To consider buying to let?

[Stormbabet]

A bit of background, I run a small business that has allowed me to build up some savings. DH and I don't want to move house and are happy where we are currently so it's not needed for our own housing.

I'm considering using my savings as a deposit on a buy to let property. I would only really want the tenants to cover the mortgage, I wouldn't be looking to make a rental income. In fact I would be willing to pay a small amount each month myself if necessary.

Has anyone done similar? Do you manage it yourself or use a letting agent?

Any advice is welcome.

I was also considering BTL recently. This video summarises why I decided against it:

Very few BTL mortgages at the moment and you will be paying a high rate. You also have to factor in your loss of interest. You also typically need a large deposit -minimum 25% but could be higher dependent on your tax band.

I think it all depends what you are looking to achieve.
I have 3, I purchased 5/6 years ago I needed monthly income & at that time I wasn't going to get anywhere near the same return through investments. I was aware of the changes re interest etc & had prepared for that.
I have had to evict one & may have to evict another (there are a lot of issues). The 2 month timeframe is actually a minimum of 4 as you have to go back to court & get bailiffs etc. Which could be difficult if you have charged minimum rents as they might not be paying.
I charge below market rate & currently 2 out of 3 tenants are great.
Does it work for me - yes
Is there hassle - yes
But if I sold there would be alot of costs (possibly as much as £100k) & I might not be able to realise the monthly income I need.
It is not an easy industry to be involved with & on a site such as this you are definitely considered the devil

You can get 6.2% in NS&I 1-year savings completely hassle free.

Getting that yield from BTL is highly unlikely for anyone after costs.

And you’ll be able to sleep at night.

We’ve had one rental property for over 10 years with no problems except the occasional major expense - most recently over £4k for a bathroom leak entailing major work.
You do need to be well prepared for any such thing.

Otherwise we’ve always been very lucky with tenants, but we’ve always attended promptly to any maintenance issues and have kept the rent on the low side for the area/type of property - it’s decidedly low now that rents have shot up.

Having said that, I know that LLs who’ve always done the right things and aren’t greedy with rents, can be spectacularly unlucky with tenants. So I don’t think I’d go into it again now.
Given that interest rates have shot up, I’d be looking to put spare cash into the best deposit a/c I could find, or into S&S ISAs, where the income (if you choose to take it) is tax free.

I’ve worked in the arrears department of a big high street bank and the only advice I could say is make sure you can pay the running costs of the property WITHOUT a tenant.
So many people go into BTL but when temants don’t pay or do a bunk they’re left footing the bill, bills they can’t afford to pay on top of their own household running costs.

Good replies already.
OP, don't forget the income is considered as income for you annual tax return. The allowable expenses aren't much.. so depending on your tax bracket you could see 40% of the rent disappear to HMRC.

Being a landlord is work and comes with risk.
Money in the bank can get you 6% these days. Anything with a net annual yield after tax below 15-20% wouldn't be worth the bother for me.

45% if a high tax payer- you get a basic tax allowance back- sort of.
They also reduce the amount that you can borrow (based on rental income) if you are a higher or high tax payer as the profitability is impacted.

If you are a limited company director you'd get better returns using your pension allowance than a BTL.

Leveraging is a good plan with long term but the drama right now of BTL would have me waiting a few years at least to see where the market settles.

Do you have tax advisors?

Buying through Ltd only works if you have many properties, you have to file account which will outweigh the cost for one property.
From my experience I have a few dozen of properties I only use estate agent to advertise on Rightmove. Everything else I do my self.

More hassle than it's worth especially now savings rates improving and house prices falling. Why would you ?

I have one bought with cash , get a return if £800 a month . All done through an agency with rent insurance so no risk.. Would never get that return in a bank !

@floofbag do you mind me asking how much your property cost in all (including stamp duty, conveyancing etc)? And is the £800 per month net of agents fees, insurance etc?

Personally, I wouldn’t but it’s not because I’ve got some sort of weird MN hatred towards landlords. I just wouldn’t want to take the risk of tenants not paying or trashing the place. I’m quite risk averse. I’d speak to a financial advisor about where you could put your money to make it work for you.

@mouche202 it was 10 years ago but cost £170 k and is worth about £200k now . It gets approx £1000 a month so we get about £800.
I can't remember the fees but it wasn't that much because the flat wasn't that much . The agency take 12% I think which I'm happy for them to take as I do nothing . They get tenants , manage the flat etc

I don't think buy to let is worth it there's so many hidden costs and the tenants can be stressful and if they don't pay or you have a big break between tenants you could end up paying the entire mortgage and bills on your own for a long tike. Can you afford that?

If you can buy a cheaper property in the north west you get a great return on investment. Eg in Liverpool wages are not bad and young people and students need short term accommodation. Young people starting out don’t want to be tied down with a mortgage

I would only
Consider doing this for a holiday let air bnb flat in a city like Bradford - very cheap properties but lots of demand for accom because of airport uni theatre etc

You should also buy it as a limited company not in your own name

It's 100% worth it if you have spare money .. I'd never get a mortgage out to do it but the return is way higher than any investment .

We have made £100k on rent plus the equity on the flat and have had very few charges .

The rent is covered by a policy I pay for out of the rent in case we get a non payer but the letting agency are amazing and always choose the right people .

It helps that the flat is near a mainline station and usually attracts single London workers but this was all orchestrated so I knew that .

Don't let anyone scare you OP if they haven't done it . It's such a great return on your cash ... as long as it's spare cash .

Thanks everyone there seems to be a lot to consider.

To answer a common question, yes we could cover mortgage and bills during any times the property was empty.

I had assumed if it wasn't making a monthly profit then I wouldn't get taxed, is this incorrect?

I'm afraid that assumption is incorrect. The whole rental income is added to your income for tax purposes. There are allowable expenses but they are not as generous as you would hope and don't include mortgage payments.

Can you afford to pay the mortgage if you can’t get a tenant? Can you afford to pay for any damage or breakages? A tenant of mine - who had been thoroughly checked - wrecked the kitchen and I had to pay to get it replaced. Can you afford if someone doesn’t pay? Another time a tenant - again fully checked - moved in and didn’t pay me the proper rent for the entire time she was there until I got her evicted. One of my tenants needed a new fridge freezer because it was broken beyond repair so I just replaced that which is fine obviously but you need cash to do that. If you want to sell you need to pay property gains tax. A single mum who is a tenant - her partner left her a few months into the tenancy - is really vulnerable and I have to do everything for her. She can’t unblock the toilet, change a bulb or do anything so I need to help her. She also can’t afford the rent so I’ve reduced it because despite what people think land lords aren’t evil and she has no where else to go. You are responsible for where someone lives it’s their home not just your property. If the heating stops working and you can’t fix it you need to have the money to pay for someone to fix it asap.
People often don’t put the rubbish out so it builds up and you need to sort it. They don’t do the garden so you need to do it.
Put the money in a high interest savings account. Seriously do not do this.

You also need to pay the council tax for the months the property is empty.

My properties are in a very affluent area of London.