Becoming a landlord.

redmel1621

Thank you all for your input. I have plenty of reading to do before jumping in

I have plenty of time as we are trying to add money in the pot in order to reduce any loan needed, so it may be that we decide to hang fire for a year to fully fund it ourselves.

Thanks again for all the replies x

Pixie5740

Why invest in property at all? Property is an illiquid investment which is made even more illiquid when investing jointly with someone else.

AlexMac

Pixie5740 wrote: »

Why invest in property at all? Property is an illiquid investment which is made even more illiquid when investing jointly with someone else.

I don't regret buying either of my two little 2-bedroom buy-to-let flats but then, I bought them both (albeit 15 years apart) at the time when local sale prices were cheap, in an area with strong rental demand due to the proximity of excellent commuter transport links , and a healthy relationship of income to capital value (so, a very good % return on investment, even after taking expenses like loan costs, service charges and maintenance into account.

And I got double lucky with capital appreciation too; in that the timing was right, both locations have become more desirable, and prejudice against ex-council flats has lessened. So one has rocketed in value by an unbelievable 600-700% over 20 years and the other by about 70% in 5. I shall happily pay CGT if I ever sell, and meanwhile I assuage my slight conscience about buying 2 ex-Council flats by keeping the rents affordable- one is actually leased back to a Social landlord.

So having taken account of the concerns in the posts above (illiquid investment, risk, arguments with the co-owner...), and if you're serious, treat it like any financial decision; do the numbers and run a few spreadsheets;

- cost to buy including fees and SDLT,
- cost of financing,
- annual service charge and what this will just cover (I pay £500-800 pa for insurance, communal and grounds maintenance, caretakers, energy)...
- periodic maintenance and how this is funded (my flats don't have a sinking fund from service charge surpluses, so I expect a £4-5k bill every 5-7 years of so for my share of things like external decor, roof or window replacement)
- the likelihood of a boiler replacement (every place I've ever owned has needed a new one sooner or later at £1-3k), the odd few hundred most years to mend leaks, replace washing machines, dishwashers, furniture or beds (if furnished)

and how this stacks up against

- local rental values and demand, (and as someone above says)
- how rental income compares with other returns (ROI) from alternative investments if you have a pot of cash (pathetic if , like me, you prefer cash to riskier investments) .
- Agency fees (usually about a month or more's rent to find and check out a tenant and set up an AST, plus 10% plus p.a. to manage)
- or if you plan to avoid these, whether, you are organised enough to find tenants, check references from Banks, employers and previous landlords, set up the paperwork, inventories and deposit protection
- tax; especially if you are already lucky enough to be on 40% banding
- how you think capital values will go in your area in future; if they drop you could be in trouble! Even if they don't, as I am confident will be the case in my locality (London Zone 3), I don't expect to ever again see a repeat of the 10-20% annual increase above.

It may depend on area. I wouldn't be able to afford to buy in my part of London now, as prices start well north of £280k. So gross ROIs before expenses are below 5% but I'm aware that in some regions (like the Isle of Wight where wages are low) you can still buy a place for under £100k and charge £550-600 rent per month so a gross ROI of 6-7%+.

So get on to that calculator or Excel sheet!