BTL question

[ryanb741]

Guys are these still worth doing? I was looking at retirement options with how to use some of the SIPP tax free money (when it comes to that time) and here's a hypothetical example. Say you had £200k to spend on a BTL. My thought was buy a 2 bed flat in Central Glasgow for cash. Rent £16k a year. Full management fees 15% (£2.4k). Service charge £2k. Maintenance per year I'd assume £2k. Leaves £9.6k left, 20% tax on that (due to other income elsewhere) and you've got £7.7k to play with.

Someone told me better to take that £200k and get 4 £200k BTLs on 75% BTL mortgages (£50k deposit each). But working on the above but factoring in an additional £6k per flat per year in mortgage interest (with the risk of interest rate rises) I just can't see how that's better.

Better than all of these is just keeping that £200k in a Sipp in a tracker averaging 6% per year after fees and inflation.

What am I missing? Obviously a lot lol.

[Passenger]

What's Central Glasgow like, lots- little rental availability? What trajectory is it on? Are folks flocking in or heading the other way? What have prices done there over the last couple of decades?

6 per cent net hassle free doesn´t sound too bad at all.

[ryanb741]

What's Central Glasgow like? What trajectory is it on? Are folks flocking in or heading the other way?

Just took as an example as it has an 8% yield.

[Passenger]

Just took as an example as it has an 8% yield.

According to whom, based on what?

Aren´t Bitcoins flying, where the smart money is?

6 per cent net hassle free doesn´t sound too bad at all.

[demonloop]

1x BTL fully paid off is money in the bank, plus (generally) capital appreciation

Whilst your 2k repair bill p/a seems excessive, with interest rates being high as they are, a savings account will perform just as well

Several BTLs dilutes your risk but with mortgage they will just break even. But you then have tenants paying off your mortgages and eventually, free houses.

[Ikincooper]

Historically, with investment time on your side (so perhaps before retirement) and favourable taxation it would make sense to leverage your funds via 4 x BTL properties each with 25% down. That way you could enjoy appreciate on £800k of property versus £200k which over the long term should be sizeable.

Given the limited tax relief now available on mortgage payments and the fact that you (I imagine) would want to enjoy retirement and not deal with problem tenants, I’d probably favour a stocks and shares idea with a S&P500 tracker.

I say the above as a very small scale landlord, aged early 40’s and with 3 rental flats all mortgages out at 75% LTV. I expect to sell at least 1 of my investments flats in the next 5 years and just through any funds into my pension of an ISA.


Sent from my iPhone using Tapatalk

[David_D]

Are you investing for income or (long-term) capital growth?

As long as the imbalance of housing supply and demand exists, you’d assume residential property would be a good long-term investment. That said, there’s a fairly hostile regulatory environment. In Scotland, a rent freeze was imposed although (unsurprisingly) that’s coincided with rents increasing significantly.

The LBTT (Scottish SDLT) has a 6% additional rate for second properties so you’ll pay a total of 8% on your £200,000 - £16,000!! So you’ve lost that before you start.

[ryanb741]

Are you investing for income or (long-term) capital growth?

As long as the imbalance of housing supply and demand exists, you’d assume residential property would be a good long-term investment. That said, there’s a fairly hostile regulatory environment. In Scotland, a rent freeze was imposed although (unsurprisingly) that’s coincided with rents increasing significantly.

The LBTT (Scottish SDLT) has a 6% additional rate for second properties so you’ll pay a total of 8% on your £200,000 - £16,000!! So you’ve lost that before you start.

Income with a 20 year window.

Based on comments above I think just sticking it into an index tracker is far less hassle.

[mr noble]

The only way to hold BTL or Holiday Lets nowadays is mortgage/debt free or within a limited company structure.

The government is making sure that there isn’t any profit in gearing them up with debt.

I’d also say that with £200k to spend, you’d be better putting it into the SPX ETF and maybe a couple of other funds. You’d probably make more than the 4/5% yield your example above makes. You can put £25k into your ISA each year and £25k into your wife’s. And £9k into your kids JISA too. Meaning in 4 or 5 years it’s all inside a tax free wrapper.

I think BTL has become almost un-investable unless you already own the properties.

[M1011]

Bear in mind on a second property you'd be paying extra stamp duty too, plus liable for capital gains tax when selling it. I'm not sure the benefits outweigh just keeping the money in your pension pot to be honest. Bear in mind you'll still get that tax free cash in your annual withdrawals and money in your pension is generally preferable from an inheritance perspective.

We're intending to move soon and I've thought about keeping our current home as a BTL, but even with the advantages that route offers over just buying a BTL separately (i.e. the stamp duty is already paid on this house, I'd save fees associated with selling it, I'd save fees typical of buying a new BTL etc), I still can't seem to make it stack up as a viable option financially. That said, I'm no expert!

[mr noble]

As M1011 said above. Probably best to just leave it in your pension and earn ~14% a year from SPX.

Is there not a big advantage to spreading your 25% tax free part over a number of years? Rather than take it all out at once on day one?

Use the tax free bit to bump up that maximum amount you can take out tax free each year, for the first ten years of retirement.

[Halitosis]

Wouldn't it be best to just leave the money in your SIPP, don't take the up front tax free lump sum, and instead enjoy 25% tax free on every withdrawal through retirement?

Edit - sorry I see such has already been suggested

[helidoc]

I have a BTL spreadsheet, and no matter how I plug the figures in it comes out as a firm “don’t bother”

You have to put energy efficiency fairly front and centre or you can’t rent it out. I was considering holding as a ltd company at one point, but then corporation tax has gone up, and the tax free dividend allowance has been cut by 75%

I keep looking at it, but I find the numbers far from compelling, I’m in Liverpool and city centre flats or flats close the main park area are similar to Glasgow prices.

I’ve also looked at Glasgow, as I think the West End is beautiful

D


Sent from my iPhone using Tapatalk

[Hood]

I have a BTL spreadsheet, and no matter how I plug the figures in it comes out as a firm “don’t bother”

You have to put energy efficiency fairly front and centre or you can’t rent it out. I was considering holding as a ltd company at one point, but then corporation tax has gone up, and the tax free dividend allowance has been cut by 75%

I keep looking at it, but I find the numbers far from compelling, I’m in Liverpool and city centre flats or flats close the main park area are similar to Glasgow prices.

I’ve also looked at Glasgow, as I think the West End is beautiful

D


Sent from my iPhone using Tapatalk

The West End is lovely but it's expensive too.

[thenikjones]

Even paying 15% for “full management”, it won’t be as passive as you’d expect. We have properties (owned outright) and my wife is forever having to make decisions about maintenance etc - and chasing the agent to make sure the work gets done.

[Montello]

Having a BTL is like having a part time business. Yes it can be managed via a good agent but I’ve never found one that doesn’t need management.

[number2]

Having a BTL is like having a part time business. Yes it can be managed via a good agent but I’ve never found one that doesn’t need management.

Fair point, from using an agent for all the houses over a decade ago I now manage all but two, it keeps me busy for a couple of hours a week.

[dandanthewatchman]

Even if all the tax breaks hadn’t been taken away you don’t want to start investing in property at retirement age. You need to be starting in your thirties and have decades to ride the capital appreciation. If you were retiring today and did not have kids you wanted to leave an inheritance to then buying an annuity will work for some people.

And personally I would steer clear of apartments. Service charges are not in your control and can kill the return.


Sent from my iPhone using TZ-UK mobile app

[Passenger]

There's always tax liability...never let the tax tail wag the investment dog...I to plan to reduce mine to the point where I just own the star performers outright, within this decade, the aim to simplify where we can by 60.

[wileeeeeey]

Some really good advice on this thread. I was close to buying a first BTL last year but couldn’t make the figures stack up. You need to own them outright, have a jobless wife at home with them in her name, or go Ltd company and scale viciously.

A family member is converting a BTL into a proper HMO shortly. They own the house outright and will spend just under £200k. The house forfeits its ability to buy a residents permit for life (other considerations too) but they project an extra £2k per month.

[Estoril-5]

Re: risks, dont forget there may be cases where the tenant doesnt pay, trashes the property or uses it as a canabis farm.

Also dont forget it wont be looked after like you would, so if the bath is leaking, so what, smoke alarm battery dead, meh just remove it.

As others have said stick it in a fund/tracker and never have to worry about a Section 21!

[Neil.C]

Re: risks, dont forget there may be cases where the tenant doesnt pay, trashes the property or uses it as a canabis farm.

Also dont forget it wont be looked after like you would, so if the bath is leaking, so what, smoke alarm battery dead, meh just remove it.

As others have said stick it in a fund/tracker and never have to worry about a Section 21!

That's the main trouble with BTL's, the human factor. I thought about it years ago but the human factor always deterred me.

A chap I know let one of his houses with six months paid upfront and then no more money. He went down there, used his pass key and a shotgun booby trap nearly took his head off!

Needless to say a cannabis farm.

Three foot of wet soil everywhere, holes smashed through walls for cabling - a nightmare.

[wileeeeeey]

Yep, my mum is almost 10k down after having to evict tenants last Feb. The deposit will never cover the loss.

Year before she got clobbered for major works which originally went in at 23k but were haggled down to 17k after protests.

Once works started she had 14 days to pay or would have incurred interest.

Good when it’s good. Terrible when it’s bad.

[noTAGlove]

Good when it’s good.

You mean significant and rapid capital appreciation, and large gross yields in a low interest rate and low taxation environment?

If so, now is about the perfect time for the proper mugs to start their BTL journey.

[wileeeeeey]

You mean significant and rapid capital appreciation, and large gross yields in a low interest rate and low taxation environment?

If so, now is about the perfect time for the proper mugs to start their BTL journey.

My mum is ok because she’s a lower rate tax payer and has had it for about 35 years (we lived in it as council tenants for about 15 years).

If I was to buy it now as a higher rate tax payer with even a 50% deposit it would be a terrible investment.

Its fully managed for either 12.5% or 15% fee and the agent was emailing my mum over Christmas to ask what to do as the tenants are drying their clothes on the radiators and the closed windows are full of condensation. I would have lost it at them but I stay well clear of that kind of stuff now.

[noTAGlove]

Its fully managed for either 12.5% or 15% fee.

Ouch, that is a massive bite out of your Mums investment return. What do you get for that significant fee, apart from a phone call to tell you about the drying?

[wileeeeeey]

Ouch, that is a massive bite out of your Mums investment return. What do you get for that significant fee, apart from a phone call to tell you about the drying?

FA. After she made me go to court for the eviction process when the flat is nothing to do with me I told her I don’t ever want to hear about that flat or see it again. She can either upskill and be fully involved or pay someone else and hope for the best. She did the latter.

[David_D]

My thought was buy a 2 bed flat in Central Glasgow for cash.

You dodged a bullet there. The end of the private rented sector in Scotland just announced. Intrigued to know what their plan is to replace it for those who want or need to rent.

Not a huge stretch to see an incoming Labour government doing similar in England.


“Proposals include long term rent controls for private tenancies, new rights to keep pets, decorate rented homes and stronger protection against eviction.”

https://nen.press/tag/housing-scotland-bill/

[noTAGlove]

You dodged a bullet there.

It was a bit of kite flying.