Looking to let out flat - what will I actually get in my pocket?

alexpg_2

Hi,

I'm in the process of accepting a new job, which will see me moving away from the area I live in. Unfortunately the flat I bought 4 years ago here is still significantly in negative equitity (if prices don't fall I should break even in a year or so!), so have no choice but to try to rent it out. Bascially I'm trying to work out how much I'll get in my pocket, after all tax, etc has been taken out.

Looking at the market, similar properties are on the market locally at around £500 per month. Assuming the letting agent takes 15% that should leave me with £425 per month income.

I've read somewhere that I can put the interest, but not the actual payments on my mortgage as an expense. Is this correct? If so my mortgage is roughly £500 per month, of which £300 per month is interest, so is my first £300 per month tax free?

I'm also having to pay £450 to my mortgage lender to let for a year. I presume this too can be written off as an expense. Assuming that through the year I'll possibly have to cough up for household repairs, etc these combined comes to around £75 per month.

For the remaining £50 or so, is this taxed at the standard income rate, student loans, etc?

Does all this make sense? Thanks in advance!

franklee

Landlord's inc buildings insurance?
Gas safety check?
Any other agent's fees like administration, tenancy renewals, check in/out fees?
Legal fees for when you need help?
Voids?

I would have thought you could easily be making a loss ...

poppysarah

You can only count the interest bit as an expense. The repayment doesn't count.

Speak to an accountant about it!

Werdnal

If you are letting on such a tight budget it can be a recipe for disaster. For a start, you should only base your income on a maximum of 10 months a year, as you will have inevitable voids, and would still need to cover any costs of the property whilst it is empty.

Your mortgage must be on BTL terms, or you need consent to let from your lender. I see they are charging you a fee to let for a year? What happens at the end of that year? Can you extend this or is that it? You cannot chuck the tenant out! You cannot even guarantee they will leave if you give a fixed 12 month contract, as they may choose to stay put and force you to evict them.

You also need to maintain a contingency fund to cover unforeseen repairs. Even if you get 110% solid gold reliably paying tenants, who want to stay long term and cause you little grief or expense, you must maintain the property and attend to repairs in a timely manner. Its the middle of winter, -5 degrees with 6 inches of snow and the heating fails - you cannot simply tell the tenant to put an extra jumper on because you cannot afford the repair!

As well as the costs, do you understand the legal obligations of becoming a LL. Read this:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Even if you employ an agent to run and manage the let, YOU are still legally responsible for any problems, and many letting agents merely act as a rent collector and pass anything else onto you to deal with. They are also not legal representatives, so if you have to resort to court action to evict difficult/non-paying tenants, YOU will be the one going to court.

As regard tax, you complete a tax return annually and send to the HMRC. They then decide how much tax you owe. You can offset some of the running costs and the mortgage interest, but you declare everything to them, and they work it out, depending on any other incomes etc you have. No one can tell you definately how much tax they will take as it depends on your personal circumstances.

Do you still think it is a good idea?

raydon_2

Cut your costs to start with by using an online letting agent who will advertise your property, find you a tenant, then set up the new tenancy agreement for you and most importantly credit check and reference the new tenant., cost around £100.

Make sure you have an inventory for your property to protect your position regarding any deposit charges when the tenancy ends, and make sure you register the deposit with one of the official Tenancy Deposit Schemes.

If you don't do any of the above no point doing anything you will leave yourself wide open to loose money.

sarahevie

I currently rent out of a house.

Mortgage 700

Rent 1126.67 a month.

My taxable profit for the last four years has hovered around the £3600 per annum (about 300 per month.)

00ec25

alexpg wrote: »

Looking at the market, similar properties are on the market locally at around £500 per month. Assuming the letting agent takes 15% that should leave me with £425 per month income.!

expensive but not impossible rate - have you shopped around for other quotes?

alexpg wrote: »

my mortgage is roughly £500 per month, of which £300 per month is interest, so is my first £300 per month tax free? I'm also having to pay £450 to my mortgage lender to let for a year. I presume this too can be written off as an expense.

Assuming that through the year I'll possibly have to cough up for household repairs, etc these combined comes to around £75 per month.!

your question is how much wil be left in your pocket,
the answer is simple - NOTHING
you willl get 500 in rent and pay 500 on your mortgage , but you should assume that there will be a void period at some time so at least sometime during the year you will not have any income to cover the mortgage so will end up having to subside the proeprty from your other income

as for tax - you pay tax on the net profit - ie the amount left after you deduct allowable costs.

the allowable costs are:
mortgage interest only (£300 pm n your case)
LA fees (15% so £75 pm)
LL buildings insurance £x pm
consent fees (£37.50 pm)
10% wear and tear allowance (£50 pm- assuming you let fully furnished)
gas safety certificate ( about £5 pm)
maintenance contract on boiler (say £15 pm)

your net profit is therefore not going to be a problem - you wil pay at worst a few £ in tax , your main problem is the flat will not rent for more than it will cost you in mortgage payments plus the extra expenses you incur to be a legal LL, so overall you will continue to subsidise it, can you afford to do that indefinately???

alexpg_2

Thanks everyone for the feedback. Whilst I'm not depending on renting out my flat to balance the books (payrise should cover the cost of renting out a separate flat), I'm hoping this will provide a better return than letting my flat sit empty.

Werdnal - when you say I can't kick out tenants what do you mean? Surely (assuming I give the relevant notice) I can get them to leave if for some reason I can't extend my consent form with my lender?

Werdnal

alexpg wrote: »

Thanks everyone for the feedback. Whilst I'm not depending on renting out my flat to balance the books (payrise should cover the cost of renting out a separate flat), I'm hoping this will provide a better return than letting my flat sit empty.

Werdnal - when you say I can't kick out tenants what do you mean? Surely (assuming I give the relevant notice) I can get them to leave if for some reason I can't extend my consent form with my lender?

There is no such thing as notice to quit - you give a Section 21 notice, advising the tenant you are seeking possession. This must have 2 months duration, and tenants may be good enough to move out then, but there is no obligation for them to do so. Once this expires, you then approach the courts for an eviction hearing - note here that if one date is wrong, or there is any inaccuracy in the paperwork you supply the court, or even in your original notice, this can be thrown out and you have to start all over again.

Once court finally get round to holding your hearing, maybe 2-3 months later depending on the workload, assuming judge finds everything in your submission is correct, you will get a possession order. If tenants also fail to observe this (it happens), you need to await court bailiff attendance to enforce the eviction.

You may be a lucky landlord who gets tenants who take note of the S21 and move out at the end of the 2 months, then again you may not. This may be the worse case scenario, but it is happening all over the country every day, so be warned, it is not just a case of issuing a pretty 12 months tenancy agreement, and expecting tenants to happily vacate once 12 months is over!

It seems you have a lot to learn - have you read and understood all the points in the link I posted? Time for some homework over the weekend me thinks

G_M

Werdnal linked to my post. Thanks W!

Don't just read the post, read the links at the bottom too!

Werdnal

G_M wrote: »

Werdnal linked to my post. Thanks W!

Don't just read the post, read the links at the bottom too!

No probs! Someone got the keep the plates spinning when you are not here!