Tips re buying an investment property please

[ohanabanana]

We are in the fortunate position of having paid off our mortgage and are wondering if it would be worthwhile buying another property. We aren’t property developers or have any building skills so it would have to be a modern flat. The plan would be to rent it out for 10+ years and then when our children are older we could let them live in it or sell it to give them deposits to buy their own property. Does this sound a good idea in theory? I know that property values cannot be predicted but hopefully a property would increase or at least retain its value over 10 years.
What are the best types of property to buy which are easy to let and sell and less likely to lose value? Smaller city centre or larger on outskirts? Conversion or modern block? One or two bed? Any possible shortfalls or things we need to take into consideration? Thanks for any advice

Top tip is get off mn where many have fallen for the evil landlord being the root of all evil thing. ( they dont object to all other necessities being profitable, just property owned by someone who has more money than you)

Lurk on landlordzone to see what can go wrong.
Speak to local agents to get an idea of realistic rents for the area. Charge what you like does not apply outside the London area.
Two bed - no one really wants a one bed.
Expect a kicking from at least one tenant.

Thank you special- didn’t realise it was a touchy subject! Tbh we’re not looking to make a fortune, just wanting to get ahead with getting our kids on the property ladder. That being said we really don’t want to lose money either. I’ll check out the other website, many thanks

I'd do your research into the rental market in your area very thoroughly because in some are it's very hard to break even on a rental and an increase in value over 10 years is no longer a given.

Go for small simple but high yield. I rent a 5 bed place in a poor part of the country. For the cost of its value I could buy a one/two bed flat where I live now and get the same rent. The value is the same, the rent is same the difference is a 5 bed house has far more to go wrong and more things to maintain than say a 2 bed flat. Thus more cost and more stress. In the future I aim to sell the 5 bed and invest a simple 1 or 2 bed of the same value.

Where are you in the country OP? We let out 2 places in London. Yield is not that high but we know the value of the property should ultimately go up (it has already doubled).

Have a look at property partner, it is a residential landlord company where you buy shares in multiple BTL properties which are then managed by the company. Thus you can spread the risk across multiple properties and geographical regions.

I have a BTL (my last house that I lived in for 9 years but found impossible to sell) and would prefer not too, DH and I have also got a fair amount invested in the property market via property partner. I would much prefer not to have such a high proportion of my savings invested in the one property, but it is just how life turned out.

I'd think very carefully about it; it's not easy money, especially if you self-manage. And if you use an agency, there will be higher costs, on top of all the legal requirements (EPC, gas safety) etc. Add in lenders requirements, void periods, higher mortgage rates for BTL & recent taxation changes & you'll see why very few make a profit.

Can't speak for the rental side but in terms of value unless you live in the south east or other high value areas then I wouldnt assume a property will increase in value. As an example my dp bought our current house In 2007 for 110k, a perfectly nice 2 bed terrace that we've sold this year for 85k. Not everywhere has seen the huge property increases other areas of the country has.
Just something to think about.

Ohanabanana a few points to consider you might find helpful. Firstly, I would be extremely wary of relying on capital gains with such an liquid asset as property. Past performance is no indicator of the future. The market is clearly stagnating and falling in some areas of the UK and if you have a low yield below 5% you need to be very careful. People have done well out of property in recent years but new changes such as the extra 3% stamp duty surcharge, Section 24 tax changes, new EPC rules, letting fees ban and improved long term tenancy rights in Scotland show the new direction. Political parties will be looking to tax BTL further for easy younger votes and with your name on the land registry and mortgage landlords will be an juicy target for HMRC and local councils. But the biggy is interest rates and particular the rates banks will lend to BTL (which they see as more risky). If rates continue to rise as tax bills increase, expect a flurry of BTL landlords selling up en masse. In cities such as London, Brexit is going to impact the rental market, just take a look on Zoopla the rate of reductions in the capital. If you do go ahead, do your research and haggle hard. I prefer shares as I can sell with a click of a mouse and I don't have to deal with voids or nightmare tenants but each to their own so good luck with decision.

The point about yield is a good one - mine does 3% after expenses, beware of exaggerated gross figures. Cheaper places yield better on rent but insurance, agent fees, insurances etc ( and you need a lot of insurance) are pro rata more for cheaper places.

I'd say forget it if you need a mortgage or are in scotland. Don't buy anywhere hard to sell as if/when England follows new Scottish rules you will want to get out. It is hard enough to evict troublemakers now, I wouldn't like to be trying under the new rules.

Agree, 3% is barely beating inflation so buying cheaper places could be a must for a respectable yield in real terms. A 3% yield and you might as will stick it in a fixed rate bond, even a basic simple FTSE tracker fund would of averaged around 10% per year gains over last 5 years and no hassle, admin or tenants to speak of! Easy.

My stock market stuff has done a lot better than that. The only reason for property is diversification and capital growth. But luckily I didn't buy in 2006/7. And it is just luck.

Yes, those painful facts are why property yield is always quoted gross.

Check out the tax rules too as there were changes recently

I think the BTL bubble has burst, TBH and it's over (with the exception of cash buyers in very popular areas).

I'd see an IFA & go through figures if you are still keen. But there are easier & less riskier options out there.

Do remember that capital gains tax will take a good chunk of any eventual profit, and if Labour get in I dare say they will increase that on any 2nd or further properties.

We have one 2 bed rental property which has been a moderately good investment so far but we have an extremely good lead tenant who's been there 5 years plus. We always sort out any maintenance issues ASAP, and despite having spent a lot on renovating the flat to a standard we'd have been very happy to live in ourselves, there are still issues - some quite expensive - now and then. We do have a letting agent who will see to maintenance, but they can be a mite slow to act and often charge more, so we've sorted out several things ourselves.

Should add that before buying I did a LOT of research on prices and rental values, and made myself very familiar with the area by walking around at different times/weekdays and weekends. Not that I'm planning on any more, but I'd never buy without doing this. Also, I would never buy a newbuild flat - prices are often so much higher per sq meter than older ones, and ground rent/service charges are frequently very high/extortionate.

IMO a lot of the problems people subsequently have with rental,properties come from a) doing little or no research, b) buying in unfamiliar areas and believing what they are told by estate agents about demand/rental values, and c) over stretching themselves on any mortgage, so that any difficulties with tenants not paying or a void for a couple of months, causes a lot of financial difficulty.

I see from the areas I keep a close eye on - part of SW London and the parts of Oxford where dds live - that a number of landlords are selling up - you can often tell which are rentals - so it would seem that quite a few are feeling that what with the recent tax changes and prices beginning to drop in some areas, it's time to get out while the going's still good.
However, IMO there will always be a market in many areas for good, well-maintained properties, at reasonable rents. Setting a reasonable rent in the first place is IMO important - during my online nosing I see many which are priced on the very greedy side - and then sit empty for a few months while the rent is reduced in reluctant little nibbles until it's reasonable.

An alternative investment would be stocks and shares ISAs - if you both put in the max yearly they can provide quite a good tax free income to either save or re-invest. Best to seek advice on both anyway.

Capital gains tax when you come to sell it, as it is not your primary property. You can work it out here,
www.gov.uk/capital-gains-tax
Also maybe its best to buy a house to live in it, not to make money~...

There is a political change in the air as MPs discover that ignoring non-homeowners has electoral consequences and so they are coming up with policies to try to retain voters. Labour have just pledged to make evictions much harder for landlords for no fault evictions and it doesn't take a genius to work out more policies will come out to attract the increasingly renting voter public. Even the Tories won't care one bit about the effect on BTL portfolios if it is a choice between protecting a small number of amateur landlords or losing power for 5 years. It's only my opinion but the smart money is out or frantically getting out of property now before Brexit, just have a look at the eye watering reductions in both rental and sales London to see what is coming nationally soon. Buying a second property in this climate is a huge risk despite a 10 year time scale.

I would not enter the btl market now and indeed am selling part of my portfolio to reduce my exposure.

The only properties I have with a decent return are student let's in the winter/holiday let's in summer. Even then Air BnB is impacting on the holiday lettings.

If by a "modern flat", you mean new-build or recently-built, I'd be wary. Some developments have become almost rental ghettos with so many units up for rent that the owners are constantly having to undercut each other in order to achieve occupancy. This can also happen to some areas in cities - particularly ones known for student lets (most typically) or attracting house-sharers who have just graduated - so be very careful of places marketed as "popular with renters".

My bottom line is if I wouldn't be happy to live there - the flat itself, the street and the neighbourhood - I wouldn't assume anyone else would.

Dont do it in London or Scotland, don't do it you need a mortgage. Don't do it if you can't afford a gap while you wait for the right tenant, because evicting the wrong one is going to get even harder than it already is.

And yes, my btl was on the basis ' would I live here?'. Rejected a lot where that was not the case.

Re landlords getting out while the going's still good, I checked the Oxford area where a dd lives and there were several large HMOs (mostly minus tenants) just on the first page. I haven't checked for a while, and this is the first time I've ever seen so many for sale.

Yes, I agree re HMOs. I've noticed quite a few for sale where my son is a student - all already let for the next couple of years, though. When I looked, I saw they were just owned by a couple of different investors, who had obviously decided now was the time to sell.

I was surprised that all were snapped up immediately. I assume (perhaps wrongly) by parents of students, as they might be able to make the figures work.

However, I know of two (inexperienced) people who have just entered the market in a different city. For me, when the professionals are exiting the market, I wouldn't be entering.

The winter student let/summer holiday let I am current selling has a good return. Even taking the holiday let income as net (agency costs hover at about 40% because they are essentially doing a full tenancy change including clean each week) I was getting about a 6% return.

However interest rates may rise, the prospects for capital growth are small, tenants are getting more demanding, rents are static and maintenance and other costs are rising. And our tax bills this year, following the tax changes on BTL, have risen significantly.

Definitely the time to reduce both borrowing and risk. But perhaps a chance for others to buy into quite a profitable investment.

The Oxford HMOs I mentioned have not been snapped up, but that's very likely because Oxford prices have soared into the realms of the ridiculous. However I do see that they are beginning to come down a bit.

It's often easy to see from the 'last sold' online info that these LLs paid half, or even less, for the properties, than the price they're asking now. So the likelihood of any other buyer getting anything like the same yield is minute or non existent. Same will apply of course to smaller, non HMO rentals.