buying an investment property - am I crazy

[Goodenoughisgoodenough]

WWYD? I'm 51. very small pension pot. Although recently returned to full time work and have generous employer contribution of 23%, so anticipating saving hard for the next decade. I earn approx £50k in a secure job which I enjoy and anticipate working there another 10 years at leas. I own amodest home with my partner, with no mortgage. I also have £50k in savings. My partner (58) has a low income, and no pension. We live modestly, and I'm able to save around £1000 a month. We have two teenagers who are likely to go to university so that surplus income also needs to support them. I'm considering buying a flat, or small house to give me a rental income and asset to either, boost my pension, or to sell and give the kids a foot on the housing ladder in a decade to come. ie, buy a flat for £150k, with a mortgage of £100k. rent it out, so that rental income covers the mortgage. Either sell in 15 years, or continuing renting to provide pension income. I have no experience of being a landlord! But also trying to work out away of supporting me, my partner and two teens, with my savings and income! Not easy I know. Any thoughts? Is this a crazy plan!

I would say don’t do it. I rented out a relatives property (I had POA and she went into care) as at the time, it worked out better to gain some income from the property from rent than selling and earning interest, when rates were low.

Same tenants 5.5 years. Fully managed by agent. Tenants were always nitpicking about minor maintenance (house had been fully refurbished prior to let), but every job was done, and they did pay rent on time without fail.

Relative died 12 months ago, and tenants were advised that the property would need to be sold (tbh they were told at the outset of the tenancy that would be the case when relative passed; obviously we had no idea when that would be).

As we needed probate, we told them last Feb that notice wouldn’t be given until probate was well underway, thinking this was a nice thing to do to give them plenty of informal notice.

S21 given, they refused to move out. Decided they wanted to be evicted as then the council would house them and their children. Possession granted, finally evicted 4 weeks ago. House left in an absolute state (all agent checks had been absolutely fine).

They still owe 2 weeks rent, won’t be getting a penny of their deposit back (court fees, locksmith fees, cleaning etc.). Very luckily, house was sold stc in November and is about to exchange / complete.

This story is because it has made me realise I would never ever want to be a landlord with my own property. This has been mentally draining.

Do you own research, work out the net yield on a conservative basis factoring cost of debt and compare with other type of investments. While some areas may provide a valuation upside once you decide to sell, there is no guarantee especially in the current market so it also depend on your risk appetite.

Goodenough, please consider whether you actually want to be a landlord. There are lots of rules and regulations that landlords need to be aware of and as mentioned above, tenants can only be evicted by a court. You can give them notice, but if the tenant wants the council to house them, or they don't want to go, it will take months to get them out and you may find your property badly damaged.

Not only will you be paying the higher rate of stamp duty on the purchase, you will need to have landlord insurance that covers vandalism damage and rent protection (if tenant doesn't pay or there are empty voids). You will need to have an annual gas safety check every year and I think you now need electrical safety check too. You will have to declare your income to HMRC (annual self-assessment - may need to pay an accountant to do this, and tax is likely to be 40% as your earnings are pretty much at the point where higher tax will be due). If you prefer a lettings agent to manage the property, they will charge you a percentage of the rent (around 10-15% plus VAT). If you do need a mortgage, it will be a Buy to Let one, which is more expensive than a residential mortgage.

If the above is not enough, think about any maintenance that might be needed during the course of the year. If you buy a flat, there will be service charges and ground rent. With a freehold house, there will be ongoing maintenance and tenants don't always treat the property with respect.

Don't forget that owning a rental property is an illiquid asset - you can't convert the property to cash in a hurry.

It might be an idea to meet with an independent financial advisor who can discuss lots of options with you, with investments/stocks & shares ISA or other savings.

Best of luck.

If I were you I would research where you get the best air nb income and buy a two bed flat somewhere like Bradford - very cheap but has a uni and an airport so lots of people wanting short term accom. You'd have a very low mortgage and you can get a company to do all the bookings for you. You can set it up a a holiday homes business which is more tax efficient.

I think there are two issues, or questions, which come into play here. First, you have £50K in the bank - what's the best way to invest it? If you keep it in the bank that's not a very good way, because with inflation running at around 10% the cash loses 10% of its purchasing value each year. Generally, investing it in a property is a good, safe-ish way for your £50K to at least hold its value. OK, house prices have had a big wobble this last year, but in the long run, with housing demand exceeding supply, (IMO and I'm not in this industry) I'd say it's unlikely that there'll be a full-blown crash in the market.
The other issue is can you make a profit by renting the house out? This might be more tricky to work out, and you might want to consult an accountant to crunch some numbers for you. The current government (and this will only get worse under Labour) seem to be trying to make life as hard and unprofitable as possible for landlords. The end of no-fault evictions, mortgage interest is now (I forget the exact details, but) either non-deductible for tax, or else restricted in some way, and so rents need to be much higher than say 5 years ago in order to make a profit. On the other hand, the huge demand versus low supply makes it a landlord's market for setting prices, and so you can set the rent as high as need be, and you'll still get a rush of applicants willing to rent it.
So to sum up, no you're not mad, but you need to plan carefully to make sure you can cover your costs.

Thank you all, and @OnSecondThoughts and @ScoobyDoesnt you've both given me the important different things to consider. ie whether the 'hassle/stress' of being a landlord is worth it.
Things on the 'pro' side:

• it is an opportunity to build an asset from my £50k, and using my salary as borrowing leverage. ie appreciation of the value of the property, plus income from rent increasing the equity in the property. I struggle to see how any other investment can also do this 'double whammy' - but will seek financial advice on this
• I am not concerned about making a profit month-to-month, or even annually. Only want to cover costs, and build an asset for 10 - 15 years time
• I have 'surplus' income of £1000 a month (although lots of things this may need to cover, and thing I would rather spend it on!) but it does give me 'cushion' to cover unexpected costs/void periods

The 'cons' hassle/stress, (plus slight moral qualms about being a landlord). I am aware that this is probably not my skill-set. Neither me or my partner are 'house-y' people. ie we don't love DIY, we spend our money/time on holidays rather than a posh kitchen etc.. So, I think I need to 'price this in..' Some of my income is from salary, but about 20% is freelance work, for which I charge £50 an hour. I need to actually 'cost my time'. So, if being a landlord takes a 'day a month' of my time, that's £350 I could be earning elsewhere (potentially). So this needs to be part of my calculation...

I can see it has lots of risks!

But I'm also feeling so far behind on the race-of-life. Only one small pension between us as a couple, plus two teens. It may be that taking a risk/hassle is the only way of jump-starting our finances and stepping up a notch.

Just want to add - this is a project I'm considering doing for myself alone. ie as my asset, not my partner's. We're not married. He has low income and is rubbish with anything like this - which is frustrating (but that's a whole other thread!)

Need to speak to a financial advisor!

More thoughts always welcome!

Thanks you :-)

I'd direct anyone thinking of buying a leasehold property to join the National Leasehold Campaign on FB. A leasehold property comes with lots of problems and costs, ground rent, service charges, length of lease etc. Read up on everything you can and bear in mind there are changes on the way regarding a S21 being issued to tenants. Having rented out flats in the past I would never ever be a landlord again, it's far too stressful and you have to be very thick skinned.

I'm no expert whatsoever but I do know there are a lot of properties on the market now where landlords are finding the costs are far exceeding the income and they just want to get shot. You'd have to get a specific buy-to-let mortgage, so check the rates, LTV etc required for that.
With zero knowledge at all, my immediate thought is that £150k sounds like quite a cheap flat, so what sort of rental income would you get on something like that? With management fees and maintenance eating into it, my instincts question whether you could make enough to cover a £100k mortgage.

I have a small investment property as a part of my retirement planning. but tbh with all the increasing legislation and government gunning for second home owners it's becoming untenable. I wouldn't buy now knowing what I know but I've had this property a while .

I notice your OH isn't contributing much so can he start increasing his earnings to fund pension otherwise the load is on you

I’m a landlord of several years standing with 6 properties. Don’t do this! The returns are about 3-4% pa. after all expenses and tax. You could achieve this with a well managed fund administered by a good financial adviser without the stress. The heyday of BTL is well gone, with highly leveraged landlords who cashed in in low mortgage rates in previous years getting seriously bitten on the bum and exiting the industry in droves. I will be too after my current fixed term mortgage rates expire.

So many Landlords are getting out now, its a lot of hassle for not much money unless you have HMO's or similar.
Not a great idea

I would highly recommend a stocks and shares ISA instead - something like Vanguard is no frills, better returns and tax efficient.

You would need to feed in the 50k over a couple of tax years or put half in your DH or children's names

There is little profit in being an absentee landlord these days, you will probably beat the returns in an investment fund without any of the complications. Being a landlord makes more sense if you are handy enough to renovate and maintain property yourself

Wouldn't you make a better return or generate a better income simply investing in a stocks and shares ISA and maxing it out each year with the £20k allowance?

A lot less hassle.

Are you crazy - yes .
I have a BTL and the amount of legislation now and coming down the tracks makes renting a property a real ball ache . I can't wait to get rid .

What type of pension do you have at the moment? Employer contribution of 23% sounds like it might be a defined benefit scheme.

Hi, I work at a university, so am part of the Teachers Pension scheme. I've only been in it for 3 years, so keen to make the most of it. I don't know if it's a 'defined benefit' scheme? I guess so? Maybe other Teachers Pension people can answer?
Many thanks for taking time to answer!

I became an accidental landlord when I met my partner, having owned a property but moved in with him and rented mine out. A few years down the line I sold it (as it was originally owned with my parents) and used the equity to buy a "true" buy to let years in my hometown - thinking I got more for my money outside London. This BTL had a small mortgage and I was v lucky to have tenants lined up when I purchased who have just given notice after 5 fairly easy years.
I know everyone says don't do it but I wouldn't completely warn you off; my house was my security (as it turns out am likely to sell it to allow me to leave my partner, but that's another story!). It's true that tax changes and new legislation are making it trickier but I have always paid full management to my agent so it's not actually much hassle (though perhaps I've been lucky).
What I have found is that I've just gone into the higher rate tax with my salary which means this years tax return was horrible (3.5k which was a big leap) as all of the property income was now at 40% tax (which would apply to you too). So the rental is £1400 a month, and after taking off mortgage, agent fees, insurance and taxes (and bits and bobs of maintenance) I think I cleared 6k last year, BUT - personally I like the notion that I have a house that's just mine which gives me some freedom for my future. So really you need to do your research and work out what amount of rent you could get vs what it will cost, and how much it's likely to increase in value by (crystal ball time...) to know if it's worth doing.
I hope that helps!!

Teachers Pension Scheme is a defined benefits career average scheme. DP is in it.

I wonder if this helps you...we had 2 properties, 1 in which we lived and one which we previously lived and thereafter let out. Relatively hassle free tenants, paid rent on time etc. however - the costs of running the rental + mortgage meant no profit at all. So I took stock and worked out that if I took my equity and invested it elsewhere (stocks and other asset classes) over 10-15 years I'd make much more money than the increase in property (after stamp duty, maintenance, capital gains). Plus I'd have none of the landholding hassles, paperwork, remortgaging and watching interest rates,

Pressed send too soon...

In short, the investment in stock has already surpassed equity increase in just 3 years. Of course with stocks things can change but over a longer duration 10-20 years it's proven that stocks give you a decent 8-10% yield.

Get some advice before you act.

Am on the fringes of property development and rentals (manage 10 rentals For company)

DONT DO IT!! I WOULD SAY ABOUT 50% OF TENANTS WILL GIVE YOU ISSUES. SUB LETTING. LETTING IT BECOME OVERCROWDED AND THE TENANTS KNOW THAT YOU NEED A COURT ORDER. YOU CANNOT JUST CHANGE THE LOCKS.

Certainly don’t buy a flat as they don’t appreciate in value much. I have several flats that I’ve had for 15 years and none are worth more than I paid for them. I don’t make any profit off the properties after tax and never really have done. I’d sell them if I could! I get far better returns using Nexo (12% per annum investing in stable coins)

Another one saying don't do it.
Similar to what the first poster to respond said, it doesn't matter how good a landlord you are, you are still at risk at having your property destroyed by tenants.
It's just the way the system is set up - tenants see landlords as greedy, money-grabby parasites, which admittedly some are, and many tenants will want to take revenge on you for them having to pay you rent. There's no logic in it but a lot of jealousy because you own a property and they don't.
Some tenants are great, communicate with you, report problems, make themselves available for repairs to take place, accept that there will be a level of disruption, treat you and your property with respect... but they are few and far between.
If/when things go wrong, you'll find it very expensive and time consuming and it will take a long time to get them out.
Even small things like gas safety checks are a nuisance. You ask tenants for their availability and they ignore you. You have to have it done because if you don't, you leave yourself in a vulnerable position legally. There's ways round it of course but it just makes life difficult which is of course their aim.
So landlords are getting out - I have a few years to go but it can't come soon enough.

Absolutely this!
You could get a better return on Premium bonds