Do landlords not get to keep their properties after the mortgage is paid off by tenants?

lr1277

Just had another thought. Get an inventory agent (i think that is their title) to do the tenant check in and out. You pay when the tenant moves in and the tenant pays when they move out. This gives them extra incentive to hand the property back to you in the condition they received it. This maybe in London but one inventory agent told for them to consider a property to have a good finish, it needs to be repainted/redecorated every 3 years. Take that as you wish

Thrugelmir

Angela_D_3 said:

moneysavinghero said:

AdrianC said:

moneysavinghero said:

But the point the OP is making is that for that £50k deposit he would get a house worth £200k. Even if house prices only rose at 2% after 25 years then that house would be worth £321k. Even on a interest only basis, that would equate to a 5.68%pa return on the £50,000 investment.

Except, assuming 3.5% interest on that mortgage, over the course of the 25 years, the OP will actually pay another £131k in interest - taking the total paid to own that property to £331k. He's lost £10k.

Oh, and then there's the small matter of CGT on the £121k capital growth - assuming no other capital gains in the tax year of dispsal, that's just under £20k, or just over £30k for a higher-rate taxpayer.

The OP has already stated that rental payments will cover the interest payments on the mortgage. He's not paying it, the tenant is, that's his whole point.

CGT would be payable on the shares as well.

The rent must pay off the capital for the plan to work 

Need a good rental to cover income tax. 

Retireby40

lr1277 said:

Not luck to find a good tenant. When I was a landlord I used agents for a tenant finding service but did the maintenance and rent collection myself. I had 3-4 agents I would use for finding tenants. In the end I took tenants from 2 of them. I would also meet and interview tenants before accepting them. On the whole it worked out ok. There was 1 agent who provided great tenants, but then there was a change of management and staff and the quality of service was appalling so I stopped using them. Their branch closed down sometime soon after, unsurprisingly.
You need to stay on top of things. A different way to look at it as compared to your OP is that you are lending the tenant the mortgage amount to live in your property and you are responsible for all outcomes. Are you aware even though you might put the tenant’s deposit in a protected scheme, if the scheme is unable to payout, you are still responsible for returning the deposit to the tenant? As stated earlier you need goals, plans and a list of good trades people. Run it as a business.

 Good tenants can still lose their jobs. Good tenants can still develop addictions. Good tenants can still suffer from depression. Good tenants can still have relationship breakdowns. All of those things could impact how they will behave in the future. And while doing your homework and looking at past history is a good indicator, nobody can tell what can happen tomorrow.

seradane

moneysavinghero said:

theoretica said:

I am not sure 200k of finance is the fair comparison - for BTL you would need a decent deposit, say £50k.  Investing that £50k in the stock market wouldn't need to be leveraged at all, though it could be. 

7% a year on the stock market and in 25 years the 50k could be 270k with no leveraging and probably less hassle than running a BTL.

But the point the OP is making is that for that £50k deposit he would get a house worth £200k. Even if house prices only rose at 2% after 25 years then that house would be worth £321k. Even on a interest only basis, that would equate to a 5.68%pa return on the £50,000 investment. Based on actual figures from the last 25 years it could rise to £676k / 34% pa (although no guarantee that prices will rise as much). Anywhere inbetween beats your stockmarket returns.

This is effectively the point the OP is missing. Landlords are investing their money in property instead of putting it into other funds, e.g. stock market. As moneysavingexpert has pointed out above, property is likely to be a much better annual return over 25 years than another form of investment, but that's also because it involves more risk and effort than just sitting in a tracker fund.

And using theoretica's figures, and the OP's point about having a 'paid-off house' at the end of it all as some kind of special landlord bonus: If you started with 50k, stuck it in a tracker for 25 years, you'd then have 270k. You could then go buy a house cash with this figure, and voila, you've got a paid-off house. So you could (in theory) get the same result without being a landlord. 

It's also worth noting there are two strategies of landlording-as-investment: rental yield and property growth. You could buy a property because it has a high yield, i.e. larger percentage of return each month in your pocket (e.g. cheap northern property or with an interest-only mortgage). Or, you could buy something that has a low yield, and rely on the property growth to make your money (e.g. expensive London property). The golden goose is one that does both (good luck with that!). Realistically, most properties will be somewhere in between.

Thrugelmir

seradane said:

moneysavinghero said:

theoretica said:

I am not sure 200k of finance is the fair comparison - for BTL you would need a decent deposit, say £50k.  Investing that £50k in the stock market wouldn't need to be leveraged at all, though it could be. 

7% a year on the stock market and in 25 years the 50k could be 270k with no leveraging and probably less hassle than running a BTL.

But the point the OP is making is that for that £50k deposit he would get a house worth £200k. Even if house prices only rose at 2% after 25 years then that house would be worth £321k. Even on a interest only basis, that would equate to a 5.68%pa return on the £50,000 investment. Based on actual figures from the last 25 years it could rise to £676k / 34% pa (although no guarantee that prices will rise as much). Anywhere inbetween beats your stockmarket returns.

This is effectively the point the OP is missing. Landlords are investing their money in property instead of putting it into other funds, e.g. stock market. As moneysavingexpert has pointed out above, property is likely to be a much better annual return over 25 years than another form of investment, but that's also because it involves more risk and effort than just sitting in a tracker fund.

Downside of property is illiquidity. Exit can be a costly and time consuming process. 

Investments held in a pension can be accessed at anytime. Tax advantages as well. 

I spend more time managing my own investments than a LL does looking after a BTL or two. 

warwick2001

Retireby40 said:

lr1277 said:

Not luck to find a good tenant. When I was a landlord I used agents for a tenant finding service but did the maintenance and rent collection myself. I had 3-4 agents I would use for finding tenants. In the end I took tenants from 2 of them. I would also meet and interview tenants before accepting them. On the whole it worked out ok. There was 1 agent who provided great tenants, but then there was a change of management and staff and the quality of service was appalling so I stopped using them. Their branch closed down sometime soon after, unsurprisingly.
You need to stay on top of things. A different way to look at it as compared to your OP is that you are lending the tenant the mortgage amount to live in your property and you are responsible for all outcomes. Are you aware even though you might put the tenant’s deposit in a protected scheme, if the scheme is unable to payout, you are still responsible for returning the deposit to the tenant? As stated earlier you need goals, plans and a list of good trades people. Run it as a business.

 Good tenants can still lose their jobs. Good tenants can still develop addictions. Good tenants can still suffer from depression. Good tenants can still have relationship breakdowns. All of those things could impact how they will behave in the future. And while doing your homework and looking at past history is a good indicator, nobody can tell what can happen tomorrow.

All very good points. And I agree that getting a 'good' tenant is sometimes good research and a bit of luck. However, you MUST assume that you will get 'bad' tenants (hope that you won't, but the possibility is always there). As a business (buying/inheriting and holding onto a house is an investment, but choosing to let it is a business decision), you must be aware of, and prepare for, all future risks associated with it. And non-payment is absolutely a very obvious risk. The tenant damaging the house is a very obvious risk. Granted, the COVID pandemic was an unforeseen risk, but the fall-out of it i.e. non-payment, no evictions for months etc. could have been, and should have been assessed and quantified for. These risks could happen without the help of the pandemic (there are hundreds of threads about 'bad' tenants well before 2020).

Any business owner will plan for the future, be it slow uptake of products/services etc., down-turn in the markets, and a whole heap of other stuff. Letting properties? They also should be planning for the risks ahead. 

To give a quick example, I rented out a house for 6 years. After all the mortgage payments etc. had been sorted, I 'made' £60 a month from the rent. And then in the 7th year, it needed a load of repairs on the roof (the house is approx. 100 years old, lovely slate roof). This cost me £4,500. So, ALL profits made in the preceding years was gone, and probably for the next 10 years as well. So on a purely business front, the house will cost me money. So I sold it. The reason I'm giving this example.... Letting property is not just sitting back and watching the money roll in. There are many times where it WILL cost you money. That's the risk of letting, its not always the gravy-train some people think it is.

AdrianC

seradane said:

This is effectively the point the OP is missing. Landlords are investing their money in property instead of putting it into other funds, e.g. stock market. As moneysavingexpert has pointed out above, property is likely to be a much better annual return over 25 years than another form of investment

I'm really not sure that's true, apart from the minor detail that many aren't investing their own money.

And using theoretica's figures, and the OP's point about having a 'paid-off house' at the end of it all as some kind of special landlord bonus: If you started with 50k, stuck it in a tracker for 25 years, you'd then have 270k. You could then go buy a house cash with this figure, and voila, you've got a paid-off house. So you could (in theory) get the same result without being a landlord.

And, of course, you could put your initial £50k in, then save the same amount monthly as the mortgage capital repayments would be... They are not a part of the residential letting business - they are not offsettable against the income for tax, you are paying them out of your own income. And that's partially why many BtL landlords go for interest-only mortgages.

It's also worth noting there are two strategies of landlording-as-investment: rental yield and property growth. You could buy a property because it has a high yield, i.e. larger percentage of return each month in your pocket (e.g. cheap northern property or with an interest-only mortgage). Or, you could buy something that has a low yield, and rely on the property growth to make your money (e.g. expensive London property). The golden goose is one that does both (good luck with that!). Realistically, most properties will be somewhere in between.

And we come back to why your "likely to be a much better annual return" is nowhere near that simple.

You can predict and plan for the annual income - the net yield, the taxable profit from the rental business. That's the easy bit - and it's analogous to the dividends payable from the equities you buy on the stock market. That rental yield has a hard cap - and it's not a very high one. Yes, you can channel the post-tax income to the mortgage debt if you're after long-term growth rather than short-term income, same as you can invest in an accumulator fund or reinvest the dividends.
Taking the income, I doubt many people will outstrip inflation rates by much, long-term, even without any mortgage interest.
Add in a high LtV mortgage interest, and I doubt many are actually making much if any profit if they truly take account of all costs.

You cannot predict or plan long-term asset value growth. You can't for the stock market, you can't for a property. Historically, house prices have given good growth. In the shorter term, there have been some substantial differences.


(Graph from https://www.azizifund.com/2019/04/shares-vs-uk-property-which-is-better.html - an interesting view of the question from just last spring)

Now take a look at these graphs from the same article, applying yes, slightly cherry-picked and rose-tinted rear-view mirrors to it...



And if that wasn't clear enough, another thing's for sure - if you need to cash in, one of them is a LOT more liquid than the other... You want to get out of your residential property investment?
Let's take a worst-case scenario... You have tenants, who are continually late on their rent, and who are likely to leave the property in a state.  It's going to want a facelift and possibly a boiler before sale. You may not have all your ducks in a row for a valid s21. They may not take any notice of it even if it is valid. The building may have EWS1 issues, and there's an s20 for new windows and an entryphone system from the public-sector freeholder. There's a big local infrastructure project that may or may not come to fruition, and if it does will cause years of disruption and noise.
<wince>
When do you think that's going to be cash in your account...? 2022? Maybe 23, perhaps even 24?

SpiderLegs

moneysavinghero said:

AdrianC said:

moneysavinghero said:

But the point the OP is making is that for that £50k deposit he would get a house worth £200k. Even if house prices only rose at 2% after 25 years then that house would be worth £321k. Even on a interest only basis, that would equate to a 5.68%pa return on the £50,000 investment.

Except, assuming 3.5% interest on that mortgage, over the course of the 25 years, the OP will actually pay another £131k in interest - taking the total paid to own that property to £331k. He's lost £10k.

Oh, and then there's the small matter of CGT on the £121k capital growth - assuming no other capital gains in the tax year of dispsal, that's just under £20k, or just over £30k for a higher-rate taxpayer.

The OP has already stated that rental payments will cover the interest payments on the mortgage. He's not paying it, the tenant is, that's his whole point.

CGT would be payable on the shares as well.

I’m sorry to break it to you but in just about every business the customer’s money pays the company’s costs.
This is not a groundbreaking revelation.

we could equally say that the customers of my employer have paid for my Bentley if we were so pedantic.

The only reason you and the OP seem to be getting in a flap is that the asset used to generate the rental income (generally) appreciates, rather than say, my mate bob’s taxi which is knackered after ten years. Bob’s customers are still paying for the thing it’s just worth sod all at the end of the period.

theartfullodger

Lovely graphs but they're simply telling you history.  Doesn't say what's coming up.

When you drive a car do you look out if the rear window (which is your argument) or look forward?

Retireby40

warwick2001 said:

Retireby40 said:

lr1277 said:

Not luck to find a good tenant. When I was a landlord I used agents for a tenant finding service but did the maintenance and rent collection myself. I had 3-4 agents I would use for finding tenants. In the end I took tenants from 2 of them. I would also meet and interview tenants before accepting them. On the whole it worked out ok. There was 1 agent who provided great tenants, but then there was a change of management and staff and the quality of service was appalling so I stopped using them. Their branch closed down sometime soon after, unsurprisingly.
You need to stay on top of things. A different way to look at it as compared to your OP is that you are lending the tenant the mortgage amount to live in your property and you are responsible for all outcomes. Are you aware even though you might put the tenant’s deposit in a protected scheme, if the scheme is unable to payout, you are still responsible for returning the deposit to the tenant? As stated earlier you need goals, plans and a list of good trades people. Run it as a business.

 Good tenants can still lose their jobs. Good tenants can still develop addictions. Good tenants can still suffer from depression. Good tenants can still have relationship breakdowns. All of those things could impact how they will behave in the future. And while doing your homework and looking at past history is a good indicator, nobody can tell what can happen tomorrow.

All very good points. And I agree that getting a 'good' tenant is sometimes good research and a bit of luck. However, you MUST assume that you will get 'bad' tenants (hope that you won't, but the possibility is always there). As a business (buying/inheriting and holding onto a house is an investment, but choosing to let it is a business decision), you must be aware of, and prepare for, all future risks associated with it. And non-payment is absolutely a very obvious risk. The tenant damaging the house is a very obvious risk. Granted, the COVID pandemic was an unforeseen risk, but the fall-out of it i.e. non-payment, no evictions for months etc. could have been, and should have been assessed and quantified for. These risks could happen without the help of the pandemic (there are hundreds of threads about 'bad' tenants well before 2020).

Any business owner will plan for the future, be it slow uptake of products/services etc., down-turn in the markets, and a whole heap of other stuff. Letting properties? They also should be planning for the risks ahead. 

To give a quick example, I rented out a house for 6 years. After all the mortgage payments etc. had been sorted, I 'made' £60 a month from the rent. And then in the 7th year, it needed a load of repairs on the roof (the house is approx. 100 years old, lovely slate roof). This cost me £4,500. So, ALL profits made in the preceding years was gone, and probably for the next 10 years as well. So on a purely business front, the house will cost me money. So I sold it. The reason I'm giving this example.... Letting property is not just sitting back and watching the money roll in. There are many times where it WILL cost you money. That's the risk of letting, its not always the gravy-train some people think it is.

My issue wasnt in not expecting bad things to happen. My gripe was people saying that luck doesnt play a part in how successful a rental property is. Some people believe that they have a superior skillset that eliminates luck factors. Which they dont. 

In regard to your experience while you had to sacrifice your "profits" you still had someone paying the mortgage of the house. So even if you didnt make any profits in 20 years you would ultimately own a house that someone else paid for you. Which is no bad thing. Especially as theres a good chance the house increases in value.