Another Buy-to-Let thread

trailingspouse

I've read of the perils and pitfalls of buy-to-let mortgages and renting to family, and how you have to run it as a business and being a landlord is a big responsibility.

In a semi-hypothetical situation where

a) the property was bought without a mortgage
b) there were no relatives involved
c) the new landlords had already been running a successful business for several years and
d) were fully aware of their responsibilities

is there any profit in buy-to-let these days?

Guest101

Yes there is. The amount varies obviously for many reasons

trailingspouse

Eggha - a teeny weeny bit sarcastic there mate.

But yes, fair point - it's the revenue return I'm interested in.

And the answer is?

Pixie5740

The answer is 42.

trailingspouse

Pounds or pence?

Pixie5740

Surely in this "semi-hypothetical" scenario, someone who runs a successful business already is capable of calculating profits, returns and yields.

Based on the figures given in your posts (none) the best answers you're going to get: yes, no, maybe, 42.

ognum

In my opinion there is a satisfactory return. However, it depends how much you have to invest and where else you are invested.

To have all your capital in BTL would IMO be foolish as would having all your capital on the stock market or in peer to peer lending or anything else's.

BTL is for me a long term investment, at least ten years. I only invest in properties in locations that until now have had good capital growth. ( no one can tell for the future). I also have spare capital to continue to maintain my properties well.

On a previous thread I noted that I had paid out before tax 35+% of my rental returns on repairs and updates in the last financial year. That amount is unusual but I felt needed so it happened.

I have two properties where the tenants are leaving in the next month (both have been tenants for more than three years) both are leaving to buy their own properties and the rents on those properties have risen now between 6 and 12%. I got new tenants within a few days.

So it's an individual choice, there are not enourmous profits, spread your capital, it's often hard work it's not just about getting the money in.

theartfullodger

trailingspouse wrote: »

...is there any profit in buy-to-let these days?

Possibly: Sometimes negative profit. (One house I rent out will have £9k+repairs/refurb this tax year... I'm fine with that)

Like pretty much any other business

ognum

theartfullodger wrote: »

Possibly: Sometimes negative profit. (One house I rent out will have £9k+repairs/refurb this tax year... I'm fine with that)

Like pretty much any other business

Artful

I am so pleased other LL admit to the need to pay out large amounts some years!

AlexMac

Returning to the OP, I'd say, on balance, yes. Especially if you also benefit from long-term capital gain (which won't be as good in the next 20 years as it has been since 1997.

There are a variety of factors to consider including the relationship between property prices and rental return, which varies a lot area-by area, local demand for rental property and very local considerations like commutability, local shops, schools and services.

As regrds financial factors;

ognum wrote: »

I am so pleased other LL admit to the need to pay out large amounts some years!

I too am realistic about likely on-going costs. I only have 2 little 2-bedroom BTL flats but I'm perfectly OK that the (local authority) freeholder has billed me £5k and £6k respectively this year and last for major improvements to the blocks... on top of the annual service charge of about £500-£800....especially as they let me stagger the repayments over 38 months, which helps with cashflow and tax returns.

These and past freeholder charges, together with internal repairs, boiler renewals, the occasional bathroom and kitchen refit, the odd washing machine replacemnt, new beds every few years in the furnished flat, etcmeans that averaged over the time I've owned 'em, I've had to lay out just over £1.85k p.a per property; which is fine, as they each earn about £10k p.a. rent

So when you decide if it's worthwhile, you need to be realistic about costs like these above (which I suspect are fairly typical), as well as other considerations. I tend to think about.

- gross return on investment (annual rent income as a % of purchase price) or looked at another way

- gross return on asset (annual rent income as a % of current value)

- return after expenses - many of which are allowable as tax offsets to rental income; you won't have to think about cuts to 40% tax relief on mortgage interest (which doesn't worry me as even with rental income, I'm only on 20% tax)

- Capital gains; I've enjoyed phenomenal gain on the one I've owned for twenty years - over 700% inflation. Even the other has risen in value by over 60% in five years. If you were starting now, you probably won't repeat that but I'm confident that in my area at least, prices will continue to creep up.

So get that spreadsheet out; add Estate Agent fees and an assumption of lost rent and the need to pay Council Tax or Utilities bills during void periods between tenants...

...and remember all the other "soft" stuff- the legal responsibilities, and the fact that if you treat tenants right; sort repairs promptly and replace boilers, fridges, dishwashers, etc immediately they bust, you'll keep 'em and reduce voids and agency fees.

It's not rocket science!

Thrugelmir

trailingspouse wrote: »

But yes, fair point - it's the revenue return I'm interested in.

And the answer is?

As with any business plan you need to crunch the numbers. Revenue, operating costs, tax etc. Then there's the what if's. Void periods, bad debts, longer term property maintenance to be considered. Easy to be optimistic to substantiate your own convictions. Far harder to accept it may well not go well. As when it doesn't it can be hell.