Net profit on letting your flat

AdrianC

PawelK wrote: »

Thanks all. Considering how more complex than I thought this is, can we just agree on something. It is possible to either have losses as well as profit from letting your flat?

Yes, of course it is, just as it's possible to make losses in any business.

And that's before the maintenance and other costs you've omitted, and before allowances for bad debts, reduced income from voids, etc etc.

Did anybody ever promise you otherwise? They were lying. Whether just to you or to themselves as well is another question.

In a rising market, that's less of an issue, because you can rely on capital growth to cover the losses and more.
In a static or falling market, that doesn't happen...

SusieT

So far with the house that I rent out (and ignoring voids) off the top of my head against the rent that I receive I pay agent, insurance, mortgage, safety certs, check out and cleaning in changeovers, boiler service, smoke + co2 alarms and batteries, decoration, carpets. Various big repairs that have needed doing included, new boiler, new roof slates (£10k), new joist after failure to notice and report a leak that soaked it.
Very easy to make a loss!

Crashy_Time

PawelK wrote: »

Thanks all. Considering how more complex than I thought this is, can we just agree on something. It is possible to either have losses as well as profit from letting your flat?

Not only losses voids and double council tax on voids in some areas but also massive legal hassles it seems if tenants are from Hell. The sweet spot for BTL was some years ago IMO, even if you can handle the downsides,

franklee

PawelK wrote: »

Thanks all. Considering how more complex than I thought this is, can we just agree on something. It is possible to either have losses as well as profit from letting your flat?

I'm sure there are many "amateur" landlords running at break even or a loss. The reasons they do it vary but may include, expecting the property to go up in value, wanting to keep the property in case they want to move back, tenants are family/friends.

If you have a repayment mortgage you will be repaying the loan over time so the repayment part isn't a loss. The interest part is.

There do seem to be a lot of regulations clamping down on residential letting nowadays, be that safety checks, diluting or removing section 21 notices etc. It must be a lot of work to keep up with changes in legislation.

Not the mention obvious issues that may arise, bad tenant, repairs, bad letting agent.

[Deleted User]

I fall into the "landlord wanting to keep the property to move back into" as I'm working overseas for the next few years. It's a good property in a popular area and it's just about wiping its own face. If I was looking at it from purely as an investment I don't think it would make my top 10.

The breaking even was less expensive that the alternatives of keeping it empty but still having to pay CT, standing charges for gas and electricity plus gas to keep the temperature 12 deg C and above, insurance for an unoccupied property which is expensive, or the costs of selling the property and then buying another one when I move back.

Dazed_and_confused

You should also read on the tax rules for finance costs on letting of residential property.

From April 2020 you can no longer count the loan interest on your mortgage as an expense so what you might make as a real profit could be far less than the profit for tax purposes.

If you pay loan interest you can claim a tax credit against the tax due on your rental income however the new rules mean you will have a higher taxable income than you would when loan interest was claimable and this can impact other things even if the tax credit effectively means you pay the same amount of tax as you would have under the old rules.

NB. Contrary to a lot of info published this can affect basic rate taxpayers.

AdrianC

franklee wrote: »

I'm sure there are many "amateur" landlords running at break even or a loss. The reasons they do it vary but may include, expecting the property to go up in value, wanting to keep the property in case they want to move back, tenants are family/friends.

And don't forget "not actually doing the sums properly, so not realising"

Retired_Mortgage_Adviser

OP, this post (from another thread) may (or may not) help as a starting point in understanding how to go about calculating potential net before/after tax profit. As others have said, only count the interest part of your mortgage payment as an expense when calculating profit.

Retired_Mortgage_Adviser wrote: »

There are different ways of looking at the potential of a BTL purchase. I personally look at the ROI as calculated below and aim for a bare minimum of 10% (but could go lower if there is potential for decent capital appreciation). To note that I only invest through a ltd. co.

In your case, if you intend to buy it in your name (as opposed to a Ltd Co.) then it all boils down to your tax band. If you're a basic rate taxpayer, it would make more sense. If not, then it's hard to justify.

See below a quick rough and ready calculation (with hopefully no glaring errors!) of the profit you *could* potentially make based on some conservative assumptions that I have used and served me well in the past (to note that I only invest through a ltd co). Note: This is just one way of looking at it and people can have differing opinions on how useful it may or may not be, whether ROI is an approriate measure to use, the validity of the assumptions, etc.

As others have suggested, I would recommend the propertyhub forum as well for these kind of queries. Good luck!

Jumblebumble

Dazed_and_confused wrote: »

s.

NB. Contrary to a lot of info published this can affect basic rate taxpayers.

I would be very interested to hear how and if it is common
The reason I ask is that a chartered accountant sends us newsletters and this has appeared in the one that came this morning
I would quite like to correct them if they are mistaken

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All this means is that if anybody is a basic rate taxpayer, then they do not lose out because of these changes. However if you were being or are now being taxed at 40% then you are only getting your tax bill reduced at the higher rate for 50% of the interest and from April 2020 you will not be entitled to the relief at your higher rate at all

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silvercar

Jumblebumble wrote: »

I would be very interested to hear how and if it is common
The reason I ask is that a chartered accountant sends us newsletters and this has appeared in the one that came this morning
I would quite like to correct them if they are mistaken

Two of the top of my head. Due to the way mortgage interest is treated, your income appears higher and this can mean that you lose out on child benefit or child tax credits.

Also, if your income is made up of dividends rather than taxable earned income, you don't get the mortgage interest to put against the tax you pay on your dividends. So you are not getting any allowance for the mortgage interest even as a basic tax payer because you don't have income that is charged at 20% but instead have dividend income tax.