Buy to Let - One for cash or 2 mortgaged?

agrinnall

Stevo2800 wrote: »

In round numbers £100k, of which £10k will stay in Premium Bonds for the allowed 12 months.

I was looking at a buy to let flat for £70k and put the £15k into ISA and keep the £5k accessible.

Can you clarify your investment strategy? What "allowed 12 months" are you talking about? Premium Bonds are currently a poor investment anyway. And there really isn't any ISA (other than perhaps a HTB ISA, but I'm not sure you would qualify for that) that offers an interest rate that can't be beaten by other types of account.

Kynthia

People aren't saying don't become a landlord. They are saying that to make money you have to do a lot of research and figure work, and that it can be a high risk high work load investment compared to others. Plus there are other investment options and diversifying so you aren't totally reliant on one market, such as property, should something go wrong.

Perhaps a chat with an IFA could give you info on other options. I'm sure you could get over 5% with no work instead of you 8% which will be a lot less when you deduct voids, letting agent fees, repairs, regular maintenance, and a possible bad tenant who refusing to pay and wrecks the place who you then need to evict with all those costs.

Pixie5740

Stevo2800 wrote: »

WR postcode. I've lived here all my life and know the properties and people who have lived in them. £70k is about the going rate. This specific one has a sitting tenant.

What sort of tenancy does the sitting tenant have? An Assured Shorthold Tenancy or an Assured Tenancy?

It is possible to achieve 8% returns through other types of investments and given that the government is taking steps to make BTL seem less attractive in might be worth investigating other types of investments before sinking the lion's share of your money in BTL.

If BTL is the best type of investment for you then read Tenancies in Eng/Wales: a guide for landlords and tenants.

teddysmum

ThePants999 wrote: »

I might have misunderstood something, but I believe that mortgage interest payments are deductible from rental income when determining liability for income tax (at basic rate). Buying for cash loses that minor benefit.

This is not a benefit as you will be paying the mortgage interest that you take from the rent income.


eg £100 interest paid with £100 less in tax= £0 interest paid with £100 more in tax.


Are you really ready to deal with the intricacies of running a business when you have little idea of basic financial matters ?

Cakeguts

Stevo2800 wrote: »

WR postcode. I've lived here all my life and know the properties and people who have lived in them. £70k is about the going rate. This specific one has a sitting tenant.

What kind of tenancy does the sitting tenant have? How long have they lived there? I would suggest that you do some research on types of tenancies including the old ones.

foxy-stoat

teddysmum wrote: »

This is not a benefit as you will be paying the mortgage interest that you take from the rent income.


eg £100 interest paid with £100 less in tax= £0 interest paid with £100 more in tax.


Are you really ready to deal with the intricacies of running a business when you have little idea of basic financial matters ?

Not really true;

OP buys the flat £70000 cash and gets say £450 a month rent for 12 months = £5400 income less 25%? tax = £4050 net gain

OP takes out BTL mortgage £52500 @ 4% = £175 a month x 12 = £2100 per year
Rental income £5400 less BTL payments £2100 = £3300 less 25% tax = £2475 net gain...plus if he sticks the £52500 in a 1.5% NS&I savings bond he will get £787.50 interest over the year - so total net gain £3262.50. There are better rates out there.

So to have £52500 sitting in a savings account it will cost the OP £65.63 a month - he can do this and after say 12 months take out £20000 and buy another flat and so on.

Personally I would not buy a flat as you have additional costs, ground rent, maintanence, lease renewals and possible sinking fund to pay out. Buy a house and let it - or pay a chunk off your existing mortgage and save the worry about being a landlord.

Lingua

Stevo2800 wrote: »

£70k price on the details, I would hope to get at least enough knocked off to pay the stamp duty. Agent said £450 pcm rent which is 8% (less maintenance and management charges).

What else gives that kind of yield, plus capital growth? (although not in the short term I accept).

You don't pay stamp duty on properties less than £125k as far as I remember.

Do bear in mind that if you choose to pay in cash and keep some money aside for a further deposit on a second property, you can earn around 5% on several current accounts and savings accounts such as Nationwide FlexDirect / TSB Classic Plus, which would be useful for short-term saving.


Lingua

Pixie5740

Lingua wrote: »

You don't pay stamp duty on properties less than £125k as far as I remember.

Do bear in mind that if you choose to pay in cash and keep some money aside for a further deposit on a second property, you can earn around 5% on several current accounts and savings accounts such as Nationwide FlexDirect / TSB Classic Plus, which would be useful for short-term saving.


Lingua

An additional 3% SDLT is due on second homes and BTL properties so £2,100 on a £70k property.

teddysmum

foxy-stoat wrote: »

Not really true;

OP buys the flat £70000 cash and gets say £450 a month rent for 12 months = £5400 income less 25%? tax = £4050 net gain

OP takes out BTL mortgage £52500 @ 4% = £175 a month x 12 = £2100 per year
Rental income £5400 less BTL payments £2100 = £3300 less 25% tax = £2475 net gain...plus if he sticks the £52500 in a 1.5% NS&I savings bond he will get £787.50 interest over the year - so total net gain £3262.50. There are better rates out there.

So to have £52500 sitting in a savings account it will cost the OP £65.63 a month - he can do this and after say 12 months take out £20000 and buy another flat and so on.

Personally I would not buy a flat as you have additional costs, ground rent, maintanence, lease renewals and possible sinking fund to pay out. Buy a house and let it - or pay a chunk off your existing mortgage and save the worry about being a landlord.

We are talking at crossed purposes. My response was to the OP's not realising that saving tax on the rental income is only because you can claim the interest on the mortgage as a loss. If no mortgage is paid, there is no loss to claim.

polarization

Lingua wrote: »

You don't pay stamp duty on properties less than £125k as far as I remember.

Do bear in mind that if you choose to pay in cash and keep some money aside for a further deposit on a second property, you can earn around 5% on several current accounts and savings accounts such as Nationwide FlexDirect / TSB Classic Plus, which would be useful for short-term saving.


Lingua

The existing SDLT is 0% for property up to £125k. However, if it is your second properties, you still have to pay the 3% additional SDLT rates.

If OP's £70k flat is the second property, it is still due for £2100 (3%) additional SDLT.