Buying to let for the first time - what do I need to know?

[33goingon64]

Both parents died, about to get a cheque for just shy of £400k. I'm aware it's a lot of money and I want to invest wisely. The most obvious option seems to be buying a property to let. The steps I can image I need to take are:

Research what I can get for my money - and whether it will appeal to renters
Research areas that are 'up and coming'
Decide how much work I'm willing to do and how hands on I want to be
How far away it needs to be from where I live (linked to above)
What rent I could charge
What are agency fees and what should I look out for when choosing an agent?
Are there rules about buying to let if I don't need a mortgage?
What kind of level of tax do I pay on rental income?

Anything else?

If anyone is a seasoned property investor and has tips to share I'd be very grateful!

[WallaceinAnderland]

Research your legal obligations to your tennant.

[Mark19735]

Go back to part one of your question where you say "the most obvious options seems to be buying a property to let". Why is this the most obvious option?

Do you already own the home where you live yourself? Do you have a mortgage on it? Do you have any other debt that could be paid off?
Have you made £40k pensions contributions for each of the previous 3 years? If not, there's a better home for up to £120k of your inheritance right away.
Have you put £20k into an ISA already this year? And ... it's only 8 weeks until you can put another £20k in to next year's one.
Are you married? Do you have kids? There might be a further place to stash £40k-£60k of it and keep the wealth in the family.

Those would all be far more obvious places to stash wealth ... but if you've already got those other investment types already and have used up all the tax-efficient allowances, then in fact you are really, really wealthy already and probably don't need the advice of mumsnetters ...

[PAFMO]

As the first two answers show, the green-eyed monster about landlords is big on MN.

What you need to know is that MN hates landlords and thinks people with enough money to buy more than one house should simply hand them over to the first person they meet.

There are specialist websites for landlords and tenants, so I'd join one of those.

(I'm a tenant with a great landlord)

[LookingOldTheseDays]

Don't do it. Invest in something that is less hassle, doesn't carry hefty legal obligations, and doesn't require money spent on maintenance constantly.

There are better and more productive ways of investing capital than property.

Thinking about tax efficient options - what's your pension like? Have you maxed out your pension allowance (£40k per year, assuming you earn over £40k) over the last 3 financial years? You'd get at least 20% tax relief on what you put in, and can put it into a couple of funds which will appreciate over time.

Have you maxed out your S&S ISA allowance? This year's allowance plus next year would be another £40k tax free.

[RagzRebooted]

These days, BTL is not as lucrative and has many pitfalls. I'd consider other investments first

[LookingOldTheseDays]

The reason people do BTL is often because you can borrow to buy a house but a normal individual can't really borrow to make other investments.

You don't need to borrow, so you have more freedom of choice.

[LCforlife]

Based on your list in the OP, you shouldn't become a landlord. The first consideration should be how to be a good and fair landlord. Not many of these exist and you've said nothing to indicate you'll be different.

Put your money into something which

[LCforlife]

... which only impacts you and your family.

[BeyondMyWits]

Speak to an independent financial advisor. One that you pay upfront. Best £2000 we ever spent.

[Rickrolling]

It would lock the majority of your money away. There is very little liquidity in bricks, so if you need cash quickly its one big, difficult asset to get rid of.

If you do go ahead then check EPC (new rules coming in about minimum epc level in rentals, it must be at least a C). Factor in gas safety checks (annual), electricity checks, etc. Insurance costs. Ground rent and management fees/service charges if going for a flat. Build up a slush fund for when the boiler breaks, for redecorating, for fences blowing down, for the millions of things that could potentially go wrong.

Be aware that house prices may go down as well as up. That tenants don't always pay rent on time. Etc.

If i were you I'd see an independent financial advisor and look at all the options of what you could do with the money, both for now and in the future.

Im sorry for your loss

[PragmaticWench]

Be aware you'll pay capital gains tax on any increase in value of the property when you come to sell.

[LookingOldTheseDays]

There's no CGT on pensions or ISAs!

[Mark19735]

Or ... if you are of the 'go large or go home' mindset ...

You could split the £400k into 8 x £50k deposits, and use each one to get an interest-only mortgage with 75% LTV to buy a portfolio of eight £200k properties. Bingo! You are now worth £1.6m (albeit with £1.2m of loans ...)

The plus side is that any single bad tenant or void would only represent a 12.5% reduction in income that month. And if prices go up 10% each year, you can re-mortgage next year and buy three additional properties in 2024, and four more in 2025. By the time we next have a general election, you'll have an empire of 15 buy to let properties. Easy!

There you go ... I've just saved you £1.5k on a 'how to invest in property' course.

[Bobsyouruncleand]

Ask yourself why you want to do this with the money and not another kind of investment. I’m not saying it’s a bad idea but it’s not always a safe bet for your investment, particularly if you get bad tenants. With the cost of living crisis, it is becoming even more difficult for people to keep up with rent and also problems with damp/mould in your property from those that are unable to put the heating on enough.

[caringcarer]

I'm a buy to let LL. I have 8 btl and in process of buying ninth.

You don't have to buy house outright. You could pay half as deposit and then do a 50 percent interest only. If you buy it outright you won't pay interest then can't claim tax credit of 20 percent against interest for self assessment tax bill. Buy a house that needs no work at all just ready to rent out. Make sure it has EPC of C. A city btl will always rent well. Buy a house not a flat. Flats are leasehold and have maintenance fees. 3 bedroom or 2 bedroom with garden rent best for families. Best to rent with either high single income tenant or better still 2 tenants who work as if 1 looses job they still have income to pay rent. You might be able to buy a house that is already tenanted. If you do this ask to see proof of tenants paying for last 3 months. To begin with probably best to go through an agent who will charge you up to 20 percent of profit. After first year once you get to know tenant you might want to run it yourself. You need to print off How to Rent from government website and give tenants a copy, print out EPC for them, get gas certificate, renewable every year, and electricity certificates, renewable every 5 years and lease. Take photos of house on day they move in, print and get them to sign condition of house on moving in day. Get them to sign document agreeing they have received above documents and fire blanket, first aid box, carbon dioxide alarm and house has a smoke alarm on each floor. Get insurance against tenants not paying rent. You can claim this and has/electricity certificates back against tax, plus any accountancy fees for completing self assessment if you can't do it yourself. You can buy a reasonable btl for £200k or far less if you pick the right area.

[WallaceinAnderland]

@PAFMO

As the first two answers show, the green-eyed monster about landlords is big on MN.

What you need to know is that MN hates landlords and thinks people with enough money to buy more than one house should simply hand them over to the first person they meet.

There are specialist websites for landlords and tenants, so I'd join one of those.

(I'm a tenant with a great landlord)

Rubbish. I am an ex-landlord and my advice to check legal requirements is absolutely spot on. Anyone entering into this needs to cover themselves and their tennants. It's common sense anyway.

[33goingon64]

An interesting set of replies, thank you. Yes I'm aware of the other options for investment. Thank you for the useful tips.

One more question: aren't IFAs working on some kind of commission to sell you certain products? I don't think they're entirely free of bias, even if they purport to be independent.

[33goingon64]

A bit more background:
We've paid off mortgage on our own house
I would certainly top up ISAs to the max
I wouldn't use all of it for property investment
I thought pensions were dodgy these days? DH works in finance with a global/macro view including forecasting trends and says pensions are not safe anymore. The property would be my pension.

[LookingOldTheseDays]

I thought pensions were dodgy these days?

On what basis?

[GasPanic]

Rental sector is getting increasingly regulated and expensive to keep on top of things like gas safety certificates, deposit insurance, electrical checks, EPC certificates (I think from 2025 in order to rent it has to be band C or above), hard and expensive to get trades to do maintenance. If you get bad tenants they can become a nightmare to remove.

We are entering a period of house price uncertainty due to higher mortgage rates. It's hard to figure out what good value is in the market at the moment - capital appreciation in the past has bailed out many amateur BTL landlords, but this is by no means a given over the next decade.

A recession is more than likely coming up.

All the above : Hard no.

[TizerorFizz]

@33goingon64
You really should think twice about this. Pensions are your best investment. The government allows you investments into a pension before you pay tax.

You must know that the government is seriously committed to no fault eviction of a tenant being illegal. This means that unless the tenant does something where they can be evicted (not paying rent) you might really struggle to take possession of your property. Even if they do something wrong, it’s expensive and lengthy to get rid of one.

You also need to know about Capital Fsins tax. You get an annual allowance for CGT, but if the property makes decent capital gains, you will be paying lots of tax in the future.

We have now sold our two let out properties. We have big tax liabilities. We spent money to improve and maintain them. We don’t want inflexible savings! You have a great platform to go to a Financial Adviser (we use Schroders) and invest the money without bothering with a buy to let. Right now, buy to let isn’t attractive. A holiday home might suit you more. Less regulated.

[33goingon64]

Thank you for the recent replies. Really helpful. Does anyone have any comments about the independence or otherwise of IFAs?

[TizerorFizz]

It’s quite difficult to say. What do you mean by independent advice? They are not all tied to a range of products. So you would need to look at qualifications and accreditation. When I inherited money, it came with a Financial Adviser. A private bank. We didn’t just invest with them but we kept them to advise. They have now handed over to the company I mentioned earlier but we get ongoing advice from them. IHT planning for example. We look at where we are in life and what we need. With £400,000 you can diversify your portfolio and it should grow. I know we can 100% trust our advice. It has an annual fee but we have a bit more than you!