Hi all,
I’ve got a decent chunk of self saved cash in the bank and I feel it’s about time I did something with it. I’m 27 and currently live in the first house I bought (with a Partner). We have about £60k of equity in it. We have been here 18 months but we expect to move in around 2 years time and we are already saving towards that.
Have done some calculations and I imagine that I could afford to buy a 2 bed flat nearby with a 25%/30% deposit on which the rent should cover the mortgage (repayment) two times over hopefully. After this I would still have half my savings pot left (which I’ll be honest I’ve never to date had to dip into).
After a bit of thought I think it’s a good idea, however I’m only about 90% convinced.
I will add, this has been brought on by my interest income absolutely sliding over the last year or two (I guess like everyone else’s has). I’m sat here thinking I can’t imagine needing the money before I can save the same amount again and should do something with it.
Am I not seeing the big picture? Is there anything else I should consider doing with the cash? Should I instead wait until after buying the second house?
Any opinions welcome.
If you buy it in your own name, the BTL mortgage will be taken into consideration when applying for your re-mortgage. They may want to stress the interest rate to see if you could still afford to pay it should rates rise.
In your shoes I’d secure your own house move first, then stride down the btl road. Be forewarned though; it’s plenty of hassle.
It can work well. But it can be a nightmare. My family have rented houses and flats out in the past, and some tenants have been similar to those depicted on the tv. Drilling or even punching holes through walls, or other damage that even a larger deposit wouldn’t get near to covering. Thankfully we never had anyone not pay rent when due, but that’s a consideration too.
Doom and gloom aside. It can be a very sensible thing to do with your cash. Of course you’ve lost a lot of the incentives in recent years, but still... Effectively you could leverage approx. 3 properties for little more than the purchase price of one. If you are lucky with tenants, and have the properties fully occupied then you’ll have acquired it for the price of your deposit, and the bank‘s and your tenants cash.
I have friends with properties, and some with rentals through their SIPPs. They have been lucky enough and are happy. Less chance to disappear over here, and you generally know who people are and where they work etc.
I’ve been considering freeing up a few watches and doing something similar myself - and even going as far as discussing the process of having a property bought by my pension fund only this week. Lots to consider though.
It's just a matter of time...
Big picture is somebody else is paying the mortgage on the BTL, so long term that is good. You will likely have additional Stamp Duty to pay on purchase as its an additional home and you pay tax on your rental income.
Good tenants make it work. Bad tenants are a nightmare and you should factor in losing 6 months rents and the cost of going to court to evict them and bailiffs to then get them out. However that is the exception and not the norm.
What about waiting until you get you new place sorted, so you have the funds to do that and then look at BTL?
Despite having had tenants who haven't paid their rent and another who burgled the empty house after he had left & stole the boiler, BTL has been one of my best investments. The rent we have received over the last 17 years has been £20,000 more than we paid for the house plus the house is worth well over double what we paid for it. My BTL mortgage is currently less than 1% interest rate as well.
It can earn good money but it’s not easy money. If you’re not planning on using a letting agent then you need to be prepared to keep up to date on ever changing laws with which you need to comply.
As long as you can comfortably pay the mortgage in addition to your other outgoings then you’ll be fine. At the moment notice periods are 6 months though. If you have a non-paying tenant then you’re looking at 6 months notice then minimum 3 months before a possession order is made.
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We did this a few years ago with some savings we had. The requirement is a minimum of 25% deposit, but it sounds like you have that covered.
It's worked out so well that my wife and I have started a separate property company to do a few more as a side business from our main company. We are quite lucky that where we live there are not very many rentals coming up on the market, so the demand for them is high.
If you could complete on one before the end of March, you will save quite a bit on stamp duty!
Get a bad tenant and it will ruin you, plus evicting someone in these times is nigh impossible.
Invest the cash or get some more equity in your own home before signing up for the aggro of BTL, IMO.
I sold my flat last year to the tenant and invested the cash, somewhat liberating not being on standby for daft queries or repair requests, and that was from a decent tenant who never missed a month.
As this would be a 2nd property then Stamp Duty on a 2nd home would still apply.Originally Posted by andyb28
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Thought that buying BTL through a SIPP had a heavy tax charge up front? For residential?
That is interesting if this is possible, please do share details if you have any!
I don't see the benefit of buying a BTL right now in your situation. You're going to move in 2 years and the BTL will be heavily factored into any borrowing, you only have 60k equity in the property and you can't kick a tenant out right now anyway. Seems a bit counter productive.
Pay a chunk off your mortgage or wait until you've bought the new place.
As part of a balanced investment portfolio, there’s definitely a place for B2L.
Good yield whether bought for cash or on a mortgage.
Consider an interest only mortgage if you haven’t already, with a plan to pay it back at the end (reinvest the rent into something else and use the pot, or just sell the house at the end of the term having taken the rent for 25-30 years first).
I’m venturing into it, one completing soon and about to go to the rental market and thinking about a second.
I’m as sure as I can be that you can’t put residential property into a SIPP. Would likewise be very interested to be proved wrong.
Last edited by David_D; 6th February 2021 at 21:16.
I’ve had a rental almost 10 years now one bad tenant who turned bad after 3 years of being great, I’m toying with buying another because the ROI has been so good. As others have said evictions etc can be a long drawn out process and there will be damage etc to contend with fortunately the bad tenant decided to leave of his own accord so we didn’t have the the long drawn out process although it cost me circa 3k to sort the house afterwards. As with everything there are pros and cons my advice would be if you’re moving anyway why not just rent out your current property and buy the next from scratch removing the chain etc ?
Another option might be the holiday rental market? Got to be a good medium term bet with the pandemic forcing people to rediscover holidays in the UK. Potentially long term if the end state of the economy means that more people forego foreign holidays for UK.
Buy a good prospect,
Make it nice
Be really fussy
And be really fussy.
I agree with this. Also a lot more potential issues due to the impact of Covid (at least from my experience). I've rented out my flat and my parents' ones in London the past few years, and the tenants had been great. However, since Covid started, my tenant (a couple) lost their jobs and could not afford their rent for months, they were honest and genuine about it and I've let them stay on and owe me for the time being. My parents' tenants, on the other hand, started delaying payment and tried to lowball us for the renewal. Insurance companies are hesitant to give out (rent-related) policies as well.
Don't mean to whine as it's a tough time for most people at the moment, but it could be a nightmare being a landlord right now - so take that into account.
Best of luck OP!
If you’’ have not done it already, I would certainly work out what your net income will be, taking into account service charge, ground rent, insurance and taxes etc. You can no longer offset the mortgage interest against your tax calculation.
Personally I would wait until you’ve moved or use the savings to get higher up the ladder if possible.
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You definitely can’t buy residential in a SIPP or any pension. Massive tax consequences if you do it.
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A colleague let a property in October of last year, was paid for Oct and Nov, then the tenant stopped paying. State thay can't offers the rent due to covid. So he is well stuffed atm.
Just a factor to consider.
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From the other side after two divorces I’ve renter for the last 20 years. Some landlords are good some are money grabbing shits, it’s all swings and roundabouts. The place I’m in just now is a lovely house BUT the guy bought it at the right price or so he thought, he’s spent a fortune on it so much that he can’t sell it and it’s worth £20k at least less than he’s got in it, it still needs £25k of windows to make it warm and the roof leaks even though it’s been reroofed. So have a decent survey and make sure it’s the right property that you don’t have to constantly sink money into and it will make you some otherwise step away!
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I've got quite a number of BTL properties and have seen all sides of it. The problem with one property is that it's either a dream or a nightmare and that's dependent on the tenant. When you have a few, you can take the rough with the smooth. When you have one, you have rough OR smooth and rough can be ruinous. Even if the tenant pays their rent, the mess they leave behind can wipe out 6-12 months rent depending on how bad it is. Don't get me started on the tenant that doesn't pay and refuses to move without a court telling them to. It doesn't happen often, but if it happens to you with one property, it's a disaster. It's only a potentially viable investment at all if you project there will be significant capital appreciation over the period you will own it.
You ask about alternatives. Have a look at property backed peer-to-peer lending. I've been doing that for 3-4 years now with very few issues, even through the pandemic. Returns are typically 6%-7% which is better than most buy to lets, a lot more flexible and a lot less hassle. As far as risk is concerned, my view is that it's a lot less risky than a single buy to let investment.
Looking at this myself. Unless paying someone else to do Saturday changeover etc it's more work than residential letting, but far great potential returns plus it's a holiday home you can use yourself when it's not rented.
From my research on the South and West Wales coast you can get the equivalent to a months worth or more residential income in a week during school holidays. So basically just the summer holidays and half terms etc will get you more than twelve months residential income, and its free for you, and family and friends to use the rest of the time if you like. Of course the potential dangers and pitfalls are there just like residential letting, but thems the risks I suppose.
The tax regime is far more favourable for Furnished Holiday Letting - eg, no restrictions on tax relief on interest.
I live on the Isle of Man. Provided you, a relative, or associated person, can not live in the property, along with a few other exemptions, it is considered in the same way as Commercial. The pension trustees buys the property and rent it out on a commercial basis.
Obviously it may or may not suit some, but it’s doable, with restrictions.
Last edited by Omegamanic; 7th February 2021 at 02:03.
It's just a matter of time...
general rule, pay off debt and be safe
buy to let can be great and as has been pointed out here, better to wait and do multiple rather then one, as it tends to smooth it all out
choose your tenants really carefully, better a month without income then a bad tenant now, references, speak to them rather then letter
be very aware though, this covid is going to have to be paid for, there is very little sympathy for btl landlords and it's hard for them to hide or avoid taxation
the rules get stricter and stricter, the balance of power has very much gone in favour of the tenants
a lot of the previous moneys been made on the market rising, will this happen post covid, what out for properties in villages etc with the premium, it's very easy to suddenly have a housing estate added diluting the market and coming with incentives
be wary of flats, the maintenance costs are a racket, just seen as a way of sucking money off the owners (my sisters flats were quotes 8k to pain a 3 storey stairwell, 1k a flat they were expected to find- in a guerrilla action, they all painted it in 6 hour one Saturday evening every adult 12 of them- lease holders were furious)
personally i wouldn't, tenants rights are getting stronger, to easy to tax, no sympathy from public, yes internet rates are low, but most of what you're looking to earn is really in a rising market, it means you're betting in a market rising i'm not sure i;d make that bet at the moment
Bad time for BTL at the moment.
I would find a good IFA and invest the money in a good fund.
You should be able to grow the investment over the long term.
There's lot's of good advice above about the dangers of only having one or two BTLs. The letting environment now is very different from ten years a go & it's very different for a new entrant to somone who already has a portfolio bought years ago. For an indication of how wrong it can go read this thread:
https://www.pistonheads.com/gassing/...=193&t=1909981
There are plenty of similar stories over on Landlordzone. It's fine if you have 10/15/20 properties, it's a disaster if you have only one. Given you are moving in a couple of years look for other investments for your money.
Im not so sure you’ll be able to replicate the returns on a best case scenario though.
Take an example of being able to afford one rental property comfortably with no mortgage. Then compare to finding three properties and paying between 30-40% deposits - where in 15-20 years you have them all paid off, for the price of your initial investment/legals, the banks money, and your tenants payments. You may even have some capital growth.
Yields of somewhere between 6-9%, depending on where, and rental incomes are pretty usual here. That’s 6-9% on total purchase price though, not just your deposit. So your leveraged yield based on your deposit amount could be around 3 times higher year on year. Obviously depending on how it’s held/structured you have whatever taxes etc. - but I’m sure there must still be tax efficient methods available with a little structuring.
I would be looking at, if I go for it. A number of houses (small modern 2 to 3 bed terraced) purchased and rented, either within a pension or a company, possibly company/trust structure for the future benefit of my children. Taking no money out of the structure, and all rental income to cover mortgage, and any repairs/updates/maintenance during a 15-20 period.
All assuming nothing goes too far wrong of course ;)
Last edited by Omegamanic; 7th February 2021 at 14:12.
It's just a matter of time...
I think you have to view it as a long term investment. I’m 63, retired several years ago, I invested in other things instead of property and I do OK, but I regret not buying a rental property. Ironically, the right time to get a BTL is ten years ago! In the short term, the mortgage and other costs will wipe out profit from the rent, if it breaks even and wipes its face in the first few years you’re doing OK, but eventually it’ll start to provide an income. When the mortgage is paid iff you’ve got the capital value of the property plus the rental income, so a BTL could prove a better alternative to a pension.
Unfortunately, capital gains tax will be a problem if the property doubles in value over 20 years. Other investments can be sold in portions to use your annual capital gains allowance over a period but a property can’t, it’s all or nothing.
In hindsight I wish I’d bought one 15 years ago when I was planning for retirement, but as already stated on this thread there are plenty of pitfalls and it can be a rough ride. All investments carry risk and BTL is no exception. I’d own proper as part of a balanced investment portfolio but I’d never put all my eggs in one BTL basket.
Spot on it's the leverage because of use of OPM.
Last edited by Passenger; 7th February 2021 at 15:26.
Yep, gearing/leverage - whatever term best fits :)
But for me, unlike investing in companies I’m not too close to, if the FTSE etc. for some reason, I prefer tangible things. Could be a mistake, and maybe I’d be better investing into the markets, but I can’t see the same type of steady returns, potential for capital growth, relatively security of knowing I could sell, in a buoyant/growing market - more people are starting to rent here due to the increased prices over recent times - plus being a small island it’s usually easier to be selective and have better knowledge of tenants, their employment etc.
Im thinking I should have probably bought a few years ago, but although it’s not the good ole days, I still see an opportunity in the BTL market here.
Ive virtually discounted flats, unless purpose built separate units, where you can own a whole block of 4-8 units. I had a few properties selected in Australia, and that was my initial plan when I was due to sell up here, build my farmhouse and own a couple of blocks of units that had great returns, well above the yields here (with some as high as 12-15%), although interest rates were a little higher slightly offsetting that.
It's just a matter of time...
It sounds like you've a good grasp of the issues as well as insight into your local market and quality, decent tenants are in large part the key, so if you've the ability to vet them well and be selective as you say, then with a little bit of luck why not. All the best.
In the OPs position I'd hold fire and get my own home sorted first before any BTL activity.
BTL is only attractive for two reasons:
1) Leverage; it's the only asset that it's cheap to borrow money against to leverage your capital (deposit); this is fine if you are confident of future prices ... leverage works both ways don't forget
2) Diversification; with most people investing in equities having some property exposure helps diversify the investment mix
As a pure investment there are considerable disadvantages with a residential BTL ... tenants can be a lottery but I think with the use of a good agent, referencing, guarantors and some sensible due diligence you can manage this one ... if you do all that your agent can insure the rent.
Then you have the tax regime which is changing plus you have CGT to deal with on exit (hopefully) ...
Add to that you have agents costs, insurance, EPC, EICR, PAT, Gas Safe and maybe Fire Risk Assessments ... plus no doubt there is more legislation coming regarding energy efficiency ... it's pretty much a part time job running BTLs ... unless you outsource the whole lot to an agent but in my experience even a good agent needs managing.
As a pure investment BTL is worse than equities by a considerable margin (on average over 20 years outlook) but it's the two points above that keep it interesting; primarily point1.
Last edited by Montello; 8th February 2021 at 12:57.
I have one and a half. And I'm going to beg to differ with the argument that BTL is fine if you have many, but can be ruinous if you have one.
We've had the first one five years. The first tenant was a nightmare. We're pretty sure he was dealing drugs from the property. He moved in multiple mates who weren't on the tenancy agreement, wrecked the garden, smoked heavily in the house, urinated out the bedroom window. I could keep going.
We decided to put up with him rather than to force eviction. We served a section 21 two months before the end of his first year and fortunately he left without contesting it. All in all, he left owing £5000 in rent and what it cost to get the property back to standard. It took about four months to get the property back on the market.
Within six months, we realised that despite being a three bed detached house, we were only attracting single men as the kitchen was tiny. So we took the property off the market, took down an internal wall and fitted an open plan kitchen diner. Once back on the market it still took three to four months to find the right tenant. They've been in for a little over a year now and are perfect. They look after the property and we look after them.
Five years in, our first BTL has just started to repay what we've sunk into it. We bought the house, then spent a bucket on redecorating & carpeting. Everything the first nightmare tenant paid us was swallowed up by the mortgage & putting the hose back together after he left. Then we took a wall down, moved an external door, fitted a kitchen and put in 40m of fencing. One week before the new tenants moved in the property needed a new boiler. One month after they moved in a new garage door.
Financially it has been a burden. However we were realistic and did not expect to draw any money from this property. We still don't. It hasn't been ruinous because we're sensible and can cover the expenditure.
We planned that any money the property earnt would go into the mortgage. In addition I'm subsidising it £500 a month. After five years, we've managed to pay off less of the mortgage than I've put in as subsidies. But with decent tenants in now, we are rapidly moving towards a break even position.
Of course none of this takes into account the rise in property value, both from the market and from the building work we've done.
Moral of the story: don't be greedy, expect to need deep pockets and to make costly mistakes. Expect to have to spend money on alterations if you're not attracting the right tenant. In our experience BTL is not a get rich quick scheme.
And what ever you do, never take a tenant that is inappropriate for your property. It's far cheaper in the long run to have the property sitting empty.
I'm a little confused by this. Your story seems to confirm that BTL can be ruinous if you only have one! That first tenant probably put you well over £10,000 behind taking into consideration unpaid rent and lost rent when refurbishing. And that's without refurbishment costs. That kind of expenditure would be ruinous to many and certainly not something they'd be prepared for.
If the economy continues to go down the shitter I can see a lot of people who lose their jobs and have no money staying put in rented property’s for as long as they can without paying rent after all what will they have to lose, not ideal if you are a landlord
They can apply for housing benefit / UC though, which will help towards rental costs
I did this about six years ago. I was lucky with the tenant as I have had the same guy in since day one. The rent is over double my mortgage costs; BTL interest only for 70% and 30% equity release from my main home as a deposit which is a fixed rate repayment mortgage. He is so easy to deal with I manage everything myself which saves an agent’s fee too. As others have said the tenant can make it or break it.
Something to consider is a Council run Private Social Landlord scheme. Many Councils will rent your property for a guaranteed three year period a little under market value, but, rent is guaranteed, they also guaranty returning the property to the condition it was taken on in. If your local council offer it I’d go down this route 100%. I used to be a Surveyor at my Local Council and sadly had to fix up too many flats and houses abused by a**ehole tenants costing between £10-25k each time.
As others have said you cannot be too cautious. All risk and reward as per usual.
Good luck.
Yes I have had a property rented through hounslow council for 15 years and never missed a month's rent. Have to do some work in between agreements. Painting etc but its worked out well. Get a nice income from it now and built a decent equity on the property.
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2 of ours are with this type of scheme, hassle free, 3 year rental terms, a touch below market rents but the no voids guarantee easily offsets this and have managed to renegotiate the rents along the way to continue tracking the market.
I had some cash that was getting me 0.05% on a Santander cash ISA. I bought a two bed flat and spent a little over 8K on restoration and decorations. It is generating 6.79% pre-tax interest. Now I know that I could have done better on the ISA rate but I am averse to risk so wouldn't consider the stock market,. The interest is a nice boost to the savings, generating more than a hundred times what the bank was paying... it is making me wonder why the banks can't make a bit more cash and increase our interest rate instead if continually reducing it...
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