Buy to let - advice please

fox123_2

I own my own house- no mortgage. I have cash available which I want to invest in a 2nd buy to let property over the next 10 years- then liquidate assets for my retirement. The rental market in my area is very saturated. I plan a mortgage of £600 pm over 15 years, and rental of around £500pm after tax and letting commission.
I envisage getting around £70,000 mortgage for the second property worth £140,000. I plan to use a Letting agency to manage tenants over the 10 years.
1. Do I need to get a buy to let mortgage, why no get a normal mortgage which is cheaper?
2. I'm in the 40% tax bracket, my wife is part time low income. Would it be wise to put property in wife's name to reduce tax bill on rent income?
3. Would the mortgage have to be in my wife's name as she would be 'owner'
4. I've seen some chats about bad letting agents and how to deal with bad tenants, is there a good letting agent federations / bodies or controlling guilds that I should look for in order to ovoid signing up with cowboys?
5. When selling the 2nd property in 10 years time, should I declare to Tax people the 2nd house is 'main residence' for my wife- in order to aviod Capital gains tax?

BobProperty

fox123 wrote:

I own my own house- no mortgage. I have cash available which I want to invest in a 2nd buy to let property over the next 10 years- then liquidate assets for my retirement. The rental market in my area is very saturated.

I'd keep the cash on deposit. Why buy at the top of the market?

fox123 wrote:

I plan a mortgage of £600 pm over 15 years, and rental of around £500pm after tax and letting commission.
I envisage getting around £70,000 mortgage for the second property worth £140,000. I plan to use a Letting agency to manage tenants over the 10 years.
1. Do I need to get a buy to let mortgage, why no get a normal mortgage which is cheaper?

Because it's a BTL. And you won't get one on your figures, lenders usually want rent : mortgage to be 125:100.

fox123 wrote:

2. I'm in the 40% tax bracket, my wife is part time low income. Would it be wise to put property in wife's name to reduce tax bill on rent income?
3. Would the mortgage have to be in my wife's name as she would be 'owner'

Probably yes, but whose money is the deposit?

fox123 wrote:

4. I've seen some chats about bad letting agents and how to deal with bad tenants, is there a good letting agent federations / bodies or controlling guilds that I should look for in order to ovoid signing up with cowboys?

IMHO it won't matter if they are, or aren't members of some association, they can still be good or bad.

fox123 wrote:

5. When selling the 2nd property in 10 years time, should I declare to Tax people the 2nd house is 'main residence' for my wife- in order to aviod Capital gains tax?

Only if she lives there for, say 9-12 months.

regularsaver1

You can not use a residential mortgage for letting without the permission of the lender - and even then they may change your rate, and may not take potential rental income into consideration when prooving your income , should you need to

clutton_2

""The rental market in my area is very saturated "" - why buy somewhere where there is very little demand ?

""I plan a mortgage of £600 pm over 15 years, and rental of around £500pm after tax and letting commission" - why buy a liability - for this is what this will be for you ?

if mortgage interest rates go up (and they have just done that !!) - how long will you be able to subsidise this empty liability for ? You will also have to pay community charge when it is empty for at least 6 months every year, and insurance, and repairs, and CORGI certificate, and and and and and !!!!!

Sorry, but i think you need to seriously reconsider this plan.

may i respectfully suggest that you read https://www.singingpig.co.uk from front to back before making any firm decisions on property - there is a wealth of info on there.

F_T_Buyer

fox123 wrote:

I own my own house- no mortgage. I have cash available which I want to invest in a 2nd buy to let property over the next 10 years- then liquidate assets for my retirement. The rental market in my area is very saturated. I plan a mortgage of £600 pm over 15 years, and rental of around £500pm after tax and letting commission.
I envisage getting around £70,000 mortgage for the second property worth £140,000. I plan to use a Letting agency to manage tenants over the 10 years.
1. Do I need to get a buy to let mortgage, why no get a normal mortgage which is cheaper?
2. I'm in the 40% tax bracket, my wife is part time low income. Would it be wise to put property in wife's name to reduce tax bill on rent income?
3. Would the mortgage have to be in my wife's name as she would be 'owner'
4. I've seen some chats about bad letting agents and how to deal with bad tenants, is there a good letting agent federations / bodies or controlling guilds that I should look for in order to ovoid signing up with cowboys?
5. When selling the 2nd property in 10 years time, should I declare to Tax people the 2nd house is 'main residence' for my wife- in order to aviod Capital gains tax?

I have to echo other comments so far. Buying a BTL is a bad decision. Buying a BTL on the info you provided is probably the worst investment ever!!!

You mentioned rent of £500 a month (£500*12 / £140,000 property cost) is a gross yield of 4.28%, which to be honest is pathetic - espcially as you can get over 5% in a bank.

After taking into account rental fees (usually around 15%), maintenance and voids (which will be very high in a saturated market) you will be relying on capital gains to make any money at all.

Example figures:
N.b. The reason why I assume a 100% mortgage is so you can use this cost to offset against tax.

Income:
£6,000 rent a year

Outgoings:
£500 voids = 1 average month (Source ARLA)
£1,400 maintance @1%
£825 agents fees @ 15%
£7,350 BTL mortgage on full property value @ 5.25%
total = £10,075

Net income
-£4,075 per year (notice this is a loss)

And the above assumptions would rely on interest rates being stable, and voids to be average. Especially as interest rates are on the up, and you say voids are high.

I know you would have a smaller mortgage than my figures show, but you need to look at the whole picture and all costs involved. Any cash you insert into the investment would need to beat a simple savings account (assuming in my calculations this is 5.25%).

They are far far better investments right now, if you are desperate to invest go see an independent financial planner (not a IFA salesman).

I've seen plenty of people justify BTL, but those figures are the worst i've seen for a while.

silvercar

Not commenting on the pros and cons of doing a buy-to-let but specifically on your mortgage plans.

You have all the equity in your own home, so you could mortgage that with the cheapest residential mortgage you can find and use that money to purchase the BTL property outright. This is perfectly legal and you can still set the mortgage interest against rental income for tax purposes as it is the purpose of the loan that counts not where it is secured.

Of course, this does mean if you fall behind with payments it is your own home at risk not the BTL property, but I would have thought you have enough equity to cover that.

Fitzy29

:beer: Don't listen fox123, buy to let is buy far over time the best investment you can chose. Fair enough you'll have rent free periods, repairs, insurance and saftey checks to carry out... But so what, a property in the right area, with a good income will look after itself.

The trick is to forget actually paying the property off in say 15 years, what will this acheive except a huge tax bill on any profit should you cash it in.

If you plough all your cash into one property worth say 150k, this property will in say 10 years double in price so it's worth 300k.. fantastic 150k profit if you sell the govenment takes 40% of the profit so at best you make around 60% profit in 10 years.

Now instead of using the 150k to invest in one proerty why not use it to put 15% deposit on 10 properties and use 85% of the banks money. This would allow you to own a property portfolio worth £1 million. Now as you head towards your retirement the properties will more that likely double in price in around ten years ( property has done this every 10 years since 1930 ) so your properties are now worth £2 million... all along the way your rental income will have covered the interest only mortgage payments so you will still only owe the bank 850,000...that's a gain of £1.15 million... The way to cash it in tax free is to remortgage the property to the max the rental income will allow...thus releasing equirty to fund your life, buy a car, treat your kids's what ever you want. Your own house will be paid off... you need to view the rental property as a cash cow, not something you need to pay off as it's a good debt that pays for itself and gives returns.

The idea is that you remortgage to 85% untill you die, as any estate left to your kids will only be taxed at the value less the debt... so a lot smaller bill for them too. They can then enjoy the inflation increses in those properties for their lives.

The good thing about having several buy to let properties is that you spread your risk, if one is empty the others will fund the void. Remember the bank will want to see 125% rental income over the interest only mortgae payment, so chances are you will make around 100 a month from each property so over 10 properies that's 1k a month passive income chucked in.

This is a full time investment, but you can reap rewards in the long run...

Hope this gives another angle on things for you....

oh and by the way, historically property gives far greater returns than the same amount invested in shares....

clutton_2

Fitzy29 - there is a lot of sense in your long and interesting post, but some inherent flaws in your argument.

There are now very few parts of the country in which is possible to make a decent yield/return on your money in BTL. When property was a lot cheaper, - even 3 years ago - it was very easy to get a 7-10% yield on this type of investment. It is much more difficult now - unless you can buy property below the current market value (what ever that might mean !)

""remortgage to 85% untill you die"" - most lenders will not allow a mortgage to be taken out if the final repayment date is later than the applicants 70th birthday.

The BTL business is no longer an easy option, with this government implementing more and more hurdles for landlords to jump over in the 2005 Housing Act. dont get me started on HMO legislation !!!!!

Tassotti

My twopenneth.

I agree with Fitzy29.

However, I also agree not to buy a loss-maker.

If you are going to use a letting agent to manage your properties, it doesn't matter where the properties are.

Do some research and pick an area that provides the best rental yields.

Check that the agents are members of ARLA.

With regards to the tax situation, you cannot declare the BTL properties as a main residence, unless you actually live there as your main residence.

Tax is complex and you really need to speak to a tax accountant regarding this, but, quite honestly, you will never pay 40% on the profits (unless you buy and sell immediately)

Go on..be a doer and start buliding that portfolio.

Best if you can buy BMV as mentioned above, but that is a whole differrent ball game, and best left to us professionals.

Good luck

Tass

F_T_Buyer

Fitzy29 wrote:

:beer: Don't listen fox123, buy to let is buy far over time the best investment you can chose. Fair enough you'll have rent free periods, repairs, insurance and saftey checks to carry out... But so what, a property in the right area, with a good income will look after itself.

The trick is to forget actually paying the property off in say 15 years, what will this acheive except a huge tax bill on any profit should you cash it in.

If you plough all your cash into one property worth say 150k, this property will in say 10 years double in price so it's worth 300k.. fantastic 150k profit if you sell the govenment takes 40% of the profit so at best you make around 60% profit in 10 years.

Now instead of using the 150k to invest in one proerty why not use it to put 15% deposit on 10 properties and use 85% of the banks money. This would allow you to own a property portfolio worth £1 million. Now as you head towards your retirement the properties will more that likely double in price in around ten years ( property has done this every 10 years since 1930 ) so your properties are now worth £2 million... all along the way your rental income will have covered the interest only mortgage payments so you will still only owe the bank 850,000...that's a gain of £1.15 million... The way to cash it in tax free is to remortgage the property to the max the rental income will allow...thus releasing equirty to fund your life, buy a car, treat your kids's what ever you want. Your own house will be paid off... you need to view the rental property as a cash cow, not something you need to pay off as it's a good debt that pays for itself and gives returns.

The idea is that you remortgage to 85% untill you die, as any estate left to your kids will only be taxed at the value less the debt... so a lot smaller bill for them too. They can then enjoy the inflation increses in those properties for their lives.

The good thing about having several buy to let properties is that you spread your risk, if one is empty the others will fund the void. Remember the bank will want to see 125% rental income over the interest only mortgae payment, so chances are you will make around 100 a month from each property so over 10 properies that's 1k a month passive income chucked in.

This is a full time investment, but you can reap rewards in the long run...

Hope this gives another angle on things for you....

oh and by the way, historically property gives far greater returns than the same amount invested in shares....

Wow. That's some extended risk bubble logic you've got going there!

BobProperty

Fitzy29 wrote:

:beer: Don't listen fox123, buy to let is buy far over time the best investment you can chose. Fair enough you'll have rent free periods, repairs, insurance and saftey checks to carry out... But so what, a property in the right area, with a good income will look after itself.

The trick is to forget actually paying the property off in say 15 years, what will this acheive except a huge tax bill on any profit should you cash it in.

If you plough all your cash into one property worth say 150k, this property will in say 10 years double in price so it's worth 300k.. fantastic 150k profit if you sell the govenment takes 40% of the profit so at best you make around 60% profit in 10 years.

Now instead of using the 150k to invest in one proerty why not use it to put 15% deposit on 10 properties and use 85% of the banks money. This would allow you to own a property portfolio worth £1 million. Now as you head towards your retirement the properties will more that likely double in price in around ten years ( property has done this every 10 years since 1930 ) so your properties are now worth £2 million... all along the way your rental income will have covered the interest only mortgage payments so you will still only owe the bank 850,000...that's a gain of £1.15 million... The way to cash it in tax free is to remortgage the property to the max the rental income will allow...thus releasing equirty to fund your life, buy a car, treat your kids's what ever you want. Your own house will be paid off... you need to view the rental property as a cash cow, not something you need to pay off as it's a good debt that pays for itself and gives returns.

The idea is that you remortgage to 85% untill you die, as any estate left to your kids will only be taxed at the value less the debt... so a lot smaller bill for them too. They can then enjoy the inflation increses in those properties for their lives.

The good thing about having several buy to let properties is that you spread your risk, if one is empty the others will fund the void. Remember the bank will want to see 125% rental income over the interest only mortgae payment, so chances are you will make around 100 a month from each property so over 10 properies that's 1k a month passive income chucked in.

This is a full time investment, but you can reap rewards in the long run...

Hope this gives another angle on things for you....

oh and by the way, historically property gives far greater returns than the same amount invested in shares....

This post is so full of holes it's hilarious. Have you been on some expensive "how to get rich through property" seminars? We've had this argument on here recently, property is a geared investment, shares aren't. Don't pretend one does better than the other without comparing them on the same basis.
Now I'll pick a 10 year period. 1989-1999. House prices double in that time? I doubt it. Interest rates go up? Yes, and down, but they were around 15% at one time. So if you'd started when rates were 8-9% IO, your rent would have needed to almost double to keep up your mortgage payments. I don't remember that happening.
Even your suggestion barely adds up. 10 properties at £100k. They need to rent at 125% of mortgage. So that's £85k IO mortgage at say 6%. That's about £425 a month, so that's a rent of at least £531.25. Can you point me in the direction of some £100k properties which rent for £550 a month without voids please?