Is BTL still profitable in 2019 ?

onelifeliveit

Hi, I could really do with some sensible advise. I have been left 120K. The person who left it to me was a real entrepreneur and would want me to do something clever with the money. From my research it would seem the sensible thing to do would be to pay off the mortgage debt......but I am wondering if there is some way I can use this money to generate an income and thereby pay of my mortgage early with extra monthly payments. The onlyway I have found of doing this is by buying two properties on an interest only mortgage and renting them out. My question please : do you think this is the best way to use this money to create an income and pay of my mortgage early and if so will BTL still generate income in 2019 with all the extra tax penalties. Thank you.

sal_III

The only correct answer to your question is: it depends

BTW, BTL is far from doing "something clever with the money" or entrepreneurial. Everyone and their dog is doing it lately.

tlc678910

Hi,

Worse case scenario you could have two properties with small deposits and interest only mortgages that go into negative equity following Brexit. We bought in 2007 (Cornwall) and our house value is only just back to where it was at the time. If the same thing happened to you and on an interest only mortgages you would be waiting 12 years to simply be able to get your money back. (Edit our £177k house fell by around 35k - 40k - that’s an awful lot of after tax rental receipts swallowed up even before accounting for expenses and mortgage interest)

If your tenants can’t (or won’t) pay e.g. lose their jobs you could be paying three mortgages. If you can’t afford to pay three mortgages the banks can call in your mortgages and repossess your houses. If the houses are in negative equity you will still owe the bank money after the houses are sold.

This happened to many highly geared landlords in the 2008 crash. They went from having large property portfolios to losing everything.

If you are a higher rate tax payer or the rental receipts of the two properties make you a higher rate tax payer you will have tax to pay on the income that has paid your mortgage interest. Because of this it will be possible to make no money at all (in fact to lose a lot of money with house price falls) and to still have a tax bill to pay.

That all sounds very bleak but of course people do make money from property. To follow through with your plan though you would have to be quite a risk taker in my opinion. As someone who would be loathe to put my money and security at that level of risk (especially just before Brexit) if I wanted to invest in buy to let property I would be wanting a nice family home in a sought after area with lots of equity and a small mortgage that I could afford to pay if necessary. I would be in it for the long haul and plan to use profits to pay off the mortgage so my investment over time would recover any losses caused by Brexit.

Tlc

ReadingTim

No - this kind of small-time amateur landlording is exactly the sort of thing that's being targeted by the recent changes to stamp duty and other taxes.

There will still be profits to be made in the BTL world - for those who treat it as a business and have a portfolio of properties, and associated lettings agents, tradesmen etc to support that business, but for the individual looking to make a fast buck out of doing nothing - forget it.

£120k is not exactly a life changing amount of cash either. Forget property, unless its buying yourself a nicer place to live in, and dump it in a stocks & shares ISA, plus a FTSE-100 tracker fund and get on with life.

Gurj247

How much is your current mortgage - best bet IMHO is to clear off your current mortgage first (but check if there are early repayment charges) as it may be worth just carrying on as you are over the term of your agreement and paying off at the end rather than re-mortgaging.


I appreciate you saying the person who left you the money was real entrepreneur, but would they want you getting yourself into potential high debt at this time given the current political climate and unknown effects this may have on house prices.

Cakeguts

It isn't enough for you to compete with the big landlords that are building rented housing. The only way you can compete with them is to undercut their rents and to do that you need to not have any finance.

theartfullodger

Some years (most years) I make money from B2L. But I have had losses. The only way you'll know if 2018-2019 tax year was profitable is when you do your accounts for HMRC. Until then, speculation (a long word for "guess").


IMHO it's getting tougher and tighter.

Pixie5740

onelifeliveit wrote: »

Hi, I could really do with some sensible advise. I have been left 120K. The person who left it to me was a real entrepreneur and would want me to do something clever with the money. From my research it would seem the sensible thing to do would be to pay off the mortgage debt......but I am wondering if there is some way I can use this money to generate an income and thereby pay of my mortgage early with extra monthly payments. The onlyway I have found of doing this is by buying two properties on an interest only mortgage and renting them out. My question please : do you think this is the best way to use this money to create an income and pay of my mortgage early and if so will BTL still generate income in 2019 with all the extra tax penalties. Thank you.

How hard did you look into ways to invest the money if two BTL properties, with interest only mortgages, are the only thing you've come up with yet you don't know if BTL will be profitable? What other investment vehicles did you investigate?

AdrianC

Just look at the sums.

Pay off mortgage - you're saving a substantial amount of ongoing interest, which you're paying out of post-tax income.

BtL - how much post-tax income will you be seeing each month after all the regular expenses and after a realistic allowance for exceptional costs like voids, damage? And don't forget the +3% SDLT plus the legal costs on the purchase and later sale.

Sure, there's the long-term capital-growth possibility. Equally, there's the possibility of that capital growth not keeping up with inflation, or simply not existing.


Other investments are available.

shinytop

It's not just money. Being LL takes time and can be very stressful. I was the typical 'accidental landlord' with one property. I got away with it but with hindsight I wouldn't do it again. Unless you really want to be a LL, ask the same question on the Savings and Investments forum

lisyloo

My view is in general no.
There is some work involved both on the property side and the financial side which needs to be taken seriously.
Taking into account the work and the returns I think it doesn't stack up in general if you mean buying at todays prices (properties bought at much lower prices decades ago will probably stack up).


There might be exceptions - for example if you are an excellent DIYer and love rennovating properties so you don't mind giving your time for free and can add value that way.


But for me the returns don't justify the work/risk compared with other investments.


Pensions can give good returns when you take the tax breaks into account especially if there are employer contributions and/or salary sacrifice and possibly also employer NI contributions.
If of course you can cope with the lack of liquidity (no free lunch).