Why become a landlord?

naive_investor

I may become a reluctant landlord.

Reading up about the subject has scared me. Horror tenants, greedy letting agents, repair & maintenance costs, uncertain future property prices......

I have done some fag packet calculations and based on a £100,000 flat with a £500 rent, which I make 6% gross yield, when you take out costs and income tax (making lots of assumptions) I could end up with under 2% in my pocket - and less the first year with legal costs of purchase.

So have I done my sums wrong. Am I factoring too many downsides in terms of voids and repairs and agent costs?

I would love to hear from people who have success stories and especially would share a spreadsheet of income v costs (privately if necessary). Also an indication of how much time is involved, with or without an agent, and what kind of property is best.

A lot to ask.

Thanks

G_M

Most people assume (or hope) that the property will also show capital growth over time.

This was certainly the rationale for 1000s piling into BTL before the crash when property pries just kept climbing.

Amount of time? Dictated totally be type of tenant and frequency of turn-over.

Type of property? Depends on location and target market.

In a university town, a student HMO can maximise income, but increases overheads (financial and time).

In suburbia, a long-term family tenancy can minimise effort but may produce less income.

thestens

We have 2 rental houses in a N town. The first was bought to rent to students about 12 years ago. It is a street house and was cheap. We were cash buyers. The student thing wasn't good - 2 cleared off half way through the year and we couldn't relet the rooms, next year couldn't get students so went for family lets - less hassle but less income. 3 bed house, £450 a month, some good some very bad tenants. Had to redecorate numerous times (ourselves to keep costs down - otherwise this would have been a big loss to our profits), new kitchen (needs doing again) new bathroom, new boiler, obviously carpets. We let through an agent, wouldn't do it without as most tenants are DHSS. Other house, twice as expensive, ex local authority 3 bed, hardly any maintenance issues in 8 years of ownership, same tenants from start. Same rent. Overall, I would say we have done OK, but it certainly hasn't been trouble free. I wouldn't buy in a dodgy area again and obviously old houses have big maintenance issues. Choose your area carefully, take advice from other landlords (our agents put us onto the local authority house as they owned houses in that area) and expect to be in it for the long term.

I_have_spoken

I may become a reluctant landlord...with legal costs of purchase.

I'm confused if you already own a property? If not, I'd say buying in the current market to let out isn't such a great proposition after prices have run up in the last 12 months in many parts of UK

You also have to be mindful an incoming govt. will make raising tax off BTL LLs a priority IMHO

mjdh1957

If you are "reluctant" that would indicate that it's not a good idea.

You will be in effect running a business with significant risks and onerous legal obligations. It's not an "investment" comparable to sticking your money into (say) an investment trust and watching the share price and dividends move up and down over the years.

Thrugelmir

naive_investor wrote: »

I may become a reluctant landlord.

There's really no such thing. Makes plans to sell. Drifting into becoming a landlord is bound not to end well. Property letting is a business not a hobby.

ognum

Being a landlord can be very easy and very taxing.

Firstly choose your property carefully, know your area and the type of tenant you would expect and the rent you will get for this type of property.

I have a standard and I will not let to anyone else in an area I would not want to live in or a quality of property I would not live in.

If you are using a letting agent, be selective and negotiate their costs.

Have enough capital available to be able to respond to all issues immediately. make sure your agent will do this, if they fob people off you will have tenant issues.

Review your rents regularly, it is better to increase the rent by £20 every year than by £100s suddenly. Keep your rents in the lower 50% of that type of property and you will never have a void.

We leave a bottle of wine and my mobile number for every new tenant!

naive_investor

Thanks to you all for your thoughts.

I guess you have reinforced my gut feelings that this would only work if I decided to commit my time and efforts into effectively running a property business; buying at bargain prices only; doing as much repair maintenance decorating and administration as possible myself and even then taking a punt on long term property price inflation for the big payback.

I am looking to make a decision based on reasoned, evidenced and costed information, and interestingly I have yet to see one which goes against my 'gut feeling'

You can see why I am having to consider this on the Savings and Investment forum.

allthingsmustpass

You would be buying yourself a part time job, and a low paid one at that. Your money would be locked up and hard to access. The only people who have done well out of letting out property in the last 10+ years did so due to capital appreciation. And only if they are out now. From this base I can't see as much of an upside in the medium or even long term if you start now.

The smart way to do it is forget about capital appreciation completely. If you sell eventually for an inflation adjusted amount that gives you a better return versus other asset classes over the same period well thats just a welcome bonus. It shouldn't be the aim, because it is out of your control. Buying and crossing your fingers is not a good strategy.

It *should* be all about the yield. Unless you're talking 10%+ after costs I would say stay away. Those deals are perhaps to be found but only at the lower end of the market, leaving you open to troublesome tenants and government changes to benefits, which are likely to impact on the yield and your time significantly if you're unlucky.

In the 90s you could get 10%+ and capital appreciation wasn't on many peoples minds. Those days might return but until then I would steer clear.

Just my opinion. Do the sums. Dont rely on another bubble.

harrys_dad

Not all (and possibly very few) landlords pay 100% of the capital cost up front, they use the concept of "leverage". This needs care though as being over leveraged caused huge problems for many when the financial crisis started.

For a £100,000 house it is possible to put down £30000 deposit and borrow the remaining 70% on a BTL mortgage. This can be done if the rent is 125% of the mortgage payment. You can also then claim the interest part of the mortgage payment against rental income for tax purposes. This increases notional "yield", in that income is based on an outlay of £30,000 as opposed to £100,000.

Having said all that, the boom years for BTL were when capital appreciation turned your £30,000 on a £100,000 house into £80,000 on a £150,000 house as you gain all the capital appreciation. In the last few years this went into reverse in most areas, so your £30,000 on a £100,000 house became £0 on a £70,000 house as you suffered all the capital depreciation. You also need to consider what is likely to happen to interest rates.

If in doubt, don't do it. Like most things, do not gamble more than you can afford to lose.

Running_Horse

If you have access to £100,000, why not just buy or set up a business in something that interests you, will fill your time, and provide a proper income?