditure to upkeep …

I would think twice. I am in the process of selling my rental property. It has been a huge hassle with tenants not paying the rent and Not letting me know about broken stuff.

The goverrnemt. Is tightening the legislation on rentals.

If you do do it, buy a modern property and strongly consider using a managing agent. Put a lot of research into choosing an agent - a good one is worth a lot but there are lots of bad ones out there.

I am an 'accidental' landlord and a good one as you intend to be. It is not for the faint hearted, but as someone said above in 18 years you would likely laugh at what you paid for it now, we've only ever seen property creep up over time in the UK. It's really not easy to be a landlord though. I've had my former home totally trashed and a tenant not paying rent for months which cost me £20k. You really have to keep on top of your responsibilities as a landlord and there are many these days.

In my opinion property is very hot and it may not be a good time to buy, I would wait a year or two personally.

Also heed advice above re it actually disadvantaging your son in terms of ruling him out from some support. When he is adult he may well be entitled to govt incentives to assist first time buyers too. Why not invest the money and it can then form a deposit when he is of age?

I'm an accidental LL (bought and lived in our house for two years before a work opportunity arose with housing as part of the package) and we kept the mortgage as a repayment rather than an interest only. It's therefore not a money maker and makes enough to cover the mortgage and the essential maintenance and repairs. If you're not looking to make a profit on it, it could potentially work, but you also need to be prepared for the fact that being a LL can be difficult at times, tax becomes more complicated, costs add up and you need a buffer should tenants not pay as it can become costly, quickly .

Sorry but I think this is a terrible idea. No way should you buy-to-let with an interest only mortgage. Buy-to-let-ers don't make good profits generally, over the course of a year you'll be lucky to break even. The way BTLers profit is that effectively they are making someone else pay off their mortgage whilst they are gaining liquidity in an asset.

The boiler needs replacing? That's your profit for the year wiped out.
A tenant who you have to evict for not paying rent and who trashes the place? Profit wiped out.
Can't find a tenant? Profit wiped out.

The really offputting thing though is your claim that you're "not looking to extort money and abuse tenants." If you're not willing to fleece tenants financially then you will really struggle to make a profit. Profitable landlords are the ones who view their tenants as being lower on the scale of humanity, not worthless but certainly worth less. A profitable landlord is an inhumane one, by definition. (There are plenty of non-profitable inhumane ones too of course!)

SavoirFlair

You are absolutely right. I am naive around (and fearful of) other types of investment.

There’s definitely something reassuring about seeing your investment standing.

My husband has stocks/shares but they crashed recently and that makes me nervous.

Thanks for your comment.

On a regulated buy to let mortgage you cannot let to family. So no you can't do it.

Thanks everyone for your comments.

I was expecting a bashing here due to the climate but your comments have been very kindly worded and some important points have been raised that I need to look into.

I think just to add, that after the interest payment and charges etc, I have set aside £275 for costs (repairs, contract, protecting deposit etc) which is possibly generous, leaving the £50 profit.

My friend is a letting agent so I’d be hoping to attract a long term tenant she has experience of, hopefully limiting the chance of abuse, but you never can tell.

It’s not so much about making an immediate profit but just like others say, buying now rather than in 18 years time at a higher cost.

The points about interest only are something I should review, I’ll see what the repayment costs would be.

The comments about trust funds and tax are something I really need to look at, so thank you for pointing those things out. I hadn’t given this much consideration at all as I am now a low earner.

My sons condition is similar to a stroke so not progressive and hopefully will only get better so I can only see his benefits reducing into adulthood. I do feel a responsibility to use his money the best way we can to benefit him.

I think just to add, that after the interest payment and charges etc, I have set aside £275 for costs (repairs, contract, protecting deposit etc) which is possibly generous, leaving the £50 profit.

£275 a month? £3300 a year isn’t generous.

A new tenant and the associated costs, plus a new boiler and you’re out of budget already.

Have you really looked into the nitty gritty of the costs?

And whatever you do, if you value your friendship, do not use your friend as your agent.

And whatever you do, if you value your friendship, do not use your friend as your agent

This with bells on.