Are we mad!! Mortgage free or buy to let??

Mrs36

Do you know the pitfalls, rules and regulations of being a btl landlord? It isn't just a case of installing some tenants and collecting the rent. You should really, really do your due diligence before going ahead with this.

need_an_answer

Wizimum wrote: »

Good morning- looking for guidance and opinions.





Initially factoring in mortgage payments, income tax and contingency for vacant periods, ongoing repairs etc it will cost us £300 a month



What do you think....are we mad??

Have I read this right ...are you saying the total cost each month is £300 or that you are subsidising your potential tenant to the tune of £300 per month.


You probably haven't got a clear enough breakdown for anyone to judge if its a good proposition or not


Is the property lease or freehold or leasehold?

You'll still have to factor in things like service charges if leasehold,insurance charges if freehold and whos going to manage the property,you or an agent?(around 10% fees if you go with an agent managed,half first months rent if you go tenant find only)
Youll have to factor in fees for gas safety checks if the property has gas,tennant fees from june onwards,inventory fees,the list goes on


What amount of rent will this generate?


I'm a LL and started about 6 years ago with initially one property,inherited but needed a large amount of work on it to bring it to rental standard...we now have expanded as finances and savings have allowed,but with all the uncertainties over where rentals will be in the future we certainly are not looking to invest in any more.

Additional stamp duty hasn't been a friend with each additional property we have purchased and there are times where one property will very much piggy back the others.


My OH still works full time so it hasn't actually allowed us to retire but it is the cushion that did allow him to take 6 months off last year whilst between jobs.

Would I advise anyone to get into debt to do it on a first property...probably not,one property just ends up being an expensive hobby!

I would also be very wary of future plans that you may have about renting out the family home,simply because when you enter the rental business it is just that,a business...and anything you let out isn't easily reclaimable just because you've finished travelling or whatever and would like to return to your home.

Someone else has lived there and I say it often that no one,however nice they appear will ever cherish your home like you do!

ACG

I think you are mad.
Higher rate stamp duty, capital gains tax, no allowance for mortgage interest.
What happens if you get a tenant who stops paying and will not move out and causes damage to every room because they own nothing and are not worth chasing? What happens if you get people in your home growing marijuana and convert the house to a cannabis farm?

I was a landlord for 2 years (back when it was financially a good thing to do), I would never do it again.

Owning a BTL is a business. You seem to be looking at what it can do for you in the future for your travels and or downsizing and renting out your current home - that is not a business decision. As a business you should be looking at the highest yields, the least risk, largest growth etc. To me it reads like you are doing the wrong thing for the wrong reasons.

You will also have an emotional connection to the property when renting out your own home.

We had a "professional" tenant - she worked for a solicitors and had 2 small children. When she moved out, she had ruined the house, left a house full of rubbish and we had to dismantle what was left of a cannabis farm. We were fortunate - the damage was just badly fitted wooden flooring and badly painted walls and 1 months missed rent which was taken out of the deposit. Not worth chasing her as she had no job and her weed head boyfriend who we knew nothing about would have put the windows through.

OldMusicGuy

Wizimum wrote: »

I know there is an element of risk but your suggestion to put money in pension with saving rates as they are don't allow for the same level of return?

You need to understand more about pensions. They are not linked to "savings rates", they are invested in areas that will give you a higher return over 5 years and longer than current savings rates. Also, you get a minimum of 20% tax relief (free money) from the government.

You might want to take a read of this book "DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning" by John Edwards before you make your decision.

Wizimum

My partner and I both work, and will continue to so. I have done extensive research on overheads and costs.

Yes we would be paying £300 towards the mortgage costs at the beginning but as the capital in the flat increases this will reduce. At the end of the term of the mortgage (or sooner as we intend to continue to use the rental income to pay mortgage costs ) we should own the property outright.

Our credit cards will be no more after May and this will also free up an additional amount of £450 a month that we are paying on them. They are all interest free.

need_an_answer

Wizimum wrote: »

My partner and I both work, and will continue to so. I have done extensive research on overheads and costs.

Yes we would be paying £300 towards the mortgage costs at the beginning but as the capital in the flat increases this will reduce. At the end of the term of the mortgage (or sooner as we intend to continue to use the rental income to pay mortgage costs ) we should own the property outright.

Our credit cards will be no more after May and this will also free up an additional amount of £450 a month that we are paying on them. They are all interest free.

If the mortgage is going to cost you £300 a month more than the tenant is paying you then TBH its going to drain your finances very quickly.
Every time there is a maintenance issue within the property,and there will be, you have no reserve to draw on.

a void period where you need to cover utilities and CT and its likely to be difficult

and a tenant who leaves at the end of a tenancy owing more than the deposit you hold in either rent or damage is going to challenge you further.

if you are both working its going to mean that either you or your husband wont be able to drop round to fix the toilet/leakingtap/boiler/oven or anything else in the property that the tenant will need attending to....

I understand something like an emergency plumber can be quite expensive.


Are you going to be self managing and self maintaining the property?


I'm wondering if those newly cleared credit cards might end up getting used again.....
I apologise for my bluntness but nothing in your business plan stacks up at all.

ian1246

This is madness. If your worried about your pension, why not re-mortgage **part** of your house & sink the capital into each of your pensions?

Yes, there is an annual pension threshold, so you invest the ££ up to that threshold point, whilst putting the remaining £££'s into an easy saver/fixed saver - then when the next tax year comes, put more into your pension. Rinse & Repeat.

The result will be effectively a 25% Boost to your Capital from the pension Tax-Rebate on essentially day 1, with the amount then growing over the next 15-20years from investment growth.

###########

If your not happy about investing the full amount into your pension - put some into your pension, whilst putting other parts of the capital chunks into a Fixed Saver - for example, fix your (re)mortgage for 5years at around 2% interest, whilst then taking that capital and putting it into a fixed 5 year saver which will earn you 2.75% Interest - making a profit of 0.75% Interest over those 5 years. When the mortgage is due for renewal/coming out of its fixed-period, you can then reassess and decide what is best (i.e. take the capital from the fixed saver, which would have also matured, and pay off a chunk of the mortgage, stick it into your pension or do something else with it such as reinvesting etc...).

Lots of options available for you to get a far better, far less risky return!

############

Or just don't re-mortgage your home and remain mortgage free, and instead plough what would have been your mortgage payments into your pension along with any spare cash etc...

middleclassbutpoor

Madness.

Pay more into your pensions and claim tax relief. Pay less income tax... All the opposites of being a landlord where you get stung with more taxes.

If you fancy property - go into a property fund within your pension.

Remain debt free. Enjoy life and save.

Wizimum

Love your bluntness 'need an answer' !! It is what I was hoping to find here. Sound advise from people with experience.

Long term it seems to add up, I accepted there is a risk but thought it would be a good way to purchase a buy to let

The credit cards are historical half debt from low income that we have kept in interest free and an expensive Christmas holiday we took knowing the endownment would pay for it.

Thrugelmir

How long is the remaining lease on the flat you've considered buying?