Should I invest in a property to let?

[yetanotherdaytoday]

I am about to inherit* some money. It's enough for a cheap studio flat in my town, or a 1 bed if I go a little further afield.

If I don't invest it, I could easily spend it topping up my income as we're always living one paycheck to the next, and it'd be gone in a few years.

I'm thinking about buying a small property with it and letting it.

Is there any reason I shouldn't do this? It seems to make sense to me as it'd provide a modest income, and be an asset I could cash in at some point, or leave to my own DC.

Has anyone got any tips about being a landlord? Thanks.

(*Full disclosure, my mother inherited the money after my father died, and she has said she wants to give me and my siblings a large cash sum).

She said she’d take out a mortgage if “catastrophic work” was needed. That won’t be an option on a studio.

The government is trying to discourage private rentals, so they are just increasing rents by doing so. Find a reputable letting agent and get advice from them. MN hate private landlords, although many councils in the past were very poor landlords and many private rentals are well run.

That's right, I did. Why wouldn't it be an option on a studio? Is it the same with 1 bed flats?

That seems a riskier option to me. If the tenants stop paying rent, or there's a period when it's empty, then I'll have to cover the mortgage.

If it's mortgage free then if it's empty all I'm losing is the income but I won't have huge outgoings.

I agree with you a bigger property will make more money, but given I don't have the income to cover a large mortgage for long periods of time, I don't feel I can risk it.

Maybe if I did the maths, though, I'd find I'm being overly risk averse, and I should consider this, and putting away the rent from a period of time (first year, say) and save that to boost the contingency fund.

Buy to let mortgages cost more. A one bed flat is probably mortgageable. Quite frankly you are not making a sensible investment decision. Most professional advice would suggest you do not invest everything you have in property. You need diversity. You need to understand the costs of being a landlord and up front costs. The huge cost of getting rid of a tenant and that some simply won’t leave willingly.

Having money gives you options in life. Your own property has made money. If you live hand to mouth surely you need savings for unforeseen expenses? What if you need another car or boiler? Or have another big expense? I would be very wary of tying all money up in property with insufficient savings for other things life might throw at you.

Around half of lenders won’t lend on studios I’m afraid. They worry about resale values. Those who do lend have minimum size criteria. So you probably would be able to get a mortgage through a specialist broker but you’d have little choice and wouldn’t be likely to get a good rate.

One beds should be fine.

I had multiple rental properties for 20+ years and got out of the business last year because it was no longer worth it versus investing in bonds.

Are they? I know you can charge more by the week, but don't you get taxed more on an AirBnB? And I would expect they have long periods where they're empty?

We run cheap cars. Last time my car died when I had no money, I bought one on a credit card from a local dealer. Most expensive car I've ever bought at just over £2k. The previous one was £1k, and the one before, £400 off a mate!

I've paid the credit off. If our current car died, we would be without a car for a few months while I saved enough for a new (old) one, or if we needed one, I'd have to put it on credit. This is the reality of living on a relatively low salary. Which is why I want to use this money to help me out of this situation. I have an excellent credit rating.

I understand very well about tenants not leaving. I have been a landlord once, when I rented my flat to a friend. It was meant to be for a year but he struggled to find somewhere to move into that would accept housing benefit, so we were looking at going through the courts - even though we were friends - as it was the only way he could get the council to help him not end up on the streets.

I know how hard it was to find a place - any place - that'd accept housing benefit in the same area as I helped him with his search, every day looking for somewhere. There was nothing.

In the end we didn't end up in court as he found a place through a contact who was a landlord quite by chance. But if I recall correctly the court process was a few grand? And of course if you get problem tenants, you risk them trashing the place. I do understand this also.

Do you have a mortgage? Perhaps a better investment would be to pay it off if enough cash and get more disposable income that way plus you are saving from paying high interest rates.

No, I bought my home outright, using the equity I made on the London flat I had for a decade.

When I moved out of London I bought this place with cash. I haven't paid a mortgage in 15 years.

I don't have much money as I'm earning the only person in my household earning a steady income and looking after 4 people on that salary.

It's a lovely place to be though, decent schools, great environment and the DC are thriving.

Oh, I deleted a sentence by mistake! I also wanted to say, there just aren't many jobs with decent salaries available to me in this small town.

No it’s just studio flats that some lenders won’t give a mortgage on, especially if they are very small. It’s about half of all lenders that don’t provide mortgages on studio flats.

That's useful info, thanks.

It means I probably can't afford a place in the town I live in, it would need to be in one of the other small towns near here that has cheaper housing. So there are a few more considerations to factor in.

OP, we are just renting a flat out (not as an investment, it is our flat and we will move back in at some point). It is an expensive business, and even mortgage-free and getting London rental amounts, we aren’t making a ton of money once outgoings and tax is included. You have to pay a lot on upkeep (more than you spend on your own, tenants generally cause a lot of wear and tear). You have to spend a lot on inspection certificates/boiler servicing etc. It’s a bit of a money-pit honestly.

It isn’t something I would do as an investment!

Bad idea.

Being a landlord means a lot of costs and responsibility: paying for repairs, insurance, gas and electricity certificates, letting agency costs if you use someone to manage the property for you, some coupotentially dealing with tenants who might not pay the rent and/or damage the place.

Speak to a financial adviser and find the best saving accounts instead...

Also studios are harder to resale.

If you really, really fancy being a landlord have you thought about looking abroad?

There is absolutely no incentive to be a landlord in England in all my knowledge and experience. Perhaps you'd be better investing in a place where you'd like to go on holiday and also rent out to cover costs. Just an idea. I think it's a good idea to buy something you can enjoy as well as an investment.

You will need to do your research and it can be very timely and exhausting, especially since Brexit, but it is still possible to do with lot's of time, effort and money.

I dont know what kind of thing floats your boat, but just to give you an idea of possibilities - you could get something like this that you can enjoy and hand over to a local agent to sort out when you're not using it. The area is rigged up for it. Plus last time I read up on it, there is no inheritance tax on property in the costa del sol, so that's a sweet incentive if you want to pass it on to your children.

https://www.rightmove.co.uk/properties/86546736?currencyCode=GBP#/?channel=OVERSEAS

Capital gains can be reduced to zero for over 65 year olds in Spain, you just need to select your route. In the UK you would be paying significant capital gains tax on second properties. That beats the UK hands down.

There is no way we know what future Spanish governments might do. However as a uk resident, income from abroad must be declared here. See HMRC for guidance. The op doesn’t live in Spain and presumably isn’t going there!

As she could get annual returns of 5% plus at the moment from bonds (see MSE) I see no incentive to have a flat and rent it out. If others in the family don’t work, invest in their names. Tax becomes £0. She could get £4,000 a year off £80,000 for no cost at all. No legal fees, no surveys, no maintenance, no gas and electric checks, no insurance, no management fees for the building. no finding a tenant or paying agent fees and no issue when you want the capital money back! No CGT either! Which, with Labour, might go up even more! Mainly no time spent doing anything or any worry whatsoever.

Why are so many landlords selling? For all the above. If you see this idea as a social service, I’m very sorry, but this is madness. Being a landlord is now for professional investors and businesses. Not people who want to help others. It’s a big risk now.

There is no way we know what future Spanish governments might do

Equally there is no way of knowing what our English government might do.

I'm not saying OP should go to Spain, what I am demonstrating is she needs to look outside the UK if she wants to invest in property. Because I agree with you - renting property in the UK is shit craic.

I know a couple of people do both and have found that the returns on airbnb (after expenses & tax have been taken into account) are consistently higher. I can’t remember the figure they gave off the top of my head, but could be worth doing some further research on. The other obvious big advantage is that you don’t have the risk of getting stuck with problematic tenants, and repairs and maintenance can be done on your own schedule if needed. You can also match prices in line with changes the market.

If you are going to buy a property you might wish to look up setting up a limited company for it as it has some tax benefits. This is probably also depending on your personal tax rate and also whether you will be getting any more. I know a lot of people still doing well out of BTLs and also holiday lets like airbnb. It's a business like any other, there are pros and cons, but the long term investment is usually worth it.

Everything @TizerorFizz said.

@Yocal As a uk resident you are taxed here! What incentive is there to buy elsewhere? Unless you live there of course.

I think the danger with a changing government and Airbnb or letting is that they may introduce further legislation.
For example in Scotland all Airbnb properties have to be registered with the Council and get permission (deadline was 1 Oct).
There was also a rent freeze and steps to prevent no fault evictions. This could be something you could face in the near future. So only go for it if the returns look really good and you don't mind dealing with stuff like that.