buy to let investment

Reed_Richards

Considered opinion here is that renting is so unattractive economically that you shouldn't do it, at least not in London. But there must be a large number of people in London needing to rent so who caters for them? Are there economies of scale if you have a large portfolio of rental properties? Will renting evolve to be only done by large operators or will demand force the government to retrench and make buy-to-let more attractive again?

shinytop

sixpence. wrote: »

This is probably going to sound really naive, but does this actually bloody happen? It does sound like a nightmare but I've never heard of anyone doing it (or having it done to them) in London. Any way to get around this by using a letting agency?

Yes it does, it happened to me (not London but there are scumbags everywhere). My tenants stopped paying and I had to take them to court to evict them. They completely trashed the house and everything (I mean everything) in it. It took about 6 months and I got nothing back. As well as the lost rent and trashed house, it also cost me several hundred pounds in court fees. Even though I had some good tenants too, when I sold the house it was a huge weight off my shoulders. I would never be a LL again.

GiddyInvestor

BTL can still be good but not with 500k in London. You need to buy a quality place and be sure you have reasonable quality tenants. Even if house prices stay stable you will then get about 4% return if you are paying a management fee. As others say it’s probably not worth it now.

I have rent out a property for 20 years but am only still doing it because I will have capital gains tax worries when I sell.

AnotherJoe

Reed_Richards wrote: »

Considered opinion here is that renting is so unattractive economically that you shouldn't do it, at least not in London. But there must be a large number of people in London needing to rent so who caters for them? Are there economies of scale if you have a large portfolio of rental properties? Will renting evolve to be only done by large operators or will demand force the government to retrench and make buy-to-let more attractive again?

The numbers change somewhat depending when you went into the BTL business.
If you bought a house for (say) £50k 20 years ago and its now worth £500k you are getting income on what was (perhaps) initially only a £10k investment (eg you got a 80% mortgage). And, if you sold that house now you'd need to pay massive CGT. So maybe its quite attractive to keep it, keep the rental income (which is now relative to a £500k house not a £50k one) and wait until you decide to exit the business or need the money even though you have to take the CGT hit.



OTOH if you were to buy that £500k house now you'd need at least a mortgage of £375k so the profit is much less, plus you cannot offset the mortgage interest plus all the other changes making the profit far low.


So, to a certain extent the market is catered for by existing not new LL's. Then, there are the naive and foolish or innumerate who simply haven't done the sums think its a route to riches (and are afraid of the stock market) and so get in that way. They may even run at a loss unknowingly and when they do get out theres another to replace them.


And finally, some of the would be renters will now be able to buy since there are fewer LL's. And finally if there are fewer rentals, rents will rise and that may encourage more LL's back in. Unless rent controls come in and then all bets are off.

sixpence.

These comments are massively helpful. Going to write a longer response later, but for now just want to clarify: I won't be having to deal with a mortgage because I'll be paying outright.

Going to have a good read through what everyone has said, maybe do some research, and then get back to this.

In the meantime: Does anyone have a bank account that will give 4% interest on 600k? I didn't think such things existed post-recession but people seem to be advocating it here?

EDIT: okay just googled this and the highest is like 1.5% which seems a bit rubbish considering you can get 4-5% at least from rental yield alone. Anyway, will read thru comments and have a think later.

Zanderman

sixpence. wrote: »

These comments are massively helpful. Going to write a longer response later, but for now just want to clarify: I won't be having to deal with a mortgage because I'll be paying outright.

Going to have a good read through what everyone has said, maybe do some research, and then get back to this.

In the meantime: Does anyone have a bank account that will give 4% interest on 600k? I didn't think such things existed post-recession but people seem to be advocating it here?

EDIT: okay just googled this and the highest is like 1.5% which seems a bit rubbish considering you can get 4-5% at least from rental yield alone. Anyway, will read thru comments and have a think later.

Where did anyone say in this thread you can get 4% from bank interest? On 600k?

Ignore 1.5% - that's the best on easy access accounts, but you could (bearing in mind you seem happy to lock the capital in property) get rather more in fixed period accounts - you need to google this a bit more!

Rental yield is not, as people are trying to point out to you, reliable.

Edited to add: You would, probably, be better comparing your BTL concept to investments rather than savings.

boxwood

If your sum to invest is £600K, how much do you have in stocks and shares at present? I have experience of buy to let, and if I could only invest in one or other, I would choose stocks and shares. But when you have both, an income source separate from the stock market helps you worry less when stock markets crash, as they do.

So if you do not need the income now and it will not cause any financial hardship if you do get void periods in your rental property, then I would suggest buy to let is a very good diversifier.

I would not be over-weight in property, so if you have less than £600K in stocks and shares, maybe some of your windfall can be put into stocks and shares so that you have at least as much in stocks and shares as in the buy to let. I would suggest putting some aside, short term in NS&I, to allow you to transfer over to max out ISAs over the next 2 or 3 years unless you already have enough income every year to max your ISAs. The NS&I return will mean a low return on the amount for a couple of years until it finds a home in a stocks and shares ISA, but better than losing your annual ISA allowances.

AnotherJoe

Zanderman wrote: »

Where did anyone say in this thread you can get 4% from bank interest? On 600k?


See tarambor's post.


Ignore 1.5% - that's the best on easy access accounts, but you could (bearing in mind you seem happy to lock the capital in property) get rather more in fixed period accounts - you need to google this a bit more!

Rental yield is not, as people are trying to point out to you, reliable.

Edited to add: You would, probably, be better comparing your BTL concept to investments rather than savings.

Agreed. Though I dont think the OP suggested that.


OP, if you are getting say 5% on a rental then if you compare that with no risk 2.5% +interest accounts, thats a lot of risk you are taking for an extra 2.5%. Why not go for stock market with higher yields and similar risk.

Also buying one single property at £600k is very high risk. I think you'd likely get better yields with more lower priced properties plus it would spread the risk and the income. You'd' have to look outside London though But if you intend to be a hands off LL using an agent does it matter?

Durban

sixpence. wrote: »

This is probably going to sound really naive, but does this actually bloody happen? It does sound like a nightmare but I've never heard of anyone doing it (or having it done to them) in London. Any way to get around this by using a letting agency?

Yes I can assure you that it does actually bloody happen.
I had a tenant from hell who passed all the checks, was in full time employment ,and was let though a reputable and good agency.

The tenant literally trashed the place. Smashed up every single door in the property , trashed the brand new carpets and used the property as the local drug den and made the neighbours lives hell.
He lost his job through his drug use and the police raided the property.


I was lucky , when served the eviction notice , he left and I didn't have to go to court. All I had was a massive clean up and refurbishment bill. It could have been a lot , lot worse.

A letting agent can only do so much. They can make your life easier but they cannot force your tenant from hell out , only the courts can if they refuse to leave. A letting agent cannot force your tenant to pay the rent , they can send them notices and chase them up but if they don't pay , you will have to recover it yourself.

Using a letting agent does not absolve you of your responsibilities. There are heavy penalties to pay if you don't comply with the over 170 pieces of legislation that come with renting out property. If the letting agent doesn't do this , they are not liable , you as the landlord are. You cannot be complacent and think that the letting agent will solve all the hassles and problems of letting out a home

Alexland

My parents rented out an inherited property but after a few years it was badly damaged. I still don't understand how someone managed to smash holes in the middle of 3 doors! The whole place needed gutting including all the urine stained furniture and carpets. The kitchen units were mostly damaged and the garage, loft and garden were full of worthless old car parts. The letting agent had even returned the deposit without checking the property! Some people live very differently and have no respect for other people's assets.