Do these sums add up for a BTL?

[GradNonFashinista]

Myself and a friend are thinking of buying a BTL between us. We’ve seen a house which currently has a tenant for 120k.

Would plan on each putting 15k deposit down so would need a 90k mortgage. Rent is £700 a month. Mortgage would be around £400 a month depending how long we fixed it for.

we can each also put in half solicitors fees and stamp duty.

so we’re looking at “profit” of about £300 a month. We’d obviously get taxed on the £700. So that reduces it by £140. So £160 “profit” a month. Which we’d need to keep to one side for any repairs, etc. we wouldn’t use an agent on an ongoing basis but probably would at the end of a tenancy which is around £150. Though obviously if tenant stays that’s great. Gas certificate every year at £85.

i can see us only breaking even and if we have a big bill like a new boiler being out of pocket. But a friend who has a few BTL said the first few years are tough but the rent goes up a little every year, the house increases in value over time and to view it more as a capital growth rather than for income?

Based on your figures, no, it's not worth it, especially if joint with a friend. There's little money to be made with one property unless you own it outright.

Interest only mortgage in 5% interest for 90k for 25 years is about £370 per month. Repayment is £600. Very little room for profit, unless your intension is to keep it long term and then sell it.

If it’s £400 on interest only that’s an expense that’s tax deductible so you are only paying tax on the £300 profit.

also if it’s interest only how does it really fund a retirement

Interest is no longer tax deductible.

Yes, the intention would be to keep it for 20 years and sell, hoping it’s gone up and we get some capital. But appreciate we’d have to pay capital gains tax on it

And yes, interest is now on the full rent.

I did not know that. I used to let my flat out when I had to move abroad for work for a bit but that was years ago.

@GradNonFashinista Do you max out your ISA allowance? Stock market generally outperforms property when you take into account all the tax, repairs and all

No, I don’t think I do, maybe I need to look at that instead.

Personally I don't think it does stack up. We have 2 properties rented out, one was my DHs previous home. One we bought for cash as a BTL years ago, the value is the same as it was 10 years ago. To be honest there is no incentive for us to want to be landlords anymore, the only reason we haven't sold them is that we have really good long term tenants in them. If the tenants left we would reassess. And I wouldn't not use an agent either. And yes you need landlords insurance, you might need a licence, and there are other costs related to the property. You can't even claim back the cost of the mortgage interest in full as an expense now either. And take in to account what your normal salary is, any extra income might push you into a higher tax bracket. It also means you have to fill in tax returns whereas you might not currently. Also you will need to set up an air tight legal agreement between you and your friend which I imagine would cost a lot.

I know landlords are heated on here but rental properties are required, lots of people choose to rent for various reasons whether it is by choice or not. For example one of our tenants earns well now in a se Ute job, but he was involved with a business that went bust 2 years ago so can't get a mortgage just yet.

They did fall in 2008 though 🫤

I know a few people who were stung by this and ended up in negative equity

unless you are in this for the very long haul then I can’t see how you’ll make any money from this

There not enough margin in that for 2

BTL isn’t that profitable don’t forget new regulations coming in where house has to be upto epc reg for efficiency

also it’s absolutely frightening how many rights tenants have and how little protection LL have
a bad tenant could bankrupt u

Honestly, I'd pay a fee to see a financial advisor.

The returns, based on your figures suggest you'd be paying out the absolute minimum with regard to the maintenance and upkeep of the property.

You clearly want some sort of a scheme to build up your pension so I'd start with proper financial advice.
Sharing a buy to let with a 'friend' sounds like a recipe for disaster further down the line.

Thanks, I think you’re all correct and it’s not going to work.

I was a BTL landlord from the mid 80s for 20 years.

You would be far better putting more into your pension if it’s for later life - remember people can access their pension pots from 10 years less than the state pension retirement age, so 57 not 67.

The stock market outperforms property anywy and the yield on your example is very very poor. I suspect insurances and maintenance costs will amount to £60 a month leaving you £600 “profit” each year on a £15k outlay - far from good. If you put your £15k into your pension the government will automatically add an extra £3k for you to start with, which is equivalent to 5 years of that btl profit.