Second property as investment these days?

[bellac11]

We have often talked about getting a second property and either renting it out or having it for the kids but havent put much thought or investigation into it

The subject came up again recently with house prices dropping would it be time to buy at the bottom of the market, if it is at some point.

We own our house outright, so would need a mortgage on tht to buy something else outright, is that a thing? Or would you get the mortgage on the second property, not sure how it works?

I know quite a lot about landlord responsibilities etc but wondered if anyone is entering into that now? We wouldnt really want to leave it empty as such.

We havent got great pensions so this would be something for that at the time, if it was a good idea

I’m a landlord and I wouldn’t recommend it in the slightest. It gets harder every year. I’ve owned my properties for around 15 years (flats) and they aren’t worth anymore than I paid for them. I sold one a few years back for £1k more than I paid. Mine all have cladding/fire safety issues so can’t be sold or mortgaged so are now costing me circa £1.5k a month to subsidise. Total nightmare. This is the first year I’ve had to put up rents too due to escalating charges.

I am an experienced BTL landlord. The thing about property is it is a geared investment so potentially bigger returns than just e.g putting money in an ISA:
e.g buy a property at £250k with £50 deposit and if it goes up 10% that is £25k return (less taxes and costs of selling). £50k invested gives £5k return on 10%. Plus if it is rented out you are covering the cost of your borrowing (you wouldn't be able to borrow £200k just to put in an ISA with a £50k deposit).

It is hassle and you need to fully research the area you are looking at investing in - where are you located, would it be nearby? There are still good BLT rental yields but these now tend to be in the North of England.

Also will you be managing the property, finding tenants etc or will you use an agent? Agents are expensive but they take the hassle away and are also up to date on latest rental legislation (e.g electricity, gas checks etc) - if you don't comply there are big fines plus the risk of something happening and tenants getting injured - you are responsible for providing a safe home.

Good luck you need to go into it with eyes wide open but if done correctly then it can be a good investment.

What if they don’t? This model isn’t much of a pension plan either.

Are you sure this is a good idea?

Landlords are selling up in droves. Lots of new legislation coming out making it harder.
Regarding EPC, if it's not a C and above you won't be able to rent.
Regarding LTD, if you want more profit it's the better avenue to go. Outside if an LTD you are paying a lot more in taxes. Capital gains tax is always applicable 28% vs 10% as Ltd for example. Self assessment tax 40% if higher earner vs 19% as LTD.
If you can't rent, are you happy to have it sitting empty paying the BTL mortgage?
I'd speak to a financial advisor before doing anything.

Ltd Company profits are taxed at 19. - 25%

THEN you pay dividend tax on top as you take money out.

Honestly, it’s not a given

I have also been an accidental landlord. I owned a flat, DH and I bought another flat together, I let the original flat out.

It was / is a bit of a nightmare!! Much harder now too. And factor in stamp duty on owning more than one property.

And when it comes to inheritance tax on it (leaving it to children etc), really not worth it.

We are going to sell the flat soon.

I dont know, thats why Im on here musing about it!!!

It is really difficult to get professional advice in this area.

Financial advisers and mortgage advisers are not qualified nor licensed to give tax advice.

Tax advisers are not authorised to give regulated financial advice - broadly anything to do with investments and mortgages.

In order to get the full picture you will need to get information from both and then work out yourself what is the better option for you.

If you need to sell it you get hit with property gains tax.

i have attended meetings with an accountant with my clients, as you are correct it crosses both disciplines. It’s not the ‘no brained’ it once was.

It's a super confusing area and I'm not an expert but I have been mulling over some of it due to the possibility of becoming an accidental landlord were I to move in with my boyfriend, who also owns a (larger) property.

What is striking is the amount of tax you pay on the rent you receive. There are some small tax breaks which others have outlined above, but they are small. Once those are out the way, as I understand it, you pay tax on the rental income as if it were your salary. I'm a higher rate taxpayer, so I'd be taxed at 40% of any rental income. Let's say just for illustrative purposes that the mortgage costs £1000 and the rent is £1500. I'd be taxed 40% of that £1500, leaving me with £900, which doesn't even cover the mortgage payment, let alone the landlord's insurance, agent's fees, the cost of maintenance and repair and so on and so forth. (I'm not taking into account the limited tax relief here, so this isn't completely right, but from what I understand it isn't far off.)

This wouldn't be the end of the world for me because I didn't buy the property as an investment, so I'd still be getting some contribution to paying off my mortgage versus paying it all myself. But it wouldn't leave me with a net profit.

I'm on a repayment mortgage currently. If I were to move to an interest-only mortgage, the monthly repayments would be lower, so there's more chance of making a profit. But, I'd have to sell the property when my mortgage term ended (or remortgage and carry on - either way I'd never find myself owning it). If you sell it for less than you paid you've made a loss. If you sell it for more than you paid, you have to pay capital gains tax on the profit, again eating into your potential profit.

My overall reflection is that it's still a licence to print money assuming you have the right property in the right area, but only if you either own the property you want to rent outright, or have a very very small mortgage on it. Today's higher interest rates are a big part of this too.

i have thought about this; we live in a fairly touristy area and i think i would be looking at renting anything out as a holiday let. Being a landlord has become a nightmare if you are just an individual and I wouldn't want to take the risk that I couldn't evict someone when I wanted to use the house myself.

however I would only do this if I were buying outright as an investment for DD's future home

Landlords are selling up in droves. Lots of new legislation coming out making it harder

Indeed they are, most of the cheaper properties on market nr me are all ex rentals and very few new ones to rent.

Regarding EPC, if it's not a C and above you won't be able to rent

Not quite true, from 2025, all new tenancies must be C or above and from 2028 for existing ones.

Will these changes be dropped/watered down? where will tenants go as more LLs sell, thought Sunak scrapped them?

Not true.
The EPC changes were scrapped by Rishi Sunac.

www.simplybusiness.co.uk/knowledge/articles/energy-efficiency-rules-for-rental-properties-scrapped/

www.simplybusiness.co.uk/knowledge/articles/energy-efficiency-rules-for-rental-properties-scrapped/

@Beenalongwinter obviously my post is a few months old. I'm well aware of the current situation.