Looking to start investing in property

[watchstudent]

Evening guys,

I reckon there must be a fair few people on this forum that have some rental properties so just wondering if anyone would like to share their experiences and pitfalls they have experienced. Apart from the odd watch (...) I don't have a particularly lavish lifestyle. I own my own house (albeit with an 80% LTV mortgage) and am sitting on roughly 25k in cash and 5k in stocks and shares currently. Neither is doing particularly well and am thinking I might enjoy trying to invest it somewhere else. Currently I can save about 1k a month to save so when I have enough I might look to buy a flat to rent out.

I live in Plymouth where property prices are quite reasonable. My thinking is a smart flat, maybe near the waterfront could regularly attract young professionals and hopefully with a decent yield. I am about to start reading some books into it to get properly educated (anyone have any book recommendations?).

My aim is to have 1 property within 2-3 years and another maybe 2 years after that (my salary should hopefully increase by then so I can save more). Eventually I would like a modest passive income so by the time I kids get to 4 years old ish (the kids don't even exist yet btw!) I can work a bit less and have more time.

Basically what advice would you give someone in my position looking to start out? Does this sound like enough capital to be thinking of a 140-160k flat? What mistakes have you made etc?

I realise some people don't like talking finances but I find it quite interesting and just looking to learn more!

Cheers

[Devonian]

You’ll need good quality independent mortgage advice but in the meantime look up all the pros and cons online you can find and try and research as much as possible.

I’ve been doing this for 25 years as a landlord and in the industry and whilst it’s good, it’s not as good as it was and there are far more pitfalls than previously. For example there’s extra stamp duty and if you’re a higher rate tax payer (or close) the level of tax relief on the interest is falling over a 4 year period which makes it a bit less viable. Regulations are stricter than ever before.

A quick summary - it used to be a get rich quick model for many investors, but that was mainly due to house prices rapidly increasing from the early 2000’s like no could foresee. If you owned a few you, your assets increased significantly. In the last 2 or 3 years more landlords have sold than ever before as it’s got much harder to make a profit. I’m not saying don’t do it, I’m saying really understand what you’re getting into.

Without trying to put you off, personally I’d be wanting to get more equity in your own home first and building up that before diversifying. You could find yourself spread too thin if there’s a drop in the housing market.

[Peter franks]

It's a long game to be honest, its also hard work but I'm still a believer (just) .
My personal preference is to stay away from purpose built flats and go for conversions, purpose built will generally attract ground rent/service charges/maintenance fees etc all of which eat into your profit...
6% yield is the minimum amount you need to aim for to make it viable..
As ever it will depend on good or bad tenants as to how much grief it causes you are you capable of carrying out any basic repairs yourself?do you know any reputable tradesmen?
Be advised that generally everything is in the tenants favour and you are the nasty landlord!!! Also the taxman is slowly removing all the incentives and making it harder to keep a decent profit margin..
Go for it but be advised the days of becoming rich off buy to let are long gone..
Also from experience the Plymouth property market has not moved much in the last decade!!!!

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[noTAGlove]

You’ve well and truly missed that boat.

[Wolfie]

Consider propensity for the growth in value of your investment as well as yield…

The yield on mine is ok, but, as I knew the area and felt it was undervalued, it has massively outperformed the market… (we don’t all have a crystal ball.). However, a bit of local knowledge goes a long way

You haven’t missed the boat, but, consider it as a long term investment

[Ivan Drago]

In 4 years and 2 rental properties your not going to be able to take any time off work as it won't make any impact . You will poss earn 150/200 profit a month on rent but then you have to build up a pot to put right any damages, when tenants bail out and don't pay the rent, for agent fees etc etc.

You need to see this as a 20 year long investment not a 4 year thing.

[demonloop]

A 30k deposit will allow you to buy a £120k property (roughly) so donsoke research and see what flats in that price bracket rent for. Work out your cash flow and built in some allowances for void periods as well as your other expenses (rates, repairs etc) Most BTL lenders will want you to show the rent will cover 125-145% of the mortgage as a stress test of sorts.

I still think theres mileage in BTL if you’re willing to work hard at it, but I agree that the days of buying an expensive flat in London, leveraged to the hilt, and waiting on the price to go boog-a-loo are gone.

[Itizme]

Its a tough time to start imo, with all the changes to taxes, and ever increasing costs and extra hoops to jump through. And now there's talk of tenants rights being looked into to give them more say in the situation(apparently being able to sue the landlord for repairs) as said it'll need to be a long term investment and one bad tenant can set you back years, it's no cake walk I'm afraid. I sold up and wouldn't rush back any time soon.

[watchstudent]

Yes, as people have said, a long term investment. That is what I had planned. I didn’t think it should help supplement my income in three years. My unborn child will be roughly 4 in roughly 10 years!

As to having missed at the boat, well the earlier boats weren’t there for me as I am 27.

But yeah there is a hell of a lot I need to consider! It is just a tad frustrating with savings sitting so low and index funds etc not doing much. Stock market is probably in for a big adjustment, property no good or of limited good... just racking my brains for sensible places to put my savings and where to put future income. SS Rolexes I suppose...

[Mick P]

Yes, as people have said, a long term investment. That is what I had planned. I didn’t think it should help supplement my income in three years. My unborn child will be roughly 4 in roughly 10 years!

As to having missed at the boat, well the earlier boats weren’t there for me as I am 27.

But yeah there is a hell of a lot I need to consider! It is just a tad frustrating with savings sitting so low and index funds etc not doing much. Stock market is probably in for a big adjustment, property no good or of limited good... just racking my brains for sensible places to put my savings and where to put future income. SS Rolexes I suppose...

Buy a tracker and just forget about it, you always make money if you invest over 5 years. Another big advantage is that getting your money when you sell takes just a few days. It can take months to sell a BTL.

[mr noble]

I would seriously consider putting the money into a real estate investment trust (REIT) these days.

You will be getting the same exposure to the UK property market but without the same level of risk and without any of the hassle. And you can liquidate in a fraction of the time.

Here’s an example of one. https://www.lxireit.com/home2

[Dave O'Sullivan]

There are too many variables to go into really.
My only two bits of advice are that a) with about £30K savings and an 80% LTV personal mortgage (if I read that right?) I wouldn't be strapping myself up with a BTL.
And b) if you do, don't buy anywhere that you can't travel to within about half an hour.

[Tony]

It's no longer a get rich quick scheme but I'm still looking to buy a couple more to give me a steady retirement income.

I'm of the opinion that if we leave the EU the housing market will tank along with the rest of the economy, so I'm not planning on buying anything at the moment.

[-Ally-]

Yes, as people have said, a long term investment. That is what I had planned. I didn’t think it should help supplement my income in three years. My unborn child will be roughly 4 in roughly 10 years!

As to having missed at the boat, well the earlier boats weren’t there for me as I am 27.

But yeah there is a hell of a lot I need to consider! It is just a tad frustrating with savings sitting so low and index funds etc not doing much. Stock market is probably in for a big adjustment, property no good or of limited good... just racking my brains for sensible places to put my savings and where to put future income. SS Rolexes I suppose...

What rate are you paying on your mortgage? If you’re unhappy with your return from your £30k cash then consider paying down your mortgage to get it below 75% LTV may be a sensible first step. Then be thinking about putting anything remaining to your pension and getting the tax relief, keeping something easy access as an emergency fund of course.

I’m a couple of years older than you and have enjoyed the spoils of renting my unmortgaged first property for the last 5 years but have been incredibly lucky with my tenant. Realising I probably won’t get the same again when he leaves this summer I’ll be selling up and doing something like I suggested above.

[watchstudent]

What rate are you paying on your mortgage? If you’re unhappy with your return from your £30k cash then consider paying down your mortgage to get it below 75% LTV may be a sensible first step. Then be thinking about putting anything remaining to your pension and getting the tax relief, keeping something easy access as an emergency fund of course.

I’m a couple of years older than you and have enjoyed the spoils of renting my unmortgaged first property for the last 5 years but have been incredibly lucky with my tenant. Realising I probably won’t get the same again when he leaves this summer I’ll be selling up and doing something like I suggested above.

Paying 1.8% at the moment, not the best but was the best I could get at the time with my recent employment.

I think paying off a bit more of my own mortgage might be a sensible one at the moment to be honest.

Not at all looking for a get quick rich scheme, just a way of having my money work for me a bit! Potentially by the sounds of it I work too much at the moment to have the time for a BTL experiment.


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[Kitz]

I’d pay down the mortgage there is a lot of uncertainty in the btl market at the moment .Also I’d be looking for a 10% yield. Do research and then do more .There are quite a few btl forums on the web . I think generally property is overpriced at the moment the average buyer has no hope of buying the average house .


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[watchstudent]

Yep. From my research so far. Property can still work but you can’t just buy anything and sit back and wait for the value to rocket. It needs to be the right price to get the right yield and be long term.

Current plan. 50% savings = overpay on mortgage. 50% on building cash to be ready for an opportunity. Work already give me a decent pension contribution... just in case you were worried ;)


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[Tony]

I think generally property is overpriced at the moment the average buyer has no hope of buying the average house .

The average house doesn't care whether the person buying it is average or not. Prices are too high for the average buyer because supply doesn't meet demand.

[Passenger]

Yep. From my research so far. Property can still work but you can’t just buy anything and sit back and wait for the value to rocket. It needs to be the right price to get the right yield and be long term.

Current plan. 50% savings = overpay on mortgage. 50% on building cash to be ready for an opportunity. Work already give me a decent pension contribution... just in case you were worried ;)


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Sounds like a plan man and good luck to you.

For the record our 3 properties in London along with a few other bits and pieces enabled us to step off the treadmill 8 years ago when our son was born and I turned 39. It can be done with planning, discipline, hard work and a bit of luck.

[thieuster]

In my book, the words 'investment property' and 'mortgage' shouldn't be in one sentence. I only started investing in real estate (commercial) áfter paying my mortgage. It's trying to earn money where, on the other hand, you're certain that you can say goodbye to your money when paying your mortgage every month.

I will not say that the 'investment + mortgage scheme' doesn't work. I only know that my 'investment without a mortgage' did work. After all, I was able to retire from my daily job when I was 55 y/old.

Another word of warning in an anecdote: one of my tenants got fleeced by a guy and the nearly sent my tenant into bankruptcy. He was unable to pay the rent. I could have kicked him out, but decided to leave him in my property so that he was able to sort things out. After all, it was clear he got fleeced and before that, he'd always paid on time and he had an interesting, thriving business. Leaving him in my building was what he needed to get back on his feet. 10 months later he was able to start paying the rent again. We struck a deal and we agreed that he would pay me the remaining rent within one year. Which he did. Within 4 months (!!!) all the money he owed me, was in my account.
Having said that: his rent provided me with a steady income. 10 months not receiving rent is not something you want when you have not enough 'spare' to bridge that gap! I was lucky enough to survive due to the other rental incomes from others. But don't rely on only a few tenants for your full income - or money to pay your mortgage.

Menno

[noTAGlove]

Paying 1.8% at the moment

Not at all looking for a get quick rich scheme, just a way of having my money work for me a bit!

Unless you are willing to put your capital at risk, you’re not far off the best return you can get.

It’s subject to debate, but I never known a more difficult time to get a return on your money with low savings rates, stock market overvalued and property a dead duck.

It could be worse, only 6+ months ago savings rates where slightly worse and inflation was 3% giving you -1.5% real return on your savings.

At least you are just breaking even and your capital is not being eroded (for the time being)

[martynw]

I would echo the cautionary note that others have sounded over the buy to let market, with the combined threats/pressures of uncertain property values (Brexit etc) and certain increased costs and effort.

I let properties in Plymouth and in London, and can assure you that, even with letting agents (and the associated costs eating further into any profits) it is quite a lot of effort. As others have said, you're unlikely to be able to decrease work any time soon, and in my experience, your future children are likely to see less of you rather than more if you own letting properties!

In your position, I would use some of my savings to reduce the mortgage on your home, and make sure you get a really good rate on your mortgage (it's already pretty good though) I would then put some into a low-cost index fund tracker ISA (pick an Index - UK/Europe/tech/Emerging markets, it's up to you) I wouldn't increase your pension provision - as you say, despite adverse recent changes, yours is pretty good, and unless there are more changes, you may have to leave it in your late 40s anyway because you'll be hitting the buffers of annual allowance +/- life-time allowance. This is what I am seeing amongst my peer group currently - an exodus due to these tax charges.

Best wishes,
Martyn.

[Neil.C]

Pay off your mortgage first and then think again.

[David_D]

You’ll need good quality independent mortgage advice but in the meantime look up all the pros and cons online you can find and try and research as much as possible.

I’ve been doing this for 25 years as a landlord and in the industry and whilst it’s good, it’s not as good as it was and there are far more pitfalls than previously. For example there’s extra stamp duty and if you’re a higher rate tax payer (or close) the level of tax relief on the interest is falling over a 4 year period which makes it a bit less viable. Regulations are stricter than ever before.

A quick summary - it used to be a get rich quick model for many investors, but that was mainly due to house prices rapidly increasing from the early 2000’s like no could foresee. If you owned a few you, your assets increased significantly. In the last 2 or 3 years more landlords have sold than ever before as it’s got much harder to make a profit. I’m not saying don’t do it, I’m saying really understand what you’re getting into.

Without trying to put you off, personally I’d be wanting to get more equity in your own home first and building up that before diversifying. You could find yourself spread too thin if there’s a drop in the housing market.

Very sensible advice! I would only add that another key driver over the last decade was very low interest rates. Not sure what rates are available on new BTL loans.

Worth having a read of this to see what's going on in the market:

English Private Landlord Survey 2018:
https://assets.publishing.service.go...ain_report.pdf

[Wigan bear]

Pay off your mortgage first and then think again.

Good advice this is what I did before buying my 1st BTL. I put 4K into the best instant access account I could find then paid every spare penny I had on paying my mortgage off. It's amazing how quickly it drops as you pay off the capital.

Once it was paid off my bank account steadily increased until I had a large deposit for a BTL. I've been doing the same thing with the BTL and will have paid that off in May.

My main concern has been capital growth rather than income.

[funkstar]

Some great advice above. Do plan a cash flow so that you have an idea of your returns in the future.

I've just drawn up a mini P&L on a buy to let similar to one you might look at. The numbers are:


Rent paid by tenant £10,200.00

Ddt
Fees -£1,560.00
Expenses -£2,714.80
Other mortgage costs -£985.00

Total Received £4,940.20

Less mortgage -£6,731.82
Less agent expenses -£1,845.20
Direct expenses -£371.93

Operating profit / (loss)-£4,008.75



In the above example the main costs were:


£1,500 agent fees
£985 re-mortgaging fees
£4,400 of maintenance on new boiler and bathroom
Roughly 50% of mortgage was capital repayment, 50% interest.


Without the maintenance it still wouldn't have made much money. However, under the new tax rules if the property had broken even the tax bill would be circa £800, and in 3 years when the new rules fully kick in it would be £1,500.

[mitch1956]

if you do, don't buy anywhere that you can't travel to within about half an hour.

I second this ^ very important IMO and good advice

[David_D]

if you do, don't buy anywhere that you can't travel to within about half an hour.

I second this ^ very important IMO and good advice

I third it!

Not just for managing the property but also assessing it in the first instance.

In the height of the market in 2005-2007, flats (sorry, "apartments") were built on any scrap of land however c**p the area. My friend, who was working as a valuation surveyor at the time, was constantly doing valuations for "investors" from the other end of the country who had never set foot anywhere near and didn't realise they were buying in, or adjacent to, the roughest part of town. Many of these resold years later at massive losses (probably mainly to the banks but someone took a bath).

[Devonian]

I third it!

In the height of the market in 2005-2007, flats (sorry, "apartments") were built on any scrap of land however c**p the area. My friend, who was working as a valuation surveyor at the time, was constantly doing valuations for "investors" from the other end of the country who had never set foot anywhere near and didn't realise they were buying in, or adjacent to, the roughest part of town. Many of these resold years later at massive losses (probably mainly to the banks but someone took a bath).

Worse still they were some very dodgy dealings going on, on a massive scale on these flats. Builders were selling for say 200k and giving vendors a 20k cashback on completion, so people were bulk purchasing and on the day of completion we’re doing 90% buy to let remortgages almost simultaneously, so not having to put in any deposit whatsoever. Believe it or not the lenders never had any checks in place to stop this. Hence why in the 07/08 crash the mortgage rules were rewritten and tightened up massively. For example lower LTV’S on new build flats, no remortgage and extra borrowings for 6 months after purchase etc etc.

Never happened where I live, but being heavily involved in the industry we knew what was going on. Mainly cities like Manchester, Liverpool and Leeds. Some lenders knew but didn’t care. Many of these lenders were the banks that got bailed out by the government and it was there self cert/buy to let lending arms like TMB, capital home loans, bm solutions etc.

The only saving grace in all this was the deals were generally on bank base rate trackers and when rates dropped like a stone it saved many landlords as they were paying peanuts.

[Neil.C]

I third it!

Not just for managing the property but also assessing it in the first instance.

In the height of the market in 2005-2007, flats (sorry, "apartments") were built on any scrap of land however c**p the area. My friend, who was working as a valuation surveyor at the time, was constantly doing valuations for "investors" from the other end of the country who had never set foot anywhere near and didn't realise they were buying in, or adjacent to, the roughest part of town. Many of these resold years later at massive losses (probably mainly to the banks but someone took a bath).

What, you mean my BTL property in Detroit is not going to turn out to be a great investment?

Seriously, they were pushing those $8000 houses in horrible areas at the height of the boom.

[RajLondon]

Some great advice on this thread already. I'd suggest looking at the tax implications as there are changes being phased in from the previous tax year which will probably mean less relief for most landlords.

[Jdh1]

I'd say don't do it. I started around 2000 and have a reasonable portfolio of a few dozen properties. The return I get (without capital appreciation, which has been negligible) is less than I could get loaning the cash out via intermediaries. If I could wave a wand and liquidate the lot, I would....and I have no mortgages. In your position, needing a mortgage to buy and been at the mercy of a single tenant (don't get me started) it's a huge gamble and not one that's worth taking in my view. Did I mention that the government are doing everything they can to make BTL even less profitable and more onerous for the landlord? I did now.

[watchstudent]

Thanks for all the good advice/warnings! After having done a good bit of research myself I think my main priority is paying down my own mortgage, that will keep me occupied for a good while!


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[blackal]

Thanks for all the good advice/warnings! After having done a good bit of research myself I think my main priority is paying down my own mortgage, that will keep me occupied for a good while!


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If you are paying over the min monthly payment on your mortgage - and have a life policy to pay off the outstanding mortgage (on depreciating sum basis) - make sure you get it re-calculated each year, otherwise you are insuring an inflated outstanding sum.

[Taxboy]

Thanks for all the good advice/warnings! After having done a good bit of research myself I think my main priority is paying down my own mortgage, that will keep me occupied for a good while!


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Don't forget the other element of wealth creation, which is reducing your outgoings e.g. Changing your bank account often comes with a financial incentive I believe HSBC /First Direct are offering over £100 to move to them.

Cutting £5 per month each from mobile, broadband, electricity & gas gives another £240 pa in your pocket. All from taxed income. I'm sure you will be able to find others



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[David_D]

Did I mention that the government are doing everything they can to make BTL even less profitable and more onerous for the landlord? I did now.

Correct. And the genius behind that plan is that there is nothing in place to replace the properties that landlords are disposing of.

I know some people think that's a good thing but there are plenty of people for who (whom?) renting is a choice based on their circumstances.

[Tony]

Don't forget the other element of wealth creation, which is reducing your outgoings e.g. Changing your bank account often comes with a financial incentive I believe HSBC /First Direct are offering over £100 to move to them.

Cutting £5 per month each from mobile, broadband, electricity & gas gives another £240 pa in your pocket. All from taxed income. I'm sure you will be able to find others



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Another top tip:
Always poo at work. Not only will you save money on toilet paper, but you'll also be getting paid for it.

[T1ckT0ck]

I was considering it at one point as three of my mates were getting involved.

I consider myself lucky as two of the three got burnt with bad tenants and ended up getting rid with rent arrears and legal fees. the other isn’t making any money and is relying on the property appreciating to make a return which in this market is dodgy to say the least.


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[catch21]

Think twice, really. We're out of that after renting a property for about 7 years, same tenant. Sold with tenant in situ. IFA reckons he can do more with the capital than we can get through rental income. Great relief really. It's not what it was.

[noTAGlove]

Think twice, really. We're out of that after renting a property for about 7 years, same tenant. Sold with tenant in situ. IFA reckons he can do more with the capital than we can get through rental income. Great relief really. It's not what it was.

And that’s with almost free money, with the base rate at 0.75%.

There’ll be carnage if interest rates start to wind up a few notches. Given the way wage growth is accelerating (with a cohort of European workers heading home), it may not be that far off.

[Dave O'Sullivan]

Another top tip:
Always poo at work. Not only will you save money on toilet paper, but you'll also be getting paid for it.

I tried that but lost my job as a bus driver.

[David_D]

If you wanted an idea about the nonsense that the government has been piling on landlords, you need look no further than this:

'Right to Rent' checks breach human rights - High Court
https://www.bbc.co.uk/news/uk-47415383


Seems the government has been requiring landlords to do something that is illegal!

Couldn't make it up!

[g40steve]

Another top tip:
Always poo at work. Not only will you save money on toilet paper, but you'll also be getting paid for it.

That made me laugh.

Is that called time & a turd?