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

@gettingolderbutcooler post-Covid it was the case that flats were more difficult to sell because people wanted houses with outside space. I'd agree with the poster upthread who mentioned a parking space. If you go ahead with this you need your flat to be more desirable than others in the area.

Aaaargh we are running.
I promise.
No flat!
You've all scared the shit out of us and we will probably be very thankful in a few years.
Prob open an ISA...

Good luck to you all who have property and all of you who replied!
X

I really wouldn't do it OP. The government hates private landlords and the tax you have to pay is going up and up. Seriously. It's not worth it. If you want to invest ££ for your children, there at far, far better less stressful ways to do it. I can't stress enough how much this is a bad idea.

The fact you hadn’t clicked you’d need to pay tax on the rent means you need to give this a lot more thought before jumping in. You’re ill informed at the moment and could get burnt

buy to let isn’t the money spinner it once was.

I was slightly confused as to who all the seasoned LLs were selling to in the last year or so. It didn’t seem to be FTBs.

I get it now.

I looked at your post with interest as was considering the same and with similar figures but like you, I'm running!

I wouldn't do it on those sums and your obvious lack of proper research (not trying to be mean). It's a business with a huge amount of responsibility as you are providing a home. It's not a hobby.

If the main purpose is to provide for your kids, stick the £50k in a savings account or low risk investment and split it in 10 years so they can use as a deposit.

If you want to take this further, things to consider, will the property be up to the required epc rating when the rules come in (how do you intend to do this?), how will you source your tenants, are you comfortable doing your own tax, if not, factor in an accountant. Electrical certificates, gas safety certificates, deposit scheme rules, cost of cleans and refurbs between tenants, dead time not rented, agents fees, service charges (if a flat), council tax and utilities when not rented, capital gains on the sale, mortgage interest rate rises (note buy to let rates are much higher than residential rates!), membership to landlord associations.........

I’ve been a landlord for the last 13 years. I would definitely do research before you actually proceed. Some people buy BTL properties thinking that they can make a hefty profit month to month from it. If you have a portfolio then yes definitely.. or if you’re mortgage free and privately manage it then you can. You will still have costs involved. That said though, you can make a good return on a property if you buy it and then sell in years to come.

You need the flat to have a long lease otherwise it will rapidly lose value.

Being a landlord, even if you pay someone to manage it, make you mininimal money, and be hassle. Not all tenants are decent and you can end up losing money.

There's probably safer things to do with your money for the benefit of your DC.

Good luck.

Agent fees are variable - I pay around 6-7% for rent collection plus about £100-250 for setting up / renewing tenancy. I also pay £250-350 in insurance. Then there are other fees like landlord licences in some boroughs (£500-£700 every 5-7 years), plus the usual ground rent / service charge. You’ll be responsible for council tax in fallow periods as well as upgrades like repainting & new carpets every so often.

£3k to furnish a rental flat is insane - you can buy brand new bog standard ikea or John Lewis stuff which will be fine, or let unfurnished.

You don’t have to provide things like white goods and furniture, although it may reduce your pool of potential renters. That said, the rental market is manic at the moment, so depending on area you should be able to fill it easily.

With those sums you will tick over rather than bring in mega bucks but assuming you will have capital gains over the years, it’s usually ultimately worth it.

Have you considered why huge numbers of landlords are selling up right now?

Buy to let mortgages you’d need a higher deposit.

Budget for electrical inspections (5 years I think) and annual gas safety inspections.

if it’s a flat is it freehold or leasehold? I would avoid leasehold as that’s usually an extra monthly cost.

EPC ratings, legal requirement A-G, Landlord home insurance, tax on whole £1300 as no mtg relief , plus estate agent fee if they will manage on your behalf, most tenants leave sometimes after a year so every year tenant finding fee. Speaking from previous landlord experience.

I'm reading this with interest as had considered doing this in the future with some inheritance- my uncle doesn't have children and he suggests I spend my inheritance from him on a rental property I'm not so sure now although having rented myself it would be quite nice to have an opportunity to be a nice landlady and give a family a home 🏡

No way would I consider BTL. You need a 25% deposit and BTL mortgages are more expensive than residential. Stamp duty is higher as a 2nd home owner. Tax on rental income. LL safety checks annually. Maintenance and either paying a management agent to deal with repairs/maintenance or getting called out in the middle of the night to a broken boiler or whatever. Leasehold flat service charges plus cost of property management packs when you sell. Estate agents fees. Plus of course the possibility of higher mortgage if rates increase.

Rental market cooling in my part of Manchester, despite agents best efforts to hide it.

All these seasoned LLs selling to amateurs lead to a tightening which is unwinding, rapidly.

I was an accidental landlord for a while due to moving out of London. It was so so so much more stressful than I thought possible. It's going to be your biggest asset (I was renting where I moved to, so may not be the case for you) and someone you don't know at all is living in it. You're entirely dependent on them not being an arse in so many ways. Even if they're great, you still have to keep on top of everything (£150 for an electrician to show them how to switch on the extractor off top of my head). On top of that, I was never comfortable with the whole landlord ethical position (although I do know all the pro-landlords arguments). Basically, the heyday of buy to let is over (the boomers cleaned up again!). If you absolutely absolutely must, do it on a property close to you.

Do not do it!

we're selling our BTL for reasons outlined above.

xxx

I am surprised by your calculations. I have a BTL property in a high property value/rent area. My property is probably worth about £300 - 350K. The rent is £1200 pcm - it could be £1300. After costs, mortgage, tax etc I probably make about 3% per year on my investment. Plus capital growth of course. Which sounds about right.

Yes but in order to make profit you need to have much more equity in the flat. Because you can't offset the mortgage against tax. Have a look into how much tax you would be paying!

You could encourage your dc to open a LISA each towards when they will buy a property. For every 4K they put in each year ( or you put in for them) the government puts in an extra 1k. So they are saving 5k a year towards their future property purchase.
That could be a way to help them get on the property ladder in a few years time but with no stress for you and all the choice for them as to where/when to buy.

It might not be a second home for your kids but it’s a second home for you so it would be subject to capital gains and inheritance tax at the point you give it to them.

The fact that you hadn’t even considered that you need to pay tax on the rental income is worrying. I think you’re out of your depth and with the figures you’ve provided won’t leave you with any profit once you’ve considered agency costs, tax and maintenance. As other have pointed
out, youll also need a higher deposit for a buy to let.

Why not invest the money in Premium Bonds?

Hi OP, I'm a LL and let out 8 houses. I'd never buy a flat as they are not freehold. You will also have to factor in annual service charges.

For BTL mortgages you need to pay 25 per cent deposit, minimum. More if you want a really good interest rate. You will pay SDLT as second property.

Agents take between 15-20 percent. You will also need LL insurance for building. You might want additional cover in case you have void periods. You will also have to pay EA for fining tenant and doing credit checks on them. EA will make sure you are legally compliant. You will need to pay for an annual gas certificate if any gas and an electric certificate every five years. Your EA will do inventory for you and do opening readings of gas and electricity. They will also sort out a contract for you and set up tenants standing order.

You will need to budget for repairs and maintenance and like person up thread said if there is a problem the tenant will expect an immediate solution.

I would say an interest only mortgage is fine for a BTL property. You make money when flat goes up in value.

You will need to either get accountant or do self assessment your self but even if you do it yourself you still need simple accounts as HMRT can inspect you at any time and would expect proper accounts with bank statements and all receipts too.

If you can get 25 percent for deposit you might expect to gain £200 pcm in profit. You will pay tax on this profit. Depending on your other jobs it might take you into higher band for tax.

I'd suggest if you go ahead and buy a property you buy as a ltd company as this means you can right of mortgage interest payments against tax.

Get a very good mortgage broker who will guide and help you. Standard fee £500 per property. I know you can get some limited help for free but a good broker will save you making a mistake. For example I am in process of buying another house. My broker has researched the post code area to find percentage of homeowners as oppose to renter's which building society/banks take into account when making offers/rates. Once he gave me the all clear I set up viewing. If I was not guided in this direction I might have wasted a lot of time on viewings that would not be suitable for mortgage.

Lots of things are tax deductible e.g. accountant fees, gas/electricity safety certificates, broker fees, council tax if property is empty, water/gas/electricity fees when empty. All maintenance fees but not betterment. Replacement items of the same quality.