Buy to let - any advice?

[Anyname123]

DP and I have a bit of money put aside that we are struggling to decide what to do with.

We have contemplated paying a lump off our mortgage or doing home improvements, or possibly buying a BTL (with a mortgage) with a view to this being the DCs uni / deposit fund.

I know that MN generally frowns on Landlords but I wondered if anyone would share their experience of being a LL and how it's going for them - warts and all?

My view? It is a highly illiquid and non-diversified investment, of which there is a high amount of hassle and taxes. The income yield is unlikely to be beat passive investments such as index linked funds, and I’m not sure right now is a great time to be expecting to get a capital yield as well.

Depends how much money you have but personally I’d recommend you see an IFA.

I would pay off a chunk of my own mortgage then drip the mortgage payments I would have made into S&S ISA and invest in index linked funds (I like vanguards lifestyle basket as I don’t have a huge interest in constantly monitoring and trading) or maybe some into an Alternative Finance ISA.

If you will hit 55 before you think you’ll need to give the cash to your kids I’d also do the LISA - but only if you’re sure you won’t meed access to that cash early.

I have a small portfolio of BTL properties.

You need to do your sums very carefully and know your local market. We live in a place where small one bed flats are in high demand by young professionals and postgrad students. This is our market. Yield is relatively low however- around 4% because of high purchase prices.

If you need a mortgage try to get a fixed rate deal where your repayments will be easily covered by rental return and therefore give you a cushion for empty periods. We only have 50% mortgage with repayments generally around 30% of monthly rents so lots of wriggle room. If you are squeaking to make repayments then it’s not for you.

I pay 10% to have the properties fully managed. If this is too much for you consider how you would/could deal with a call about a broken boiler on a Friday night or when you are sitting in an airport departure lounge. Do you have local reliable plumber, electrician, handyman you can call on? If not, have it managed but lose a further 10% of income.

You will need to declare all tax and mortgage interest relief is on its way out. You will need to insure your property and the building if freehold.

You will need to be prepared to redecorate regularly and in worst case scenario fumigate between tenants (again, who is likely to be your market - families will create more wear and tear for example). Not all tenants will leave when they should. So bear in mind possible legal fees for eviction (not something I’ve had to deal with -yet!)

In your position I would clear /reduce your debt first and save what you were paying on mortgage for your university fund. We went into property as we have regular large lump sums to invest (city bonus). Given all the above I think that’s really the only way to go into the BTL market today

Have you done your tax maths? Do you know the rules coming in? The government is doing everything to discourage btl and encourage other investment.

We do both, invest in btl as well as a range of stocks and shares, incl some lovely Vanguard stuff too :)

Property is by far more hassle as you need to stay on top of different rules, attend to tenant’s queries and all sorts of repairs and maintenance. However, if the tax situation stacks up, then it’s possible to get decent yields and a good capital uplift over time if you buy wisely. Just make sure you have a good buffer so you can cough up for a new boiler in a matter of hours or are able to keep to mortgage and service charge payments even if a dodgy tenant stops paying and it takes months to evict them.

I’m only pregnant with number 1 but reckon we’d probably like to give each future child a flat each so the rent covers their uni costs and then they have a London base should they want to have a career here.

If one of you is not a tax payer then BTL will be more cost effective for you as it can use your tax free allowance. If you are both high rate tax payers then it is not as cost effective. Best suited for people who enjoy property management and can do all repairs/decorating, have reliable plumber and electrician readily available and don't get easily stressed if something does go wrong.

I was a letting agent for many years and even I would not invest in buy to let. Very steep learning curve, the supervision of landlords increases by the day as do the legal requirements you have to meet and that is before you even let the property. It helps if the property is not where all your money is invested, if you are a person who copes well with problems and if you have contractors in the family or those with experience of being a landlord.

I’m done with it and selling off over the next few years. Too many changes in Scotland now. We can make a profit and have worked hard at it but I’d rather be mortgage free at home and have quality family holiday time.

Thanks for all your replies, you're a clever lot on this board!

I'm wondering if my sums quite stack up, 20% deposit, 12k, very low cost area. 5K for fees / stamp duty, 3k in a pot for decorating / maintenance.

£495 pcm rent, self manage.
I'm a lower rate tax payer due to very part time work, so presumably I could declare through my taxes rather than DP who is a higher rate payer.

Don't expect to generate a monthly income in my purse, but would pay any surplus off the capital.

I'm looking more long term really, if I could have an asset worth 50k after taxes etc to give to dc, that's effectively paid for itself, it just seems too simplistic maybe?

Make sure you purchase in your name only if you want to declare it as your income. If in joint names HMRC might tax at your DH marginal rate.

You are looking at too simply in terms of the maths alone and not the personal time, hassle and stress issues

I'd take a look at the landlordzone forum before considering self-managing - it's an eye-opener. And I wouldn't consider it if you are a first-timer, unless you have experience of the industry.

Also have a look at what's happening in Scotland, as it will probably be implemented over the rest of the UK: LL vetting & registration, rent area controls, major changes to tenancy law giving tenants way more rights.

I would only do it using an agent & with a tiny mortgage.

Not with a mortgage, and as england will probably get the Scottish laws in time - not at all now. The insurances you need alone are very pricey.

And should have said that there are a few bad tenants out there who see a newbie LL coming. Some with bad credit, fake references, who know how to play the deposit scheme rules.....unless you really know what you are doing, it will come back to bite you on the bum.

www.thisismoney.co.uk/money/comment/article-5445723/Why-amassing-debts-piling-money-buy-let-madness.html

I’ve always self-managed and it’s been ok but you need to make sure you can get to the property easily enough. It also looks like the rent coming in would be very good considering the value of the property. When you do your maths, remember to factor in things like service charge, insurance, boiler inspections and certificates etc. You’ll also need to look at mortgage costs as often the fees for a btl mortgage are very high. With regards to making sure the income is treated as yours for tax purposes, speak to your solicitor about the declaration of trust.

Have you factored in voids? Also, the stress of eviction processes?

Could you deal with a bad tenant causing several grands worth of damage?

If you self manage, do you know plenty of good, reliable tradesmen?

Thanks for all the feedback, both negative and positive.

I'm going back and forth between thinking it's a great idea, or thinking we should just shove the money in premium bonds until we've gone past the paying nursery fees stage and there is a bit more disposable income floating about for the case of emergencies, bad tenants etc. And where we could probably buy a nicer house should we choose to, attracting a more young professional type tenant.

you are of course totally screwed with anything else to do with the money - stock market high, interest rates negative in real terms.

You can get a bit over 1% in easy access accounts, which is more real than premium bonds.

Use any spare money to pay off your current debts. Economic future is uncertain at the moment, paying off debt will make you more resilient against any future shocks. Also consider Junior ISA’s for DC or take up
Your full ISA entitlement in a sucks and shares ISA for potentially better returns

we should just shove the money in premium bonds

Not premium bonds! They changed the scheme a few years ago and now they have a really crap return.

If you are only talking about £12k I would think about just holding that in savings accounts with the best interest you can find - it is not a big amount and you would be crazy to lock away your only savings into property.

Premium bonds won’t even keep up with inflation so you’ll be losing money. Same for most savings.
As the investment presumably is very long term, you could just do a stocks and shares ISA and pick a good fund. The value can go up and down but over the long term it generally outperforms any bonds, savings or inflation.

If you’re really not keen on investing as you feel out of your depth/scared, then I’d explore paying your mortgage down. It could be especially beneficial if your LTV is over 60% as it could lead to you being able to remortgage at much lower interest rates, potentially saving you £££.

If, by any chance, you’re older parents and your DC won’t get to adulthood till you’re in your late 50’s, then putting more money into pensions or LISAs could be an idea - very tax efficient and then you can take a tax free lump sum out that you can give your children towards a property deposit etc.

We are LLs altho didn't do a BtL (DPs mortgage was almost paid off when we relocated & we couldn't sell it).

It's DPs property and has no mortgage. Monthly rental is £455 but we pay 10% of that for full management. That might seem nice getting £400+ per month. However, landlord insurance, ground rent & buildings insurance (It's a leashold), boiler insurance eat about £50-55 per month of that. Then we have tax @ 20%. This is without any repairs, non paying tenants, etc. Last year the property needed a new roof which was £12k & we had to discount the rent as the tenants were living in a building site.

We do make money and the capital gain from when DP bought it in 1994 will be huge but it's not a goldmine, I wouldn't do it if you need to get a mortgage.

Thank you all for the reality check, you're a wise bunch!
I think I'll be better off just paying 5k off our mortgage, investing 5k long term, and keeping the rest in an accessible rainy day fund. I was definitely getting carried away after too many Homes Under the Hammer episodes!

I think I'll be better off just paying 5k off our mortgage, investing 5k long term, and keeping the rest in an accessible rainy day fund. I was definitely getting carried away after too many Homes Under the Hammer episodes!

Yup much more sensible I think.

Glad to see you've really thought it through and come to a good decision. The thread has lots of good advice to help you weigh up the pitfalls. The next few years really are going to be very different from previous years for btl.

As said upthread - there will be further changes ahead too.

Good plan.

Being a landlord isn't like other investments- more like a part time job with highly variable hours and stress, even fully managed!

I agree with your decision too! It would be worth keeping a ‘deposit’ in an instant access savings account, as if house prices do crash it would be a great time to pick up a bargain :). We are slowly selling off our portfolio atm, although may keep one for the kids