Any buy to let landlords about? Can I ask some questions.

[JacobReesMogadishu]

Am thinking of buying a buy to let house locally, it’s something I’ve wanted to do for years and been very close to,doing previously but I get worried and back out.

I have 30k cash sitting in a savings account and about 15k in shares j could sell. Terraced houses near me are 100-110k. So looking at about a 70k mortgage and I have a mortgage in principle, a buy to let one.

So mortgage repayments would be about £250 a month, rent about £600 a month. I know I need to buy house insurance, landlord insurance and pay agent fees. So I’d expect approx £300 a month “left over”. So £3600 a year.

It’s an interest only mortgage over 20 years. If I was able to save the £3600 I’d have £72000 at the end of 20 years so just about enough to,pay the mortgage off. But I know it’s unlikely I would save that much, I’m going to have empty months, property repairs, etc. Gas inspections. So I might only have 60k at the end.

So I’d either need to find 10-20k cash to finish the house purchase.....so it would have cost me 40-50k cash plus 20 years of potential stress but I guess I have a 100k house so will have made 50k.

Or I sell the house to pay the outstanding amount off and keep the balance. So would have maybe 80k in my pocket (approx 30k of which I paid in the first place).

This is all assuming house prices don’t rise in the next 20 years. My property wheeler dealing mate assures me they will. 🤷‍♀️ Obviously if prices do go up that’s even better but I’m wanting to be pessimistic and assume they don’t.

Do the figures sound realistic. The house I’m interested in is currently rented to a long term tenant for £600. It’s a thriving uni town so I’d like to think the rental market is good.

Its not an easy way to make money and personally I think you have the potential to lose money as a sole property holder with a mortgage. You'll need £££ in reserve for repairs/voids, insurances, epc, annual gas safety certificates etc. Join the National Landlords Association (approx £100 a year, still tax deductible) - there are legal responsibilities even if you use an Agent. Unless you want to do your accounts yourself then you'll need an accountant. The income will probably tip you into the Higher rate tax bracket - if you receive child benefit, then it will be affected.

Money saving expert has a a lot of Landlords and money type people on. Post there and they'll number crunch for you and gives advice.

So recently our boiler went. That was £6500 that was needed

The. The window a broke. So that was another £4500

Those types of issues. Which means you need quite a bit ready for that. Or to be Abel to afford that.

I definitely wouldn't want students. It would have to comply with all the HMO regulations too.

Whilst Tax is a pain bear in mind that you can deduct costs inc agency fees, landlords insurance and replacement of anything broken etc before you pay tax. You will also only pay 20% on your mortgage interest if you are a higher rate tax payer each year. So my £12000 income and only pay £2000 tax.

But yeah need to consider repairs etc.

Where have you got the quote for the mortgage? I have had a quick look and can get about £100-£150 a month from HSBC for interest only or £300 for a capital repayment.

Don't forget to add the extra property tax (if you already own) plus tenant-finding fees (usually several hundred pounds). Your rental income should be 125% of your mortgage - so that might be above the rental market in your area.

You might be better buying a cheaper flat (rather than a house).

And the way renting is going, you can perhaps expect landlord registration, compulsory agency use (rather than self-managing) - much more regulation in general.

Like others, I believe the BTL bubble has burst & it is now only worthwhile if you are mortgage-free & have industry-knowledge where you can self-manage.

If you are not paying off the capital and not really making any money, surely you’d get the same capital appreciation by living in that increase of ownership in your own house. Breaking even and only getting capital increases is adding a whole heap of risk when you could do the same tax free in your own home. It would of course involve a move, but transaction fees are lower on owner occupied homes.

Currently we have one Tennant paying half rent due to the situation. Other property is empty as tennants moved out in February and we had a new kitchen put in. Now there are no evictions for 3 months so too risky. Luckily we don't have any mortgages. I would be having sleepless nights if we did.

Could you buy something cheap like a garage to rent out instead? Steady but small income, or a well placed studio flat? Something you can buy without a mortgage at all.

Your figures are off from the start. It will cost you around £2000-3000 in fees and surveys to buy the house. You are factoring only £50/ month for agent fees and insurance etc? That seems very low. Then only about £12 000 over 20 years for voids and repairs? Is the mortgaged fixed? What if rates go up? You will have to redecorate a couple times, replace the boiler, any white goods, carpet at least once...and heck the experience of this pandemic alone should tell you are way too optimistic - three of my tenants have only been able to pay half or three quarters or their rent in the last three months. Plus are you really going to put all the money you earn (after tax) and not touch it? What would the point be? Say you, more realistically, break even every year. At the end of 20 years you'll need to either remortgage or sell to pay the £70 k. Say your house has gone up two and a half times in value to £330000. You sell it, minus agent fees and give the bank its £70k. You are left with, after fees, around £250,000. That is a gain (for tax reasons) of £140,000. Tax will be 18% or 28% depending in your tax rate. So at the most you will have £114,800, minus your initial cash investment of £45,000 you have made over 20 years, just under £70,000. That is on the optimistic side (and a lot of assumptions - capital gains tax may increase etc). The biggest thing is your interest only payment may quite likely go up, and even if you increase your rent, it won't match it. And there may be a huge expensive like a new roof which may cost say £5000 - that money has to come from somewhere.
Though I'll also say I just took an interest only buy to let mortgage for £75k and my repayments are £125/month. You should also try to overpay by up to 10% of the mortgage balance every year.
It's a complicated business and an accountant may give you better more accurate advice.

One other consideration is that currently you can evict the tenant without any reason (S.21) but the government is looking at making it more difficult. This is good news for tenants but not for landlords.

it isn't good news for people living next to drug dealer tenants...

The 'no reason' eviction is ALWAYS used for a reason. Shelter don't like that little fact. S21 gets used because the deal/steal/wreck brigade can't evade it - S8 is really easily circumvented.

you'd be mad to go into BTL now with a mortgage and new tenants. I know there's nowhere else to put money but at least the other ways give you less stress.

We let 3 properties- a house and 2 flats, fully managed through agents. The profitability varies- I would estimate returns on equity invested after tax between 3-6%. Better than cash deposits but not a get rich quick scheme.

In all honesty I don’t think the risk and hassle is worth the reward. There are so many risks- legal compliance, tenants not paying, property markets going down, government legislation (private landlords have been screwed over in the last few years). Even if you get it fully managed you still have to deal with agents, keep up with legislation and make sure you’re not being ripped off.

I would not buy any more unless it was a total bargain. We will look at selling one of the properties once the existing tenants move out and the market improves. You also need a decent cash reserve for voids, repairs, agent fees etc.

Unless this is your only property, the additional stamp duty will take a while to recover.

If you did decide to go ahead then an interest only mortgage with overpayment options gives you flexibility and is easiest for accounting purposes.

The but to let "game" is def of over.
Sure the claimable mortgage interest aspect being removed mean small profit margins. It's broadly meant a higher tax bill, but with good planning you'll still be alright. It mainly means that folk earning loads against their personal name (as opposed to limited company) ended up with increasing tax bills, hadn't planned for that, then had to sell up.
Interest only - because most of your profit comes from capital gains. Google"why interest only mortgage on buy to let " will explain it more.
There are lots of books on the subject.
News articles are sensationalist and won't tell the true story.
Where else can you easily get 5% monthly return after outgoings, plus capital growth as a bonus?

Jesus. The buy to let game is def not over

I thought stocks & shares had out performed property over the last few decades.

Well I spoke to someone today who has several student buy to let properties in the city. She says she is struggling to fill the houses for Sept. so is thinking about letting some of the nicer new out long term to families/couples rather than students. So that’s put me off even more. Think I’ll leave it.

I thought stocks & shares had out performed property over the last few decades Yes they have, but very few people borrow money and gear up their exposure to the stock market. If you borrow £1m you get the gains on that as well as your equity, that’s the trick that property brings to investment.

More tax friendly would be to invest in your own home and potentially have a lodger, more flexible for you and no CGT or tax on the income if you keep to the allowance