How good/bad is this plan?

bluefukurou

Hi

This is my first post and I'm really desperate to hear what more experienced people think about my plans. After doing a fair bit of research and talking to various friends/family, I'm seriously considering buying a property to let in the UK, most likely Sheffield. A few details about me:

Early 40s and live in the Middle East (tax free and no rent/bills)
Save around £35-40k per year.
Cash in a UK bank of £80k.
No other major assets or debts.

My rough plan, is to wait until I have just over £100k in the bank, then buy a property valued at around £175-200k, and pay a deposit of around £75k. Based on the current market, I should be able to get around £12-15k in rental income (let to four students). After letting fees and other costs, I'd expect to have at least £10k profit.

I've read a lot about shares being better than property over the long term, as well as the BTL golden days being over, but my circumstances being different to most UK residents, could it work? I would still have around £3500 from my salary to invest monthly after taking out the mortgage (assuming the rental income takes care of the mortgage payments), so could immediately start investing in stocks and shares, or I could also make lots of overpayments to pay the mortgage off in less than 3 years, if I just throw everything I have at it. Perhaps both: £2000 per month on overpayments, an £1500 in shares.

Until my 40s I hadn't saved or thought about investments, etc, but then I got lucky and landed a job that allows me to save way more than I ever imagined. I intend to grab the opportunity to insure my financial security because I know that when I eventually leave and get a job in the real world of taxes and bills, I will probably only be able to save around £5k per year.

Doozergirl

Student lets are the hardest work, and students are hardest the property. Those properties with apparantly the highest yields are actually the ones that also require the most work and investment. How are you going to manage it properly from the Middle East? Don't expect a managing agent to do it. You can pay them, but they just don't care and the overall maintenance of the building will deteriorate without some proactivity.

Tenants also deserve high quality accommodation and student lets these days are not what they were!

Our local city is full of shiny new blocks of privately owned student accommodation, like hotels. Competition must be rife.

I think it's a bonkers idea. I had enough trouble with a BTL two hours away and we own a building firm! Best thing I did was sell it.

If you want a BTL then choose something that's less involved.

bluefukurou

ciderboy2009 wrote: »

Have you found a mortgage company that will lend to you bearing in mind that you're not resident here and (presumably) don't own a home in the uk?

I'm in contact with a mortgage dealer who says my status in the ME is not an issue.

bigisi

bluefukurou wrote: »

I'm in contact with a mortgage dealer who says my status in the ME is not an issue.

And what about all the other VERY valid points made by Doozergirl?

bluefukurou

bigisi wrote: »

And what about all the other VERY valid points made by Doozergirl?

I'm coming to those, had to nip out for a run.

bluefukurou

Doozergirl wrote: »

Student lets are the hardest work, and students are hardest the property. Those properties with apparantly the highest yields are actually the ones that also require the most work and investment. How are you going to manage it properly from the Middle East? Don't expect a managing agent to do it. You can pay them, but they just don't care and the overall maintenance of the building will deteriorate without some proactivity.

Tenants also deserve high quality accommodation and student lets these days are not what they were!

Our local city is full of shiny new blocks of privately owned student accommodation, like hotels. Competition must be rife.

I think it's a bonkers idea. I had enough trouble with a BTL two hours away and we own a building firm! Best thing I did was sell it.

If you want a BTL then choose something that's less involved.

There's an awful lot of info out there and for every piece saying avoid students, there are plenty that say the opposite: students have parent guarantors, insurance will help reduce worries about the house and any damage, the houses have better yields, etc. I would expect to get an agency to manage the property, as like you say, I cannot respond when a pipe bursts at 3am and I'm several thousand miles away.

I make regular trips back to the UK, every 3/4 months, so I'd be able to visit the property and keep on top of what needs doing. I also would not be happy to let a place that is not of good standard. I'm looking at this as an investment that will provide a source of income and maybe a little capital growth. I'm not a penny pincher and would make sure the house is no frills, but has all it needs to keep the tenants happy. Sheffield is a two uni city and there will always be demand for good quality student housing.

need_an_answer

Doozergirl wrote: »

Student lets are the hardest work, and students are hardest the property. Those properties with apparantly the highest yields are actually the ones that also require the most work and investment. How are you going to manage it properly from the Middle East? Don't expect a managing agent to do it. You can pay them, but they just don't care and the overall maintenance of the building will deteriorate without some proactivity.

Tenants also deserve high quality accommodation and student lets these days are not what they were!

Our local city is full of shiny new blocks of privately owned student accommodation, like hotels. Competition must be rife.

I think it's a bonkers idea. I had enough trouble with a BTL two hours away and we own a building firm! Best thing I did was sell it.

If you want a BTL then choose something that's less involved.

Absolutely!

I'm LL to multiple properties but would never venture down the student route.

One thing to possibly factor in with the student market is that the void periods could be much longer.
It is not uncommon that some student properties lay empty for an academic year simply because there are so many to choose from near major universities.
The property that my offspring has just vacated as a student house has no tenants lined up for next year and it is likely to remain empty now until the 2019 intake.
That's a huge void compared to my voids of up to 1 month.

I too have one not in my home town although within the limit of still being able to self manage which is always in my mind the beat option than handing your biggest asset over to a letting agent to oversee not just the paperwork or the property but the upkeep and all repairs.

If you go down the route my advice would be you need to choose your managing agent extremely well,or be prepared to just accept that they can and will do work on the property that may or may not be to your specification.
Sadly you wont always be able to coincide your return every 3 or 4 months to the uk with emergency repairs that the property may need however much you would like to be able to oversee things and keep on top of what needs doing.

Tenants insitu don't always accommodate a LL who wishes to change the windows,upgrade the kitchen or decorate
simply because its the most convenient time for the LL to do it.

I genuinely believe that a happy tenant stays in a property longer and when they are able to communicate with the LL easily to sort things out this always helps.

gingercordial

You'll be a non-resident landlord so your tenants/agent will have to withhold 20% tax from your rent (for god's sake find a competent agent who will do this properly!). Alternatively you can to register with HMRC, get an exemption certificate so no tax is deducted and file UK tax returns. If you're a British citizen you should get your personal allowance (though there have been consultations on taking this away for non-residents) so if your profits are really only £10k this may get you back to nil tax, but you will still need to do the admin.

If/when you return to the UK and want to buy your own property bear in mind you will have to get rid of this BTL one if you don't want to pay the extra 3% SDLT on the property you buy for yourself, which will presumably be more expensive than this one so a bigger hit. CGT will then be payable on the sale of the BTL.

westernpromise

Remember that if you own anything you are hated by all political parties, we are closer than ever in history to having a Marxist PM, and that as a property owner you are very easily robbed. The regulatory exposures of BTL are currently huge. What if Corbyn gets in and decides to levy a 50% tax on rents? Or a wealth tax on houses worth more than those owned by Labour voters? Or decides that to charge £10,000 a year for an HMO licence? Or 20% stamp duty if you buy or sell a rental property?

Why not just put your cash into dollar denominated shares? That way you'd be speculating on the dollar-pound rate, which is no different to speculating in the price of student accommodation in Sheffield but a lot less work.

bluefukurou

need_an_answer wrote: »

Absolutely!

I'm LL to multiple properties but would never venture down the student route....One thing to possibly factor in with the student market is that the void periods could be much longer.

The point about possible void periods is a good one. I've thought about that and reckon I would only make a purchase if the house had plenty of appealing features to students, and certainly not cut corners buying a cheap house that is too far from the uni and lack features like a second bathroom. I would price my rent to make it attractive, not squeeze out every last penny. I'd rather take £100 less rent per month than lose several months.

Wouldn't void periods also be an issue in a smaller house, say 2 bed terrace, renting to a young family? I imagine yes, but your point is that they will generally stay longer than students that may only hang around a couple of years.

need_an_answer

The point with student accommodation as I see it is that its normally in a very student area of town and the typical let is one academic year.
Those houses are probably not suitable for families or professionals if you don't get a student let each year mainly because what young family wants to stay somewhere where they have the student lifestyle next door.

the typical student contract is for around 8 months of the tear starting beginning sept and ending end july so when they vacate its then available to rent for the following year, you don't get the same students occupying for multiple years in the same way a family may.