Buying a buy to rent flat

[gettingolderbutcooler]

Hello MN!
We are thinking of getting a 2 bed buy to let flat, but are wondering what we haven't considered.

We could possibly buy for 230k.
We could put a deposit down of £50k.
Rental income in the area is about 1300pcm
Mortgage would be (interest only) about £800.

We'd want an estate agent to look after it all for us. I guess they take a proportion of the rent?

What things do we need to factor in?
Missing rental months I guess, insurance.

If you are a landlord and have any useful advice we would appreciate it!
Or if it's a really stupid idea feel free to advise that too!

Thank you xx

Looks like you have done extensive calculations on the back of an envelope, seen ££££ signs, and are ready to take the plunge.
Go for it! Your plan is foolproof.

Cost of stamp duty for second home.
Cost of tax too, the rules changed. Read up about it.

How will you pay the mortgage if the flat is empty at any point? Do you regularly have £800 monthly to cover that?

Have you factored in rises in interest rates?

Estate agents typically take 10-12%.

You’ll either need an accountant or to be able to do your own tax return.

Gas & electrics need checking, I think gas safety is annually, not sure on the electrics.

Being a landlord is much more expensive than you might think. Would you have the money to suddenly pay for a new boiler or cover the cost of an emergency plumber on a Sunday if there's a leak?

There are also annual and ongoing costs such as gas and electricity safety checks, insurance and other maintenance (anything small you'd just leave in your own home your tenants will want fixed ASAP).

And of course tax.

Why are you only considering interest only mortgages? What’s your plan in the long run?

Having money put aside to pay for essential repairs. If it's your home, you can maybe do without hot water if the boiler packs up, but if a tennant is without hot water, you'll need to put them up somewhere else whilst it's fixed etc.

Annual costs for gas safety checks etc. Costs for updating the property between Tennants if you want to charge high rent - the deposit is there to cover damage not eg new carpets if the carpets look quite tired.

Void periods, either between tenants or because a tenant has stopped paying rent - it can take months to get them out in this situation. How many months could you afford to pay the mortgage for of there's no rent? And you'd potentially need money for legal fees, too.

If you're able to save most of the gap between the mortgage and proposed rent towards emergencies you'd probably be alright, but in that case what's the point, as you aren't actually buying the asset either.

I’ve been forced to be a landlord for similar sums due to cladding crisis and having to move for work.

I am making a loss.

It's not easy money these days you need to really look into it. In this climate I would want to put down 50% for a start.

Thanks! 👍

Sorry about that. X

Thank you.
I read that they are mostly interest only for BTL.
We intend it to be for the kids in about 10 years and it might be a lot more expensive by then (or not, of course!).
We are older parents and one of us has terminal cancer so won't be working much longer, so want to give it to them for some stability.
It's useful to know the contingencies- I'll factor those in, thank you so much.
We'd be giving it to a letting agency to manage which would be about 20% of the rent.
Xx

You need 25% deposit for a BTL. I would also factor in legal and stamp so your budget is going to be closer to £180k. Avoid interest only mortgages if you can and make sure the rental is at least 130% of mortgage repayment. This means is you go with £800 repayment, you actually need to rent for closer to £1000 confirmed by an agent. agents take 10% plus any costs to manage extra.

It’s expensive to run a house, so have £10k buffer for emergencies like boiler and tenancy issues.

I would recommend saving a bit longer to get to 75k plus £10k buffer. You also need to consider if it’s going to be furnished, which would cost minimum of £3k.

I would also recommend making sure it’s easily rentable like having a car parking space and garden.

on the price, if you’re a cash buyer, go in lower on the asking price as many sellers will still choose lower price to guarantee a sale.

good luck!

Similar situation. Do factor in the tax. I would not get interest only. And def use an estate agent. Is it near you? So you could fix things as and when. Good luck

Don’t do it for your kids, as any other home they buy will be heavily taxed if they are already home owners

ISA in your names but set aside for them, to be given when they need it and are old enough. Not in their names or it will be wisely spent on drugs, alcohol, fast women or even faster men on their 18th birthday .
Don’t let them waste the rest

I am a landlord (accidentally, moved abroad for years) and I do not recommend it!

estate agents take 12-18%, you need lots of things like gas safety checks, electric checks etc. Also constantly fix things, or get them fixed, tenants may do something stupid like leave the shower on all day and flood the building (! Happened to me, massive damage and cost and hassle caused as it affected flat beneath, though that was covered by buildings insurance), the flat also has a monthly management fee of a couple of hundreds £, also you pay tax on the income, and just when you have a really expensive month (say December) the boiler will pack up and you need to pay thousands 😁

basically I found that over the long run I spent about half the rental income on maintenance, costs and tax

on bad years it was zero. EG when the whole building needed new windows. But that was because it was a “listed building” (it was not “listed” when I bought it)

is your irony detector broken @gettingolderbutcooler?

I was a landlord.

My advice?

If you're a large, non-profit making, preferably publicly funded organisation with connections with social and other support services and an extensive network of contractors, go for it!

Otherwise, don't even think about it.

Donyoi know that the rules have changed and you can't put the mortgage costs against your income before calculating tax?

Assuming you already have a separate pot for replacements (boiler, washing machine etc), you should very, very roughly deduct 15% of the rent for agents + VAT then another £150 a month for insurance, gas
checks, miscellaneous things. Then work out what 60% of the remainder is. If that isn't above your mortgage payment , you will lose money each month.

That's very simplistic but will give you an idea about whether to bother doing a detailed calculation.

And to top it off, the price of the property has gone up but we’d have to pay a massive tax bill if we sell due to capital gains tax on “second” home

i am not crying about this, it’s still an asset, it’s still a kind of wealth, I don’t feel sorry for myself 😁 but I am sort of stuck with it now

@ArdeteiMasazxu
🤣no! I just thought I'd be nice rather than snippy!!

Ah, the tax. Hadn't factored this in at all!
Thank you.

It wouldn't be a second home for the kids- it would be their starter home which they would have to share.

I had planned for some contingency payments but the 130% is a useful goal in terms of aim.

Thank you!

Tax you’d pay on the rent and the 2nd property stamp duty so allow about 10k for this and other buying fees.
Gas checks etc.

your dc will be liable for CGT in the future

I am a (responsible & caring) landlord. I have long term happy & decent tenants:

There are a lot of legal requirements attached to being a landlord. Most cost money for certification etc. If you don’t abide by the legals then quite rightly your tenants can sue you if push comes to crunch. It could cost you a lot of money & stress. It doesn’t matter if they’ve punched holes in the doors, soiled carpets with dog poo, used the place for drugs, if you don’t get your legal stuff right, the might take you to court with a counter claim. (See the Shelter charity web site.)

If you are buying leasehold the service charges can go up massively over the years over which you may have no control; building insurance, communal area cleaning, ground rent, grounds or garden upkeep etc.

If you are buying leasehold look into the costs of extending a lease. Look up the term “marriage value” in case you need to know about that too. As a lease ages, shortens, it becomes harder for your buyers to get a mortgage. Look into that in case you need to know in future.

Not all tenants are decent people however lovely they seem or good their references are. Some tenants will absolutely trash your place, stop paying rent and cost you thousands in legal fees. You will have hardly any recompense for this without a load of stress or hassle. In effect it’s criminal damage but you will be powerless when it comes down to getting any compensation.

You will do well to have a slush fund set aside for maintenance and upkeep. A new boiler can be £3k+. I have recently replaced the double glazing in my rental property. It cost nearly £7k. I have recently had to replace their free-standing cooker. All in from Currys it cost over £500. I have the gutters cleaned out annually (big trees’ leaves) that costs £80 a time. Boiler servicing was £90, a faulty shower was £150. A water pipe leak in the garden cost me £350 because the plumber had to fig before he could fix it. So you see it’s not all it’s cracked up to be and then there’s accountancy fees and HMRC.

Agency fees can be high. There are some good responsible agents but some are rubbish. There’s a lot of rubbish ones spoken about on various Landlord forums on Facebook. They take your fee and do eff all. I self manage because of this. I have a list of tradespeople I call on. Agencies will have lists too & charge you a mark up if their trades are called out.

Consider void periods. Can you afford the mortgage if you don’t have tenants for some weeks/couple months? Referencing takes time. There are prospective tenant time wasters who will let you down at last minute. Agents charge £++ admin fees throughout the process.

If you keep data on your phone or laptop or on paper about your tenants, even just their phone number, you have to register with the Information Commissioner's Office. There is an annual fee for this.

As you can tell, it’s not a money making machine. Do your due diligence. Look up the Gov.uk website for tenants and landlord rules & regs. Join a landlord support group like the NRLA and research research research. You could get stung really badly if you don’t keep up with legislation.
CAVEAT EMPTOR! Good luck.

Jealous by any chance?