To buy a house to rent it out?

[tobuyarental]

I'm just wondering in general do people think this is an overall good idea?

I work in accountancy I know I've to pay tax etc and will be following all correct guidelines. I have also done income tax returns for LLs who have had their houses trashed/ spent a fortune getting bad tenants out

I am in my mid 30s and realising I have been a bit stupid with guarding my own future. My DH will eventually inherit a large family business which comes with a home. If he decided to leave me I could be left pretty high and dry. Not as simple as 50/50 split in case of inheritance/divorce.

I'm not in the UK I am in the EU and this is where I would buy. I do understand how things work here, born and raised in UK but all my family is from this country so I understand it. That's not the issue.

There is an anti landlord sentiment that they are evil etc. So that puts me off.

In general do you think it's usually a good route to go down as an investment?

After all predicted expenses and tax I wouldn't make a huge monthly profit but I would have an asset building for myself. I would need the initial deposit but after that if I have good tenants it should pay for itself

I think it can be a good investment but let the place through a reputable agency who will do credit checks, take references etc. There are never any guarantees but that does help. I have a rental property, not from choice, it was inherited, which I tried to sell unsuccessfully, then let to people who did not pay the rent for a while :-). It is now let to a reliable tenant, thankfully. I learned from the experiences. I wish you good luck.

I would say get advice from the country you are living in . In England laws are changing and mortgages going up . Lots are ll are not going to make profit they were previously and evicting a tenant will be much harder.

It’s that important bit at the end “…if I have good tenants”. How are you going to be sure of it?

@Wizardo That of course is the hardest bit. I have read up on landlord responsibilities etc here. A huge emphasis is based on not being discriminatory which I completely agree with. But I can insist on good references and an interview with the person. I have the right to not go with someone I don't trust, or so the lady I spoke to on the helpline said.

If I do go down this route I will be getting advice from a solicitor who deals with property to do up contracts. I can have it on a year by year lease and do periodic inspections. I wouldn't like whoever lived their not to feel like it is their home though.

@Starlightstarbright3 I don't expect to make much profit from this at all, it is just a safety net for me really. I own nothing in my own right, this would be a martial asset. But would be a substantial bit of security for me. I have just been saving and there is no return in that.

I work part time and mostly do all childcare. DH works for family business that he will inherit. It's all tied together house/ business. If divorce did happen apparently it is unlikely a judge would make him sell a viable business in this sector to split marital assets. Until he actually inherits the business together we own no assets. Hopefully that won't be for another 20 years, his parents are 70s. When I moved here - just for him- the plan was we would build a house. But that has not and now will not happen because 'it wasn't needed' I am starting to worry I was naïve.

My dad left my mum high and dry when I was about 1. DH is not at all like my dad but I still think I have been foolish to not start building any of my own assets.

Start off with a six month contract, op.

Hard to advise when not U.K.

Here ...very much anti landlord including the govt who imposed an awfully harsh tax regime. Result landlords are selling up,and private renting costs have exploded. So all they did was hurt those on the lower end of the earning league.

I sold my rental,portfolio because of this. Shame as my feedback was being an excellent landlord. Houses maintained to a high (prob too high) quality and tenants devastated when I sold. Be aware of what you are getting into

I’ve done this. Bought in 2015 and sold in 2023. Overall, after fees (which keep going up and are increasingly borne by the LL, meaning that high turnover of tenants is v expensive) and taxes including stamp, CGT, income tax, I made the same return as I would have done by investing in a balanced equity portfolio. That was without mortgage fees. Now that interest rates are high, I’d have been better off locking the capital away in fixed term savings although obv we don’t know how long that continues. For you, IR mean higher repayments if you’re borrowing to do this.

The difference was the hassle of looking after everything. Either you pay an agent an extortionate fee eg 13% to “fully manage” everything, as a result of which they add 10% or flat rate admin fees to EVERYTHING they do eg book a GSC test that takes them five second… or you do the management yourself and just let the agency find tenants, manage the contract and collect payments. Even then, some tenants can be incredibly difficult and you pretty much have no recourse if something goes wrong. Some can also be lovely, but you’ll never know who you’re getting.

If you’re after a nest egg that will grow with minimum effort then I wouldn’t bother, you make no more than in any other asset now. If you actually want a property at the end of it then go for it.

@PoppyAndParsnip thank you, what sort of asset would you look into? I do like the thought of having a house but a growing asset I could rely on would possibly be better. I know none of this things I liquid assets but I would like something semi-liquid.

I spoke to a financial advisor before and I just thought that what he was recommending didn't really have a lot of pull to it.

This is a very rough idea of what I think my income would be.

That is on a 32 year mortgage. I'm in Ireland, close enough to NI to actually do it there if I wanted but I am no longer UK tax resident and haven't been for a long time so it'd be too complicated I think.

€200K will buy a reasonable but small house about a one hour commute to Dublin hence the rent it high for what it is.

It is possibly an uncertain time to be a landlord although they did recently give a relief to try and keep private LLs in the market. 1000s left.

I would save the profit for 2 years then at the end of year 2 put as much into an overpayment of the mortgage as allowed while still leaving a decent buffer.

I only work part time so have plenty of tax band left to remain in the lower bracket, 25% is an over estimate

I would simulate following scenarios:

1. income assuming 80% occupancy not 100%
2. interest rates going up
3. consider if house you buy is going to be ready to rent from day 1, it might need some work
4. what happens if you decide to go full time? does it change tax calculations a lot?

I wouldn’t touch it.

One bad tenant who is impossible to get rid of will cause you to regret this hugely.

I speak from bitter experience.

@Epli thank you, yes those do change things quite considerably. I am under valuing the rent in my calculations at €1,200 pcm when it would more likely be about €1,800 pcm.

For interest I just took the whole cost of credit over the 32 year term and divided it by 32 but that's probably not really right is it? Interest rates are about 4.5% here

@Bringtheweatherwithyou that is my biggest worry, and probably the main thing putting me off.

And take into account the winter eviction ban.

It’s a horror story waiting to unfold!

Why not just save the money? I don't know what it's like where you live but in the UK people are getting out of BTL, it's too much hassle and it's difficult to make a decent profit. There's no guarantee it will pay for itself if you only have the deposit and it may or may not increase in value. Best rate savings accounts or S&S tracker fund of some sort would be much safer.

Don’t do it. You can’t afford the risk.

You have to do more research and crunching the numbers. I don't know about Ireland, but in the UK you need a higher deposit (20-25%) if you want to mortgage a buy to let and the rates might be higher than for a regular mortgage. If you borrow 200k at 4.5% then interest alone will be 9,000/annually.

I think buy to lets are not a good investment for somebody who does not have a lot of other investments, in which case they serve as a diversification tool.

@Silverbirchtwo I would never be able to save the same amount. I'd need to save €520 to have €200k in 32 years I can't afford to save that much. As it stands I nearly have the deposit. So after the initial deposit everything should hopefully and I know this is the risk part be covered by the rent.

@Epli the interest would reduce as I started to chip away at the capital right? So for the first few years I would be paying a lot in interest but not much capital? That would bring my income tax bill right down.

If I bought a 3 bed one bedroom could be 'mine' and I could let the other two. The tax free threshold is €14k. But legally I would not qualify for that and I don't think I want to go down a road that's not legal

Is there anything else that you would recommend I look into investing in? I was looking at stocks but I honestly don't have a notion about that.

What if it sits empty (or with non paying tenants) for months? Can you afford that plus any maintenance and work that needs to be done for steady upkeep?

You’d probably be better off with a stocks and shares ISA or increasing your pension contributions

If I bought a 3 bed one bedroom could be 'mine' and I could let the other two. The tax free threshold is €14k. But legally I would not qualify for that and I don't think I want to go down a road that's not legal

So you would rent it out as a house share with one bedroom being yours that you don’t live in? I think in that case you’re even more likely to have issues with tenants - friends falling out, moving partners in, all sorts. And it means you’d need to constantly have two paying tenants to make as much as you need.

@PinkFrogss no I don't think I'd go down that route.

All these are making me think more. Right now there would be no problem what so ever with renting it out. But 3,5, 10 years time who know. If I have a few years of renting it out successfully behind me I would hopefully be able to weather the storm of a very shitty tenant.

Maybe this isn't the right choice for me! I am just worried I will be pension age and have nothing of my own. On paper DH and I will be well off. But he would expect (rightly) for family business to go to our DC. I can now see I have made stupid sacrifices for this business that will never be mine - but I will benefit from. But if I decide at 60 I want to sell up and move to the coast that is not something I can do. So I am looking at long term options.

They would report you as soon as you tried to increase the rent or they fell out with one another. Don’t go there! And some people will report simply because they will take issue with you being a landlord and they ‘can’.

So for the first few years I would be paying a lot in interest but not much capital?

It would be a lot longer than the first few years.

Take into account that if you get married down the line, your tax circumstances will change.

Have you looked at the eviction ban and thought about their consequences when you have bad tenants?

It can take years to get rid of bad tenants and months to get rid of good ones!

I wouldn’t voluntarily touch this with a stick if this is your only investment/pension pot.

I strongly suggest you spend around half a year understanding finances a bit more. You can start with places like Meaningful Money podcast - they talk a lot about how to save, invest etc. Then sit with excel and calculate everything, including less than optimal scenarios i.e. house being occupied for 75% of time, interest rates going up etc.

I think you are right - you need to get some safety net for yourself, but maybe there are other ways to do that e.g. private pension? When I did similar calculations for a BTL in the UK it turned out that putting money in index funds will get me a better return in the long term. The rate of return I was getting after taxes etc. was 2.7%.

Thanks all, I'm an accountant, people think I should know about all of this sort of stuff but I really don't 😰

I do however, know some very good financial planners. Maybe I should meet with them

Or just go with someone like Zurich to invest on my behalf. I do have a pension set up

How much is a new boiler?
A redecoration?
Plumber call out and servicing each year?

You said you wanted something that was semi-liquid. I would go as far as saying that most property is pretty illiquid. I say that because you never know if you will be able to sell it, how long it might take, or what you might get for it. You also don’t know how the rules will change around rents, will rent controls be brought in for example as they were in Scotland, around mortgages, or around taxes.

i couldn’t advise you on your situation, you’re right to say that speaking with a financial planner is best. The most cost effective way to invest is really through your pension. It’s tax free on the way in, you get tax free gains and returns, and you get 25% tax free lump sum at 57. You may even get higher employer contributions if you put more of your salary in and live off your savings. You can pay extra into your pension each year too