Small and New landlords

Jeremy535897

I don't think this debate is germane to the OP. The vast majority of BTL landlords own one property only, which is not a sensible business model. I am convinced that most of them got there by accident rather than design. There is a long running myth (perpetuated by programmes like Homes Under The Hammer) that buying a property to do up and sell at a profit is money for old rope. When that turns out not to be the case, often the buyer is left with no option but to let (particularly when the property market takes a nose dive like in the financial crisis). Sometimes it happens because the landlord has to move house due to a change in job, and cannot sell the original property. It doesn't really matter why. It is quite clear that any property rental business can only be sensible when multiple properties are owned, to spread the risk from the tenant from hell. The financial analysis propounded above is too sophisticated for what is a flawed business model.

Grumpy_chap

The one-property BTL landlord may not have £60 in liquid assets (even if that would be sound business planning).

I think we can assume they would have some comfortable level of savings.  Partly because they need some buffer for the BTL: property, say a boiler replacement.  Partly because they need some buffer for their own principal private residence, say another boiler replacement.  Depending on risk appetitie, the BTL may have one property repair buffer to cover both the BTL and the private property, on the basis that they won't both need a new boiler the same day.  Either way £10k would be reasonable.

The BTL landlord is also likely to have a savings buffer for their own comfort and entertainment to fund things such as a new holiday, family days out, celebration meals, and nice TV, car etc.  Another £10k 'slush' fund would not be unreasonable.

So, whether the full £60k or not, the likelihood that the BTL landlord has sufficient liquid assets available that exceed the limit for UC eligibility seems probable even if the equity in the BTL property is assessed as "nil" (which I do not agree with as starting equity will have been at least 25% to secure typical BTL mortgage).

The alternative is that BTL landlords stretch every last penny to get a BTL and cannot then afford a daily coffee but live life as a pauper.  That is not plausible or rational as a plan.

Jeremy535897

Grumpy_chap said:

The one-property BTL landlord may not have £60 in liquid assets (even if that would be sound business planning).

I think we can assume they would have some comfortable level of savings.  Partly because they need some buffer for the BTL: property, say a boiler replacement.  Partly because they need some buffer for their own principal private residence, say another boiler replacement.  Depending on risk appetitie, the BTL may have one property repair buffer to cover both the BTL and the private property, on the basis that they won't both need a new boiler the same day.  Either way £10k would be reasonable.

The BTL landlord is also likely to have a savings buffer for their own comfort and entertainment to fund things such as a new holiday, family days out, celebration meals, and nice TV, car etc.  Another £10k 'slush' fund would not be unreasonable.

So, whether the full £60k or not, the likelihood that the BTL landlord has sufficient liquid assets available that exceed the limit for UC eligibility seems probable even if the equity in the BTL property is assessed as "nil" (which I do not agree with as starting equity will have been at least 25% to secure typical BTL mortgage).

The alternative is that BTL landlords stretch every last penny to get a BTL and cannot then afford a daily coffee but live life as a pauper.  That is not plausible or rational as a plan.

As I said, many BTL landlords never intended to be landlords, but were hoping for a quick turnaround. Many bought at a time when banks were happy to lend 100% on properties to do up. Others got into the sector from 1996 onwards when they were almost guaranteed to make money, with rising property prices, good rental yields and interest only 100% mortgages. But now, with a mortgage costing £10,000 a year in interest and no rent coming in and no power to evict, and then being made redundant, your financial position can become dire very quickly.

SpiderLegs

Indeed. This is about dealing with reality not theoretical business plans.

tacpot12

win1uk said:

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 😢😢😢)

I think selling your BTL should be the last action you take, but you do need to a bit careful that you are not setting yourself up to have to sell it, and therefore accept a low price. The JSA will help for six months. You should definitely get some benefit advice, from somewhere like Citizens Advice, as to whether you can claim UC. 

You need to secure some regular income, so I would be looking to take ANY job within an industry that is doing well during the pandemic, e.g. DIY stores, craft stores, supermarkets, delivery firms. You also need to reduce your outgoings aggressively, you need to save every pound you can to put towards the mortgages if you are to avoid losing one or both houses. Try to find work you can walk to (or cycle to) and sell your car if you have one. 

I would also consider, as a last ditch approach, stopping using any letting agent you are using for the BTL. You can explain to them that it is a temporary move and that you want to return to them as soon as you can find well paid work. They will have lots of landlords that aren't in as precarious a position as you are, so there should be les risk that they will go under if they lose your business for a short period. Check for any exit or re-entry fees, and/or ask if they will not deduct the fees they are entitled to for a period so the fees build up as arrears which you can pay back to them when you find work - you could point out that if you have to sell the house, they will lose all the the fees. 

mattyprice4004

SpiderLegs said:

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%

I did, because I had no idea how much work the property would need going forward or if I’d be faced with non-payers / other tenant issues. 

Turns out they’ve been as good as gold, but I’m glad I cut my budget down and kept a chunk of change to the side. 

Of course that was a while ago, and the contingency fund has been somewhat eaten into (but that’s what it’s for)

macman

Advice to 'sell the BTL' is all very well, but,unless you are proposing that the OP sells it onto to another BTL investor with sitting tenants, then this all depends on the status of the existing tenancy. We don't' know that, and if the OP wants to sell with  vacant possession, then that is going to take a minimum of 6m and possibly a lot longer, if eviction has to be carried out.
OP needs to give us some more info.

calcotti

macman said:

Advice to 'sell the BTL' is all very well, but,unless you are proposing that the OP sells it onto to another BTL investor with sitting tenants, then this all depends on the status of the existing tenancy. We don't' know that, and if the OP wants to sell with  vacant possession, then that is going to take a minimum of 6m and possibly a lot longer, if eviction has to be carried out.
OP needs to give us some more info.

But, as already explained to the OP in their duplicate thread on the Benefits forum, if they put the property on the market it can be disregarded as capital for six months (or longer if considered reasonable) and claiming UC is then possible.

Thrugelmir

Grumpy_chap said:

I think we can assume they would have some comfortable level of savings. 

Probably not. I doubt few crunch numbers fully or even factor in what if scenarios. The last thing they'd do is make contingency for a black swan event. Leveraging with debthas always been double edged. Boosts returns but correspondingly magnifies losses. As with any business / investment choice only risk what you can afford to lose. 

Thrugelmir

macman said:

Advice to 'sell the BTL' is all very well, 

It's a question that should have been considered at the outset. Given the illiquid nature of property. Exiting is rarely a cost free exercise. Takes the shine off returns as well.  Pain free options may well in short supply in current economic conditions. Hanging on can compound the losses though.