Buy to Let - How I made £100 @ month

[Deleted User]

Despite all of the doom and gloom merchants I went for it recently.

I had a game plan - target low value areas with good transport links and aim for DSS/Housing Benefit tenants.

Result - bought at £64,500 4 bed flat in October 2004. Was refubished by a local handyman in two weeks and let by me within three weeks of purchase. I used neither solicitors or letting agents. Gross yield is 8% and Council is paying my tenants rent.

There was a bit of hassle but to create an income after costs of £100 a month for a bit of hassle is worth doing.

deemy2004

DSS clients have a bad habit of trashing the place when they leave....

Still looks like you got a good deal

foot_loose

that is excellent mate.  im am going to be doing the same thing in the new year.

what area did you invest in????
if you do the same thing ten more times you could be earning 1000pounds a mounth for doing nothing,  it sounds good to me

Walletwatch

Guess this is a good deal, but doesn't renting out a house to Housing benefit tenants affect the resale value of the house?

deemy2004

How would the buyers know who the property had been rented to ?

Offcourse if its a terrace, with rowdy, messy DSS tenants on either side then that would effect the resale value.

Pal

Out of interest (if you don't mind me asking):

How much deposit did you put down? The figures you give suggest about £20k?
What is the total mortgage amount and what are the monthly repayments?
What type of mortgage did you get and, if a deal of some kind, when does it run out?
What tax band are you in (22% or 40%?)
How long does the tenancy deal with the council run for? (around here it is 5 years I think)
Do you get an upfront deposit for council tenants?

Sounds like an interesting deal.

Pal

Sorry - just to add another one, how is the rent reviewed with the council? Is it index linked in some way?

Cheers

Pal

GDB2222

It cost £1,500 to decorate and put a new bathroon suite in this 4 bed flat

That's cheap. Who's your builder?

If you get HB paid direct, you need to watch out for clawbacks. What happens is the tenant gets a job but 'forgets' to tell the local authority. After a few months, they catch up with him and claim back the overpaid housing benefit. Guess whom they claim it back from?   ;D ;D ;D

Pal

Presumably you borrowed the £64,500 on an interest only mortgage? Given that you borrowed on a residential mortgage, how do you avoid paying tax on the entire rent?

How much does the building's insurance cost? What about legal costs etc. What did it cost you to actually buy? Did you have to furnish the property?

Is the mortgage fixed rate and if so, how long for?

While it may eventually be profitable, it is still going to take you at least two years to get the cost of fitting the bathroom back, unless that was included in the mortgage you took out.

The key thing is whether you can increase the rent over time to give you more of a safety margin.

(You can tell I enjoy analysing these deals ;D)

gallygirl

The Inland revenue's advice is that you can offset mortgage interest if you can show it was related to the BTL - so if you can show you went from a 100 to 150k mortgage and used the 50k for btl you will be ok.

Most costs such as solicitors etc can be offset against tax, and any loss carried over - you can only use once though so can't take into account for Capital Gains Tax when you sell.

Re bathroom costs etc - cost of upgrade can't be offset against tax, but new / replacement costs can - this is crazy - you can offset costs of putting in new bathroom suite if not there before or totally wrecked, but not if you are upgrading ebcause you want to be a good landlord. ??? Not sure how IR investigate/approach this.

Pal

The Inland revenue's advice is that you can offset mortgage interest if you can show it was related to the BTL - so if you can show you went from a 100 to 150k mortgage and used the 50k for btl you will be ok.

Ok - Sounds good.

Most costs such as solicitors etc can be offset against tax, and any loss carried over - you can only use once though so can't take into account for Capital Gains Tax when you sell.

Does that include purchase costs as well as ongoing costs like management, solicitors or tradesman?

Surely the phrase "offset against tax" is misleading? I thought you could only offset against costs against income, meaning that you get tax relief (40%) of the costs. You do not get the entire outlay back against your tax bill.

Re bathroom costs etc - cost of upgrade can't be offset against tax, but new / replacement costs can - this is crazy - you can offset costs of putting in new bathroom suite if not there before or totally wrecked, but not if you are upgrading ebcause you want to be a good landlord. ??? Not sure how IR investigate/approach this.

What is the difference between an "upgrade" and a "replacement" bathroom? Surely you would not replace a bath with a completely identical (i.e. old and broken) one unless you were being a real !!!!!! landlord? ;D