Is it worth being a landlord?

[Onebyone987]

Myself and my fiancé have two properties between us. I’m mortgage free on a modest house due to inheritance and my DP has a mortgage on a three bed (it’s a starter home new build as it’s one double with two tiny box rooms). He’s just moved in with me full time as he’s finally got a job transfer closer to here leaving his place empty.

We’re both pretty much novices as neither of us have ever been landlords before. An mutual acquaintance shared another horror story with us this week of a tenant who’s not paid a penny since they’ve moved in and now going to have to start legal proceedings - he’s going to sell at the end of it (he’s always threatening to sell but never does!) DP has now got cold feet with potentially renting but really doesn’t want to sell. DP knows he’s got to make a decision soon as it sitting empty wasn’t the plan either - getting a lodger would still mean DP is out of pocket and the house isn’t big enough to have two.

We’re getting a prenup before our wedding next year therefore I’m even more keen on DP keeping the property to ensure that in the highly unlikely event of divorce he’s got a safety net.

He’s got 20 years left on his mortgage and pays £550 a month that’s fixed for the next five years. Looking on Rightmove the house could be rented around £850-£1000 a month. DP is worried that he’d have to change his mortgage as he’s not allowed to rent and will loose his good rate. He’s also worried that an agency will take him for a ride as he’s far away/tenants not paying/house getting trashed/we don’t know what we’re doing. DP wasn’t expecting to be able to transfer until next year and while he jumped at the chance for us to live together sooner he’s really in predicament on what to do. My parents aren’t here anymore and most in our social circle aren’t in a position to give us financial advice.

Both of us earn around the national average therefore we shouldn’t be slaughtered by tax but there’s not a bottomless pit of money if we were strewed over by tenants.

Any advice would be welcomed - I’ve found information on what checks would be to be done on the house but nothing on if this makes financial sense/will this end up being a headache?

Financially, not really. I was an accidental landlord for the last two years after moving in with my partner. I kept my flat in case things didn't work out. I got consent to let through my mortgage lender (which added 1% to the rate, but I didn't need to reapply for a buy-to-let mortgage) and let it through an agency. An agency is there to help and protect you, I'm not sure why your partner thinks they would take him for a ride? My agency also offer 'rent on time' which was a sort of insurance - I paid an extra £30 a month and in the event of a tenant not paying, I'd still get my rental income from the agency while we went through eviction proceedings. As it happened I had fantastic tenants and never needed to use it.

We're getting married soon (so clearly things have worked out!) so I sold my flat recently. Over the term the rental income has just about covered my costs, but did build equity. Also remember he'd be liable for Capital Gains Tax if he lets then sells as it wouldn't be his main residence. I'm not going to comment on the pre-nup etc but I do think that's a bit odd. Wouldn't you be better just selling both and buying somewhere as a couple?

I am also an accidental landlord. I do not think it’s worth it.

Hmm - for what it's worth..
Firstly I personally would never have a rental property that I was too far away to manage - yes, in general an absent LL is often taken for a ride re maintenance charges etc. Plus EA fees are very high unless you can negotiate hard. Rentals are in very short supply so it would be snapped up. Don't be tempted to go with a less than professional EA as you are entrusting them with a valuable asset..
I would never take a tenant that I hadn't personally met and vetted myself (you get a feel for potential tenants when you meet face to face).
Section 24 has seen many LLs exit the market as you can no longer get tax relief from mortgage interest. This doesn't have a huge effect on basic 20% rate tax payers but you have to ensure that your rental income doesn't take you into the 40% tax bracket as this will be financially crippling.
The type of property your OH has could potentially mean lots of small, ongoing maintenance issues with things breaking/getting damaged etc (presuming lots of white goods/furnishings etc. Many LLs rent out unfurnished or basic to avoid these issues.
Yet..on the other hand if your OH is on a 5 year fixed, how much would early redemption cost?
You need to think carefully and get the scales out!

I’m not sure it is worth it. We had three (mortgaged) BTL properties and have just sold one, in order to use the equity to reduce our overall debts. We will look to offload another next tax year.

We have generally had fine tenants (always used an agency, fully managed) but the government is hell bent on driving small private landlords out of the market with onerous and costly regulations, increased taxation, no fees to tenants, minimum EPC rating of c by 2025 etc. With all this extra cost, risk and responsibility and rising interest rates there are increasingly easier ways to get a risk free, hassle free return on investment. Landlords are exiting the market and putting the capital into cash accounts. He has a point about lettings agents- they generally give kickbacks to their contractors so you end up paying more for the repairs than if you managed it yourself, in addition to the management fees. Some years you don’t make any money at all- not even the capital repayments on the mortgage. It’s not for the faint hearted and you need to be able to draw on a cash reserve.

Of course now there is a huge shortage of private rentals, so if you do go ahead you’ll have your pick of tenants.

The powers that be have reaped what they sowed.

We've owned three rental properties (mortgaged) at various times. I'd say it's worth it, simply because property is still a great investment for reasonable inflation-beating returns in the long term, combined with minimal risk. Might be worth thinking about what he would do with the money if he sold it instead, and if there's a better idea go for it. If not, leave it parked in property and the equity value will likely increase by far more than a savings account, and with less risk of losing everything than equities. On specifics:

Landlords usually use interest-only mortgages, relying on the increasing value of the property to gradually increase their equity (since the amount owed on the mortgage doesn't increase with inflation). So while he'd probably have to pay a higher interest rate on a BTL mortgage, his monthly repayments would likely be lower. Something to take into account calculating potential profit and risk.

There can of course be problems with tenants, but really bad ones that stay for ages without paying anything are rare. There are legal processes for dealing with these and insurances you can get for them. We had few tenant problems beyond minor blips.

I agree with pp about disadvantage of owning in a far away area. We DID have problems with agents' contractors taking the piss and trying to charge us stupid amounts for things that didn't need doing. Much better if you can be around to check on things in person.

You need to look carefully at the maths.
At 1000pm you'd pay-
500 mortgage
80 agent fees
30 rent insurance
200 tax ( check this )
And I'd budget 100pm for incidentals like set up fees, maintenance etc
So you're barely making any money, but it's unlikely to cost you money either.

Given current situation with housing market etc personally I'd keep hold of the property for a few years and see how it goes, unless I definitely needed the cash for something else.

I've been in this situation a few times and chosen to rent rather than sell because I didn't know what else to do with the money and feel property is a good long term investment. It's also been useful to be able to remortgage to release equity for buying other homes.

A good agent will manage your property well enough so that you don't have to worry about most of what is concerning you. I've had bad tenants who I've has to formally evict, no stress to me as agent took care of most of it and rent was covered by insurance. Most tenants are fine tho.

I live close to one property and far from another.

There's no right or wrong, just what you're more comfortable with. I'd keep the house and rent it, as long as I was definitely not losing money or suffering stress.

Good Luck.

Long term it is difficult not to make good money

but it is a pain and you have to be prepared to be pragmatic about it and not get worried about small stuff

things go wrong and you have to pay out for things. It is what it is.

i get the sense that you would both worry about it and so it might not be for you

in the current climate it is def long term gain rather than short term

your partner would need to ask his lender if he cojld
get permission to let or need to change

the question to ask yourself is if when you see it for sale in 20 years for £1 million pounds (for arguments sake) how would you feel?

I'm selling off my properties, too many issues with tenants and tax liabilities.

Accidental landlord here. Over the years I've had good and bad tenants. Latest have just left after failing to pay rent for months!

But we no longer have a mortgage and we will sell it when I retire early.

I kept it when I moved in with partner- would never have chosen to be a landlord in any other circumstances

I've been an 'accidental' landlord for a 15 years after inheriting it. It has been great in all that time, most of it with one tenant. I kept rents low and did good maintenance. Mortgage runs out next year so Jan this year I decided to sell.

We decided to not renew the current tenants contract (with 3 months notice) but he didn't leave. He changed all the locks and you could see from the outside he wasn't treating the place well. Following the horrendously drawn out (and extremely expensive) process and we get to now. On the 21st of November the bailiffs are coming and I can't wait for the guy to be gone. It's been a hellish 9 months that make the previous 15 years of being a landlord absolutely not worth it.

Nope. Selling mine right now. If you think there’s capital growth in the property in the long term then keep it, if not sell it

Nope we sold 2 of ours after endlessly problems with the tenants and it was like we spent more money in repairing than benefiting from it. One tenant even left us with almost 9k out of pocket after only living in our beautiful house for 6 months. Never again

I'm renting out my flat for a few years while i work abroad, with the plan to move back in after. If I didn't plan to move back I'd have sold it. I'm now on my second tenant and so far things have gone okay, but it is stressed and can be costly. It cost hundreds of pounds at the start to get all the right tests and certificates. Very soon after the previous tenant moved in there was a problem with the hot water so had to pay for a plumber. You might/will have expenses before you've been able to save up any money from the rental income. Will you/he be able to afford that?

If you don't know 100% all the legalities and responsibilities and are not prepared for months of stress and anxiety DONT DO IT.

There is very little money to be made and a potential for devastating losses. Not worth the gamble imo.

But… even if you don’t make a profit off the rent, you still have an increasing asset as over the years the tenant pays the mortgage off? I don’t thinks landlording is a thing to go into for a quick buck, but long term yes I think it’s worth it.

I was an accidental landlord for two years after a move from London to Somerset - and loathed every minute. You don't need to be taken for a ride for things to cost an absolute fortune to fix from a distance (£150 for the electrician to show the tenant how to switch on the extractor fan stands out.) I would want to do regular checks on a property, because there are lots of things many tenants won't care about/ notice that will cost a lot to fix. Watch out for CGT. I had lived in my house for several years, and it's value hadn't gone up hugely, so it wasn't a problem for me. But other people I know have had to pay a lot. Mind you, you can easily see a path to house prices remaining basically static for the next five years, so that may be less of a problem - but even less point in holding it as a buy to let.

I think you need to be in it for the medium to long and not to expect to see the profit as a monthly yield, but really only in the long term when you sell. Many years down the line.

As others say, often the costs exceed the rental income, especially if you have a mortgage to pay. You have to expect void periods with no income and possible periods with tenants not paying and factor in eviction costs and possible damages. Something like replacing a kitchen can cost a years rent. If a tenant who doesn’t pay stresses you or the fact you won’t necessarily make money in the short term don’t do it. Likewise, recognise that even with an agent, you have responsibilities and there is no such thing as a free lunch. Recognise that when you come to sell, you aren’t flexible and can’t just sell immediately you decide to. You either need to wait for the tenant to choose to vacate or give notice and wait for the property to be vacant. Most LLs will do this before marketing, as exchange cannot happen when the property is tenanted, unless to another LL. Therefore, it can often taken more than a year from thinking you’d like to sell to being able to market.

All that said, the long term trajectory of property prices is upward. If you are prepared to. Keep the property for at least 10-20 years you should make money. Some of that will be taken by capital gains tax, but most LLs who were in it for a long time do sell at a substantially higher price. If you can wait that length of time to realise your investment, it can be a good one.

If in doubt, best not.

I am a landlord - but not an accidental one. It's all part of a long-term plan, and I would say that it's worth it. I wouldn't have wanted to become an accidental landlord, though. You basically need to be 'on the ground' the whole time, and you need a very good and reliable and reasonably priced team of plumbers/electricians/joiners whom you can call on at a moment's notice, including on Christmas Day. It takes years to build up this network. Ideally, you need to know how to do at least basic DIY, plumbing etc as this saves you money on tradesmen, and you need to be happy to stick your hand down drains and shovel up rubbish when the bin-bags which the tenants leave behind them burst in the back yard. You also really need to be local. If you can tick all those boxes, it's great!

DH and I have 2 properties. No mortgages.
One is let cheaply to DSS (step son) at the moment but has good potential for holiday lets. The other has tenants in. Good tenants are what you want.
Ours is managed by an agent and I haven't found them to be expensive in their fees or the sub contractors used.
It's not a license to print money. There's tax, insurance, regular maintenance and compliance and unexpected expenses. Over a year I reckon half of the rent paid goes back on the house. I make a modest profit (more than interest on the same amount in the bank) and long term benefit from any growth in value.
We're decent landlords and charge a reasonable rent, keep the place in good order and get defects sorted asap.
You need to go into it carefully.

No one is an "accidental landlord". It's a situation you chose, presumably with some financial analysis and thought, to get into. On purpose.

I'm not going to wake up tomorrow and have "accidentally" acquired some properties with tenants in.

In answer to the OPs question. No, the days of rentals making decent money (as compared to other investments) are gone. Many landlords made out like bandits due mainly to capital appreciation, while we now see prices going in reverse.

@SilentHedges I was an accidental landlord (no quotation marks) as I bought the property to live in, not with the intention of renting. No need to be sniffy about it.

I wouldn't recommend becoming a small private landlord these days. The government are adding more and more expensive regulations as the years go by and are making it harder to throw tenants out.

I have just sold my property after 20 years of renting it out. The last few years have been hell with all sorts of complicated and expensive repairs - eg £6K on making the heating work, £10k on renovating the bathroom (after the heating repair people found that the tenants had ignored a small leak and it had caused the floor to rot).

I have a few buy to let properties.

I would say over the years there have been far more good than bad tenants, but the bad ones can be financially and mentally devastating.
Overall I have made a small profit, but even if you are extremely conscientious, do everything quickly and well, you will still encounter problems which cause stress ( calls from tenants, often at anti social hours, about anything from locking themselves out to wifi not working, as well as the ones you’d expect such as when essential services break down).

After having one property turned into a cannabis farm I would never rent out a property I had any emotional interest in.

@KimmySchmitt

I bought a property to live in. My life circumstances changed. I rented it out. This occured through a series of my own choices, it was not an accident.

There seems to be a level of embarrassment about being a landlord, hence the "I didn't mean it" "I'm not really a landlord" "it was an accident". 😏

Depending on where you live you can oftenmake an agreement for 1-5 years with the local council they’ll pay the rent and redecorate the house At the end of the agreement. If you live far from the property are definitely consider that