How do people afford to be a landlord?

[VivaLeBeaver]

I'm keen to buy a terrace house to rent out and in the long term make some money from. We live in a university city so rental market is quite good.

I could get a decent 3 bed terrace house for about 95k. I could put down a cash deposit of 15k, so would need a mortgage of 80k. By my calculations that would be about £400 a month mortgage. I'd need to pay buildings insurance on top of that and would need to pay for any repairs. Well rental costs here seem to be between £400 and £450 a month. So it doesn't add up that I could do it even when my deposit is quite a good one.

Probably most of them will have bought at a lower price, so mortgage payments will be lower.

What I mean is that if the house was bought a number of years ago, it will have been cheaper.

Probably because I bought in 1993?

Buy to let interest only mortgage

and/or have a larger deposit so they get a better return on capital while interest rates are low than if that money was in the bank.

i looked into this myself a while ago i got told mortgage companies usually want 25% deposit on buy to let properties so that went out the window for me

Viva, are your calculations for repaying capital + interest? Because I think quite a lot of people doing buy-to-let take out interest-only mortgages - rental then covers the interest payments plus running costs in the short-term.

Long-term I guess they either remortgage for a better rate, or make their profit by selling on when house prices increase?

I guess I'm just suprised that rental prices haven't increased to take into account higher property prices. It seems daft that you wouldn't even be able to break even and that renting costs less than paying a mortgage.

A lot of residential landlords are in it for the long-term. So they would not expect to make any profit at all on a month by month basis but are looking to hold on to the property and sell in 10, 15 or 20 years time when they forecast prices will have gone up.

a lot of the rental market has been on interest only mortgage and then sellign the property when the price had increased suffiecnt to make a profit.

there are two houses in my road that where purchased to revampe after havign hosued older persons for many years - the houses where revamped and the market hadn't moved and the properties are now let as neither buidler could afford to sell at a loss - or want to sell at a loss

I hadn't thought of interest only mortgage - that would make it doable. But isn't that very risky if at the end of 25 years you haven't got enough money to pay the mortgage off?

That rent sounds low for a university city. When I was renting a house share one of the downstairs rooms was a bedroom - so 4 bedrooms in a 3 bed house. Surely you'd be looking at more than the £25 per week per student you're thinking of.

Well I'm only looking at rental prices where the whole house iss rented out as one. I probably need to do some digging to see if the student rentals are more when there are 4 squeezed in a 3 bed house.

OK, looking at student rental sites in this city single rooms go for £50 p/w, doubles for about £75 p/w - however these prices are inclusive of all utility bills. I'd be scared they'd have the heating on full blast 24/7 and run me up a massive debt.

I've looked at this over the last couple of years and like you, got stumped as to how people manage. I think there are a lot more people out there buying with cash and no mortgages than you think. Mortgages are expensive at the moment and the cheaper ones have massive set up fees, and they only last 2 or 3 years and then you'll have to find a new mortgage and pay another fee!

Also thinking about students vs normal tenants, you will need to think about and budget for HMO provision if you have more than 2 unrelated people sharing a house, a void period in the summer of 1-3 months when the tenancy has ended if you have students, the need for new tenants every year if you have students, provision of furniture for a furnished let for students etc.

We bought in York a year ago and decided not to let to students due to the hassles for no more rent than normal tenants would pay. But it may be different in your town, and if you can manage the property yourself it helps the costs enormously

We could manage the property ourselves but you're right about things like holidays, uncertainty from one year to the next, would all rooms be filled - just puts me off students. Oh well, if I win the lottery!

If you have a mortgage of any size you don't make a lot on the rent, if anything. We do buy-to-letting because long term I think houses in the south of England are a more reliable investment than shares or pensions (which are usually mostly shares as well).

Historically, landlords have aimed for an annual return on their investment (ie deposit) of 6%.

It is vey difficult to achieve that level on the percentage deposit the OP is talking about, and void periods combined with an increase in the mortgage rate would erode it further.

In short, a new buy to let is only viable at present with a lot of cash and a long term attitude, IMHO.

We have just bought one for 95k, min deposit for BTL is 20% at the moment so 19k plus fees.
Interest only mortgage approx 360, rent 495.
The idea with int only is that after 15-20 years you have not paid anything off the mortgage, but also you have not paid any of the interest yourself as the rental payments cover it.
You then sell the property (hopefully for quite a bit more than you paid) and that is where your profit comes in. It is rare to make much month to month but still a fairly good long term investment.
Sound possible for you VLB.

The rent on our flat more than covers the mortgage, which is on a repayment basis. The flat is only worth a little bit more than DW paid for it so you could buy it today and still make a bit of money on it.

I think it depends what you're buying and where you're buying it. Nice flats will always be better for renting than houses as they are easier to let and require less maintenance. An area with a large professional population will be better than somewhere with lots of students because rents will be higher and there will be greater demand for high quality rental property.

I think buy to let only really works as an investment (unless on a large scale) in a period of soaring property prices. Hopefully it is now going to become much less popular.