Is there a red flag I am missing as to why I wouldn't become a land lord?

amyk01

My current situation is that I am 32, married and mortgage free. We intend to stay in our current property for the next 10 years, and hopefully have a couple of children during this period. At present, my husband and I have sufficient savings to purchase another property in cash with no mortgage with the intention of renting it out. I am aware we will be subject to the higher SDLT rate as we have a second property, that house prices can drop significantly, that we will be responsible for maintenance costs, and that tenants can fail to pay and cause problems. But aside from this, is there any reason why we wouldn't proceed with this? I know we have a hell of a lot to learn as we have never been land lords before and that I am happy to learn But am I naive in thinking that if we don't have interest on a mortgage to pay, aside from repairs etc, will this income not just be extra funds for us?

flashg67

In theory it will provide an income, but keep a contingency for the inevitable repair bills / tax etc.

As a novice, you may want to use an agent to manage your property ( I do, as I also work full time) - less profit, but if you get a good agent, also much less hassle, especially at the beginning.

I find this website really good, if you don't mind some of the slightly rude language he sometimes uses -
http://www.propertyinvestmentproject.co.uk

penguingirl

Have you considered alternative investments, such as stocks and shares? It's something that OH and I have considered and tbh always come to the conclusion that being a landlord is a lot more hassle and the income probably isn't worth it unless your house is going to rise in value too (which is no way guaranteed in this market), so if we end up with a bit if investment money we'll probably buy shares, and they have the advantage of being more liquid.

ACG

Have a chat with an accountant.
You may find it is more tax efficient to take out a mortgage for a year or 2 whilst there is still some offsetting that can be done.

Cakeguts

Unless you have researched your local rental market very thoroughly you won't know whether you have enough to buy a property to let in cash. Some areas have a glut of cheap 2 bed houses and a shortage of anything bigger. Some people think you can let any old property and that will do. What you let has to fill a gap in the market in the area that you want to let in. If you try to add another 2 bed flat in an area full of 2 bed flats to rent it will be vacant more often than it has a tenant and you won't get a choice of tenant you will have to take more or less anyone who comes along just in order to let it. If you get this wrong it will end up costing you money.

What you can let is specific to the area that you want to let a property in. So if there is a shortage of 3 bed houses with off street parking and a queue of tenants looking for that kind of property and you buy a house that fits that market then you shouldn't have a problem but if you buy a property just because it is cheap in an area where there are a lot of cheap rentals then you will have a problem.

dimbo61

You should consider tenants in common and not joint tenants.
You could have 90/10 % ownership in stead of the normal 50/50 if your husband is a higher rate tax payer and you are not.

amyk01

penguingirl wrote: »

Have you considered alternative investments, such as stocks and shares? It's something that OH and I have considered and tbh always come to the conclusion that being a landlord is a lot more hassle and the income probably isn't worth it unless your house is going to rise in value too (which is no way guaranteed in this market), so if we end up with a bit if investment money we'll probably buy shares, and they have the advantage of being more liquid.

Yes i have considered this purely from the less hassle perspective, but I'm not sure if I'm missing something? Assuming i have £200k cash, if i received a 5% return annually for 20 years that would be £200k giving me £400k in total.

If i purchase a BTL for £200k, in 20 years time I will have a property worth hopefully at minimum £200k and potentially significantly more. If we say for the sake of the scenario the tenants have paid me £200k over 20 years, I could also have invested this as the years have gone on also giving me an additional return. So would this not be a much better option but with more work required?

MoneySavingMission

its not that simple. increasing regulations (operational, regulatory and taxation) are putting people off.
it really depends what your strategy is.
be prepared to take the rough with the smooth - i've been a landlord for many years and seen both extreemes in tenancies. YOu need to do your research fully.

AnotherJoe

amyk01 wrote: »

My current situation is that I am 32, married and mortgage free. We intend to stay in our current property for the next 10 years, and hopefully have a couple of children during this period. At present, my husband and I have sufficient savings to purchase another property in cash with no mortgage with the intention of renting it out. I am aware we will be subject to the higher SDLT rate as we have a second property, that house prices can drop significantly, that we will be responsible for maintenance costs, and that tenants can fail to pay and cause problems. But aside from this, is there any reason why we wouldn't proceed with this?

Most likely that you haven't considered alternatives? For example, with the money you have it seems likely that one or both if you are high rate taxpayers in which case you get a massive tax concession for putting money into a pension (pretty much the opposite for HRT and being a LL)which will make returns from housing look trivial and be much less hassle.

amyk01 wrote: »

YAssuming i have £200k cash, if i received a 5% return annually for 20 years that would be £200k giving me £400k in total.

Why would you have £200k cash? You wouldn't get 5% return on that.
If you invested £200k at 5% compounded you'd have £530k after 20 years.

amyk01 wrote: »

Y
If i purchase a BTL for £200k, in 20 years time I will have a property worth hopefully at minimum £200k and potentially significantly more. If we say for the sake of the scenario the tenants have paid me £200k over 20 years

Paid you? Or is that profit? The two, especially as high rate taxpayers, would be very different.

amyk01 wrote: »

I could also have invested this as the years have gone on also giving me an additional return. So would this not be a much better option but with more work required?

If you get an additional return why not just invest the £200k in the first place? Otherwise the logical thing to do would be buy another property.

I think you need to do some maths with real numbers including tax, all expenses, allowing for voids, and so on. At the moment your back of a fag packet isnt showing you what the real picture will pan out as. It may be that a property works for you, but with teh current anti landlord emphasis on the way taxation is going and the returns you'd get form no hassle investments, I'd doubt it.

Cakeguts

amyk01 wrote: »

Yes i have considered this purely from the less hassle perspective, but I'm not sure if I'm missing something? Assuming i have £200k cash, if i received a 5% return annually for 20 years that would be £200k giving me £400k in total.

If i purchase a BTL for £200k, in 20 years time I will have a property worth hopefully at minimum £200k and potentially significantly more. If we say for the sake of the scenario the tenants have paid me £200k over 20 years, I could also have invested this as the years have gone on also giving me an additional return. So would this not be a much better option but with more work required?

The £200k cash doesn't mean anything if the gap in the market in your area is for 4 bed houses costing £400k upwards and there is a glut of £200k 2 bed flats on the market and not enough tenants to fill them all.

ThinkingOutLoud_2

I have to agree - your maths / assumptions don't seem sound.

You will also be exposed to the extra risk that goes with just one property...

In addition to the 40% HRT break you'd get on pensions contributions or better still NI savings if you can do salary sacrifice; you can both put 20k a year into S&S ISAs and enjoy tax free growth (so that handles 80k by mid-April next year (4 x 20) and leaves it accessible too).

You could look at something like P2P lending with some of the money.

All of that is likely to offer as good and has historically superior returns.

http://www.which.co.uk/news/2016/09/property-vs-pension-which-is-the-best-investment-451862/
http://www.thisismoney.co.uk/money/pensions/article-3765588/After-Bank-England-boss-says-investing-bricks-mortar-profitable-saving-pension-s-s-wrong-Proof-pensions-better-property.html
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12084850/Property-vs-pension-Is-buy-to-let-still-the-best-home-for-my-250000-inheritance.html

The rental property has lots of potential grief too...