Buy To Let - General Advice

tonydee

OK, to cut a long story short a friend has suggested looking at a BTL as an investment and possible pension plan.

Having done a small amount of reserach it certainly looks appealing so if any of the experts here can offer any advice I'd be most appreciative.

As I understand I would require at least 20% deposit and the the amount the lender wiuld lend depends on the intended rent. Can I ask what the general equation is here?

My one concern would obviously be the times when you have no tennant. What is the general concencus here? Obviously the mortgage would still need to be paid.

Also is it a myth or have I been wrongly informed that in general BTL mortgages are offered at cheaper rates?

Many thanks in advance

:beer:

silvercar

mortgages generally require 15% deposit and rental income to outstrip mortgage payments by 25%. There are better deals around but that is the general rule.

If you buy in a good rental area and the rent is at the right level you should have few voids.

I don't think there is much difference between BTL rates and residential mortgage rates; if anything BTL may be slightl higher.

dunstonh

My one concern would obviously be the times when you have no tennant

What about when the tennant trashes the place and runs off?
What about when mortgage rates rise?
What about when property prices drop?
What about putting money aside to pay your tax bill?

Also is it a myth or have I been wrongly informed that in general BTL mortgages are offered at cheaper rates?

Generally the same rates or higher in some cases. Not lower.

tonydee

dunstonh wrote:

What about when the tennant trashes the place and runs off?
What about when mortgage rates rise?
What about when property prices drop?
What about putting money aside to pay your tax bill?

Good points Dunstonh.

I guess there will always be the chance of a tennant trashing any place so I can't let that deter any decision I make.

IMO rates will rise of the next couple of years so yes thats something to seriously consider. Having said that this will be a long term investment (I'm only a mere 31) so I will endure rates falling/rising as well as property. In my lifetime property has seemed a worth while investment hence my interest in a BTL.

Which tax bill do you refer to?

Thanks

dunstonh

I guess there will always be the chance of a tennant trashing any place so I can't let that deter any decision I make.

Not just trashing but also repairs and decorating will have to take place periodically through normal useage. Making sure you have enough money to cover these things is important.

so I will endure rates falling/rising as well as property.

Whilst rates have been on the rise, they are still historically low. If you can afford half as much again as they would be now, then that should be fine.

In my lifetime property has seemed a worth while investment hence my interest in a BTL.

It has but you wont own the property. The lender will own the bulk of it. Also remember that people that bought at the peak before the last property crash have taken a very long time to see a small profit.

If you go with a mortgage over 25 years, you will end up paying around 2-2.5 times the amount borrowed. If you go with interest only, you will have to have the capital available at the end to repay that mortgage or you will have to sell the property.

At 31, you havent really seen a property price crash. You have only seen growth. I was lucky as i bought my first property just after the property crash in the 90s. Those that bought before have only started to see gains in recent years. Its very easy to look at recent performance and think it will always be like that.

The growth has occured because the demand was there and people were able to afford it. Can they continue to afford similar increases in the future?

Which tax bill do you refer to?

You have income tax and capital gains tax to concern yourself with. Income tax will have to be dealt with annually but capital gains tax wont hit you until you sell the property.

A mortgaged buy to let is a high risk transaction. Mainly as if it goes wrong, you dont just stand to lose that property but also your main residence and can go bankrupt. The potential rewards are there but there is risk as well and you need to understand the risks and the rewards to see if both are acceptable to you.

This isnt a thread to discuss potential increases or crashes in the property market but you need to make sure you have covered off those sorts of events in your business plan. If you can see your way through those and come out the other side, over the long term you will be fine. Very many people are going to get caught out in the short term though. Make sure you arent one of those.

tonydee

Dunsonh, thank you very much indeed for your input. You have certainly raised a few issues that I was unaware of and shed more light on issues I knew little.

If only we all had crystal balls for this property lark, hey.

Thanks once again

A_Nice_Englishman

Starting a property rental business is like starting up any other business. You need a business plan.

Do void periods, bad debts, repairs, redecoration, legal fees,insurance, agents fees, costs of evicting bad tenants, rises in interest rates to, say, 8% and possible falls in property values figure in your business plan?

Are you familiar with the 50 Acts of Parliament and 70 sets of regulations which may apply? Did you know you can be held responsible for the anti-social behaviour of your tenants?


Then you need to look at the taxation side. Any profit you make will be taxed at your highest rate of income tax and if you make a profit when you sell you will have to pay Capital Gains Tax. though there may be reliefs.

I own the property I let out outright but decided I would be better off keeping the money in the bank. You need to decide whether or not to borrow the money. If you feel that property is still a good investment you may be better off buying a more expensive house to live in yourself. At least that would avoid the CGT problem.

tonydee

ANE - Thanks for those guidelines. There was me thinking it could and would be straight forward.

Your penultimate sentence was our initial plan so maybe this will be better at present. I suppose its nice to have the option.

Thanks

strangemartian

Cant believe people are trying to put you off what is year on year the best investment (if done correctly) anyone could make.

strangemartian

It is never a bad time to buy property if you are in it for the long haul as property doubles on average every 7 - 10 years, whether it will continue to do so remains to be seen.
There is a severe shortage of properties in this country and and with the price of property at the moment people are buying on average much later than in the past, early 30's I think, so will be looking to rent until they are in a position to buy.
Roughly 200,000 new homes are being built a year now whereas int the 60's it was closer to 400,000 so the problem aint going to be fixed anytime soon and supply and demand will mean prices will stay in an upward trend and this year still went up 10% even though most experts predicted a crash.
If you BTL go for 1 or 2 bedroom flats as these are going to be the most in demand in the future as they are all that the majority of the population can afford. Also you must go for a interest only mortgage which is normally about .5% above base rate.
Get a letting agency to do all the hard work for you. I think they charge between 10 and 20% of rental income for their service.
Then forget about it for 10 years.
Repeat process several times.
Key to this working is buying at the right price in the right location and being prepared to wait.
Then you could either sell a property to pay another off or you could remortgage them and suck the profits out.

tonydee

Thanks for ther input strangemartian. I currently reside on the Isle of Wight which IMO is a perfect place to buy a second property. None the less, alot more thinking and planning needs to be addressed and your points certainly make me sway towards going for it again

I'll obviously need to sit down with an expert and go through all the implications of BTL and only then decide whether it's a viable option.

Still keep the advice and experiences (good or bad) coming though.