Small and New landlords

win1uk

Please advise. I am a small one property landlord (so own one buy to let plus my own residential Home). I have recently been made redundant after 4years in the hospitality industry, and am finding I am falling through the cracks. I am unable to my knowledge claim universal Credit because I own a second property, but my rent is not enough to cover my mortgaging on both properties. I have been told I can claim Job Seekers Allowances at £74pw for 6th months, but no other help is available. I am looking for a new job, but have had no success and am very worried of the employment situation next month (October) with possible more mass redundancies, and so more competition in the job market and possible less jobs due to Covid situation. Please advise as to my best next turn.....(apart from having to sell my buy to let 😢😢😢)

Grumpy_chap

Presumably, you have sufficient financial resilience as part of your business plan to cover a year or so, as such, no need to panic.

Jeremy535897

Owning a second property is not of itself something that precludes a claim to universal credit. The question is whether you have capital of £16,000 or more, which does preclude a claim (capital over £6,000 will reduce the claim). It may be that the equity in your buy to let, particularly as landlords currently have to give tenants six months' notice to quit, is modest or nil when looked at for UC purposes. I suggest you post your question on the benefits and tax credits forum.

SpiderLegs

Grumpy_chap said:

Presumably, you have sufficient financial resilience as part of your business plan to cover a year or so, as such, no need to panic.

Is this your advice to everyone who gets made redundant?

Sibbers123

Sell your main residence?

It might be wise to sell your BTL whilst the SDLT holiday is in place. In a few months, it could end up getting repossessed. At least if you sell the property, it will be on your terms. What would happen if your tenant lost their job and could no longer pay the rent? You could end up losing both houses, worst case scenario. I know it is not want to wanted to hear, but there is no magic wand and no magic money tree.

Grumpy_chap

No.  Only those with separate, independent means such as a rental property generating passive income.

SpiderLegs

Grumpy_chap said:

No.  Only those with separate, independent means such as a rental property generating passive income.

So a person with two forms of income has to earn enough from each of them separately to be able to cover a total  loss of one of them. Is that right?

I think we probably agree that if the let property is empty they should have enough earned income to cover the mortgage, but if the opposite is also true then there aren’t going to be many private landlords who fit into that particular business model.

Thrugelmir

Sell the BTL and live off the capital. Leveraging with debt has it's downsides. As I fear many will finding out. 

Grumpy_chap

SpiderLegs said:

Grumpy_chap said:

No.  Only those with separate, independent means such as a rental property generating passive income.

So a person with two forms of income has to earn enough from each of them separately to be able to cover a total  loss of one of them. Is that right?

I think we probably agree that if the let property is empty they should have enough earned income to cover the mortgage, but if the opposite is also true then there aren’t going to be many private landlords who fit into that particular business model.

In terms of the BTL and redundancy, the BTL landlord is in no worse a place than the majority of the population.  Indeed, having the equity and income from the BTL puts the BTL landlord in a far better position.

Jeremy interestingly uses a suggestion that the equity in a BTL might currently be argued as "zero" given current circumstances and therefore not discount a BTL landlord from UC.  

I find that hard to accept and a prudent BTL landlord who went into the new business with a full understanding of the obligations would do so with a suitable financial buffer that exceeds the UC limits even if the equity of the BTL reduced to nil.  However, let's look at what might be prudent:

• BTL property, say £200k
• Mortgage 75% so you need £50k deposit
• Plus upfront acquisition costs, including SDLT, and make ready for rental, say £10k
• Rental income, say 5% (£10k) gross.  There will be expenses to deduct from this, so maybe £8k in a good year before tax and with no void period.
• Capital reserve required to cover mortgage payments in the event of a void period, one year would be prudent as this allows for time to sell the property if desired.  That's £10k in the bank 
• Another capital reserve required to cover repairs to the property, say 10% of the property value.  That's another £20k in the bank.
• Prudent to have capital in the bank to protect your personal standard of living in the event of a rainy day, property repair to principal residence, car issues, or income risk.  If we assume that a BTL landlord is not going to be on a low salary, so let's take double the average salary (60k), then 6 months' rainy day fund is reasonable, so another £30k in the bank

I add that up, to sensibly start a business as a one-property BTL landlord, with 75% mortgage on the BTL, you need to start out with £120k in the bank, of which £60k needs to be held in liquid funds pretty much all the time.  These funds are going to make the BTL landlord outwith the UC eligibility, but can be used to cover the rainy day while the landlord finds replacement main income.  

SpiderLegs

I will take a guess that the percentage of one-property landlords who have 60k lying round in cash when they start up is somewhere between 0 and 0.01%

Grumpy_chap

It should be much higher.
Are you suggesting that BTL landlord, say earning £60k and buying a £200k BTL, starts with only just enough to meet the deposit and acquisition costs?  So, they have no buffer in case of needing, say, a boiler repair on either their own or the BTL property.  That would seem like negligence and incompetence.