BTL doesnt stack up? (sanity check request)

lisyloo

Do you have a pension via your employer?
What's their deal?

How old are you?


I get relief of 45.8% and Im 50 years old, so I consider this a cracking deal, with little work involved and whatever risk I choose to take.


My point is that you need to be looking at the alternatives and pension is one route that can have very good tax/NI relief. Pensions do have a major downside of liquidity hence the age consideration.

AdrianC

£50k interest-only mortgage? £1,500/year interest? 3% interest on a BtL...?

Good luck with that...

csgohan4

Evicting tenants can be costly, especially as they may not pay rent or are in arrears

https://forums.moneysavingexpert.com/discussion/5896992/evicting-tenants-via-court-and-bailiffs

tom9980

Robwales wrote: »

it will be self managed - no agent
they use a 3rd party to deal with credit checks - I cant recall the name

Credit checks are fairly useless due to time lag updating them, it takes forever to show CCJ's on a credit file, the court had not updated my last evicted tenants credit file 4 months after they had failed to pay rent arrears. By the time you find out they are already renting your property.

If you want to rely on Landlord references don't, I reluctantly lied about them paying arrears to get them Into housing association property because I felt things would get worse for me if they didn't get it as no good private landlord would have them.

Note this was a good paying tenant for 2+ years until she kicked her husband out and moved a new guy in.

Slithery

tom9980 wrote: »

If you want to rely on Landlord references don't, I reluctantly lied about them paying arrears to get them Into housing association property because I felt things would get worse for me if they didn't get it as no good private landlord would have them.

Which is why any sensible LL will ask for a reference from the tenants previous landlord instead of their current one. It's well known that LL's with problem tenants will lie on references to get rid of them.

Pennysmakepounds

Slithery wrote: »

Which is why any sensible LL will ask for a reference from the tenants previous landlord instead of their current one. It's well known that LL's with problem tenants will lie on references to get rid of them.

It's a numbers game and there is always a risk of tenant turning bad even if they have been good for years.


Life is unpredictable and everyone can hit a bad patch.


As a LL you have to take the good with the bad.


You can do ALL the due diligence (e.g Credit Checks/ Background Checks/ financial checks etc.) and still end up with a lemon.

tom9980

Slithery wrote: »

Which is why any sensible LL will ask for a reference from the tenants previous landlord instead of their current one. It's well known that LL's with problem tenants will lie on references to get rid of them.

Would not of helped in this case they were living with parents helping nurse the father as he died from cancer, something i confirmed with death records and publicly available information. At some point you have to make an informed choice based on the information you have at the time.

00ec25

Robwales wrote: »

Questions
1. Do these numbers look about right? (don't worry about the purchase price and the rental rate - I know these are correct for the exact region in question - I appreciate they look out of whack for SE but trust me they are fine)

2. So what would be my annual net rtn...i have assume a calc of the net profit over the total purchase price...is this correct @ just 1.7%?!

your calculations are fine

as already mentioned, your rate of return is on your own money invested, not the money borrowed.

Robwales

Wow - thanks for all the responses and feedback MSE forumites!
Not sure how to reply to so many responses individually - so will try and collate here:

a. First - thanks for all the warnings on the pitfalls and caveats - all duly noted!

b. I have just remodeled on 11 out of 12mth occupancy (rather than 100%) and also a APR of 4.5% (rather than 3%)...so the NET figures are now ever worse, with a NET ROI of £950 p.a on £56k..1.7!!

Purchase price £100,000
deposit £50,000
mortgage £50,000
mortgage fee £150
Solicitors fees £1,000
Stamp duty £3,000 Wales 2nd property
Surveys fees £500
initial refurb costs £1,500
TOTAL purchase £106,150
Total Investment £56,150

Annual Rental - 11 mths per yr £6,050 (£550 per mth)

Mortgage interest 4.5%
Annual Mortgage interest only £2,250 (£187.50 per mth)

Annual letting Contract fee £50
Annual Gas/ Elect Certs £100
Annual Maintenance fees £900 (£75 per mth)

Taxable income £5,000
Tax @ 45% on income £2,250
2020 Tax relief £450 (20% of interest payment)
Total tax bill £1,800

Annual costs £5,100 (interest, maintenance, other costs and Tax
Net profit £950
Net profit as % of £56k 1.7%

c) yes I guess I could BTL via setting up a Limited company as a vehicle - will look into it and re-calc the numbers - I assume that means other costs are incurred though? And Borrowing rates are higher?

d) Yes I do have other investments - quick summary:
- 47, with 2 kids (age 4+) and wife with zero income
- House owner / cleared mortgage (id guess value @ £300k) / No other debts
- Wife has zero pension / stamps or salary history so she cannot be the BTL mortgage owner
- 2 pension pots totaling £550k, that I have contributed significantly to in last few years (inc carry fwd).
Im not sure what I can put in this year - need FSA advise on max
- We (collectively) also have £50k cash ISA and £100k share ISA
- Have some other cash savings / funds that im going to invest - hence the BTL query...essentially looking to balance my "portfolio", spread risk and provide a healthy rate of rtn....but as the OP, im seriously questioning the logic of BTL when I do the maths for MY situation!

Thanks again for all the insights, tips and warnings....all future advice much appreciated!



Cheers
Rob

00ec25

Robwales wrote: »

c) yes I guess I could BTL via setting up a Limited company as a vehicle - will look into it and re-calc the numbers - I assume that means other costs are incurred though? And Borrowing rates are higher?

Unlikely to be cost effective for a single property of the value you are talking about, however, from little acorns.... only sensible thing to do if you intend to have a portfolio of properties, which in itself is sensible, as at the moment your 50k capital investment is producing a rate of return comparable to what you would get in an MSE listed 5 year fixed interest savings account, with all your eggs in the rental stream from a single tenant.

SPV - "special purpose vehicle" - is the type of company you would buy. Cheap as chip to acquire.
Random google result explaining more: https://www.mortgagesforbusiness.co.uk/news-insight/2015/november-2015/setting-up-an-spv-limited-company/

the mortgage rate for a well funded SPV with an additional rate taxpayer owner/director underwriting a director guarantee should not be at a premium to "ordinary" BTL rates

Annual accountancy fees are a different matter, even up north, or via online accountants. Random google accountancy result: http://www.hornerdowney.com/what-we-do/spv-accountancy/