What's the best financial act for an outright owned home that may not be needed sell/rent..etc?

lr1277

Whilst I am thinking about it, here are some other practicalities:

1) Is your wife on board with being a landlord? Say you are incapicitated for whatever reason, can she manage the landlord duties, submit tax returns etc? Could/would she do this for however many months you are incapicitated? I am thinking 3-6 months incapicitation after you were in a car accident. If you think this is too morbid, please understand, you will be running a business when letting out your property.

2) Do you have someone who can take over the landlord responsbilities if you are incapicitated long term. This may not be your wife. I don't know what age you are, or your general health, but conditions like dementia are striking younger and younger people nowadays, and mean you can no longer be the landlord. Your wife maybe busy looking after you so she won't have the time and energy to be the landlord. Especially if the property is in another city. I mention this point because my parents are landlords. However my dad got dementia and my mum is not confident about dealing with the tenant. So I now deal with the tenant and until lockdown, visited the property once a year to check the tenant had been keeping it in good condition.

3) I would suggest having a POA in place for property and financial transactions. Don't assume, institutions will automatically allow your wife to do your tasks if you have been dealing with matters upto that point.

You might be thinking, you could get the letting agent to do much of this. Perhaps you are right, but decisions still have to be made and tax returns submitted, or at least information sent to the accountant for the tax preparation and submission.

My suggestions are based on both my dad and I using a tenant finding service for our respective properties, and then managing the property outselves. So take my suggestions as you will.

AdrianC

woodsford said:

My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

Exactly that.

There's a perception that it's easy money, and guaranteed to be lucrative because house prices rocket up all the time, right...?

(Oh, and that 3-4% is without any mortgage interest...)

AnotherJoe

me1000uk said:

AnotherJoe said:

woodsford said:

AdrianC said:

me1000uk said:

What would be the best use of the old property to generate income

That's the wrong question. Don't think of it as "I have this flat", think of it as "I have £100k".

If you had £100k in the bank, would you be considering starting a residential lettings business? Would you buy THAT flat to do it with?

£100k asset, £6k raw rental yield... Sounds lovely...
...but...
Now subtract the costs from that.
Service charge and ground rent.
Allowance for maintenance, decoration, repairs.
Allowance for bad debts, voids, tenant-finding.
Will you be managing the let yourself, or will you be paying somebody else to do it?
Income tax on the profits. Do you already do self-assessment tax returns?
CGT on capital growth.

Worst case - what happens if your non-paying tenant finally does a runner on the eve of repossession, only for you to find they've trashed the place?

We have a rental flat - historically, it's been about 3-4% actual return to date over the 7yrs we've had it. We've been very lucky - very few repairs, just one tenant change.
This year, it's almost certainly going to be -ve.
Huge service charge for EWS/lift repairs/replacement fire alarms in the block, replacement smoke alarms in the flat, EICR, an expensive blown DG unit...
If the tenant handed his notice tomorrow, it'd be on the market, priced to sell - which may well be below the purchase price.
Of all the friends and relatives I know have rental flats, I think we're the only ones who haven't had a call from the police saying it's being used as a knocking shop...

This is interesting - thank you for your post.

My question is if it is 3-4% actual return per year and it can be a hard work then why are people doing it?

Apologies for the direct question but I swear people always think of being a landlord and I wonder if people do not realise how hard it can be.

... Because they dont do the numbers, just look at the raw figures,as it seems you did ?

... Because they underestimate the work involved,   the hassle and the risk

...Because "you cant go wrong with bricks and mortar"

...Because they are frightened of stock market investments (and probably dont appreciate that their pensions are invested in that)

...Because they have looked at it in isolation and not considered putting additional money in their pension, ISAs or other investment vehicles instead.

...Because "inertia" .. they have a  property so just consider letting it out and dont ask the Q, which someone else posed "if i had £X cash would I start a letting business".

I realise you're being hypothetical but in my case, I am gathering information to understand the work/risk/hassle.
I am cautious that you can go wrong hence the thread.
I am not frightened of other investments and try to put things in various pots (pension, stocks and shares isa).
In my context I have a property that is potentially in a good area and should go up in value considering I bought it well below the prices paid for similar properties as well as done some improvement on it.

If it was a mortgaged property and I wanted to kick start a business then sure the generic list of negatives apply. If it's a property in isolation with no mortgage commitment and a willingness to subcontract then a chunk of the negatives may be mitigated. 

With pension, I can't lock away my cash and already contribute to one regularly. With stockmarket, I already try to save and the 'longer' you do it the better. If I'm looking at the next 5-10 years then a fully owned reasonable property may be worthwhile to rent and sell when things go up in value? 

From what I gather in my situation, the biggest risk is a dodgy tenant and lack of occupancy. Open to all suggestions for anything I miss and as always it's greatly appreciated. This isn't disposable money to me and not something I afford to lock away for 30 years. So just looking at the best action for the next few years.
Thanks again.

Certainly is one of the biggest by far but dont underestimate the hassle. I used to own a second house that I rented out and though i did make money from it I'd have made more money on the stock market (some hindsight there).

The thing i didnt appreciate would be the case was the extra work. All those little jobs you do on your own house? Well, now I had 2x that work, and with more urgency. Or if you offload that work to an agency first they add on money for that plus they arent generally too bothered about who they get in or the cost (this is let alone any mark up) because they arent paying.

I think where you are most likely to make money over 7-10 years if thats your timescale, is in property price inflation.

My previous next door neighbours who bought elsewhere and let the house out lost, so they told me (i kept in touch with them) , £10k to a tenant who simply didnt pay her bills and needed legal action to evict. No rent and house needed complete redecoration. The house wasn't even trashed per se, just in very poor state but it wasnt deliberate vandalism. So, have they made money? Id say yes because houses went up in value, but day to day running costs, probably not - always remember that "free" money because there no mortgage still could be providing an income in other ways, so rather than saying for example, rent = £700, expenses £200 therefore profit = £500, you should contrast that with what the profit could have been if you invested the money in some other way.

OTOH you do have one factor in your favour, in many cases people are forgoing a better house because they could use that money to buy one or have a smaller mortgage, not a factor in your case.

At least you are going into this with eyes open unlike many !  Good luck whatever you do.

(note, I bought my rental to house a relative so it wasnt done from a financial perspective but in retrospect i might have been better off to rent a place myself and let her stay in it ! )

lr1277

Final thought.
If you do choose an agent, make sure you get references from other landlords. There were 2 agents I used to find tenants. They and I agreed what the flat needed in terms of tenants. Whilst they are not allowed to discriminate, the only prospective tenants they sent my way were young professionals who could afford the rent. The last tenant was a student but he showed he had the funds to pay.
My cautionary tale is that for one of the agents, the management and staff changed and their quality of service decreased markedly. So much so, on the last tenant find, they behaved very inconsiderately to the tenant who was renting the place at the time. So much so, the tenant insisted the agency had their keys taken off them and not be allowed to show the property again. I agreed to this, leaving me with one agent marketing the property. As an aside, the badly behaved agency closed down a few months later.
You might think with the web based property finding sites, all agents are equal. I would disagree and say the staff at the particular agency play a big part in determining whether a prospective tenant becomes your actual tenant.
With a fully managed service, you may not care how the agency treats (prospective) tenants, but I urge you to do your due diligence and choose wisely. Good luck.

me1000uk

lr1277 said:

Final thought.
If you do choose an agent, make sure you get references from other landlords. There were 2 agents I used to find tenants. They and I agreed what the flat needed in terms of tenants. Whilst they are not allowed to discriminate, the only prospective tenants they sent my way were young professionals who could afford the rent. The last tenant was a student but he showed he had the funds to pay.
My cautionary tale is that for one of the agents, the management and staff changed and their quality of service decreased markedly. So much so, on the last tenant find, they behaved very inconsiderately to the tenant who was renting the place at the time. So much so, the tenant insisted the agency had their keys taken off them and not be allowed to show the property again. I agreed to this, leaving me with one agent marketing the property. As an aside, the badly behaved agency closed down a few months later.
You might think with the web based property finding sites, all agents are equal. I would disagree and say the staff at the particular agency play a big part in determining whether a prospective tenant becomes your actual tenant.
With a fully managed service, you may not care how the agency treats (prospective) tenants, but I urge you to do your due diligence and choose wisely. Good luck.

Thanks for the detailed information. 
I guess having digested everything it certainly seems like a more invested investment if that makes sense where stable income is offset by many variables. 
I'm not too emotional about it as we have not lived long at all in it. The refurb was done with the intention of living there so was a good standard. Now that we are leaving it's just a question of being very soon without time for it to appreciate so maybe a mid term rental makes sense. 

It's in the city centre. Lots of professionals and students as well as a dedicated private parking space. It also is top floor so has a loft that was insulated and boarded during our refurb. I guess that's also good for potential buyers as well as potential tenants. 
The pandemic and various circumstances meant we won't be needing it so it's a tough choice I guess. 
I think it will creep up in the next 3 to 5 years although by that time it may need more work to get it to standard if tenants mess it up.

I feel a lot of the responses are landlords who are put off by legislation that wouldn't affect me but there are common problems all would face and it's important to know the negatives. 

me1000uk

lr1277 said:

Whilst I am thinking about it, here are some other practicalities:

1) Is your wife on board with being a landlord? Say you are incapicitated for whatever reason, can she manage the landlord duties, submit tax returns etc? Could/would she do this for however many months you are incapicitated? I am thinking 3-6 months incapicitation after you were in a car accident. If you think this is too morbid, please understand, you will be running a business when letting out your property.

2) Do you have someone who can take over the landlord responsbilities if you are incapicitated long term. This may not be your wife. I don't know what age you are, or your general health, but conditions like dementia are striking younger and younger people nowadays, and mean you can no longer be the landlord. Your wife maybe busy looking after you so she won't have the time and energy to be the landlord. Especially if the property is in another city. I mention this point because my parents are landlords. However my dad got dementia and my mum is not confident about dealing with the tenant. So I now deal with the tenant and until lockdown, visited the property once a year to check the tenant had been keeping it in good condition.

3) I would suggest having a POA in place for property and financial transactions. Don't assume, institutions will automatically allow your wife to do your tasks if you have been dealing with matters upto that point.

You might be thinking, you could get the letting agent to do much of this. Perhaps you are right, but decisions still have to be made and tax returns submitted, or at least information sent to the accountant for the tax preparation and submission.

My suggestions are based on both my dad and I using a tenant finding service for our respective properties, and then managing the property outselves. So take my suggestions as you will.

Thanks for the suggestions. We are mid career and I'm looking at a few years so touch wood no disasters. But I guess there are family members that would help and have one actually living not far from the property. 

AdrianC

me1000uk said:
I guess having digested everything it certainly seems like a more invested investment if that makes sense where stable income is offset by many variables. 

It's not an "investment".
You are starting and running a business...

me1000uk

AdrianC said:

me1000uk said:
I guess having digested everything it certainly seems like a more invested investment if that makes sense where stable income is offset by many variables. 

It's not an "investment".
You are starting and running a business...

Nice perspective to look at it this way although it still feels like an investment as it is an owned asset and will be sold based on market dependent factors. 
Nearly every complication seems to be capable of being outsourced to a manager/lawyer/contractor/accountant. 
Whether theres profit or loss is for sure the 'business' side but even at break even there's an asset that could go up in value. 
Perhaps my next move would be to see if it's sellable which may help things but it feels like the wrong time in this current world climate. 

AdrianC

me1000uk said:

AdrianC said:

me1000uk said:
I guess having digested everything it certainly seems like a more invested investment if that makes sense where stable income is offset by many variables. 

It's not an "investment".
You are starting and running a business...

Nice perspective to look at it this way

It's not a "perspective". It's a simple fact.

although it still feels like an investment as it is an owned asset and will be sold based on market dependent factors.

Yes, it's an asset. An asset of your lettings business.

Nearly every complication seems to be capable of being outsourced to a manager/lawyer/contractor/accountant.

Yes, of course you can pay somebody else to run your business for you.

You might even have a little bit of profit left after you've done so...

Whether theres profit or loss is for sure the 'business' side but even at break even there's an asset that could go up in value. 

It could, yes.
But it might not. It might go down.
Property values have been going up steadily for a few years, for the most part, with a rapid rise recently due to short-term conditions that are changing...

me1000uk

AdrianC said:

me1000uk said:

AdrianC said:

me1000uk said:
I guess having digested everything it certainly seems like a more invested investment if that makes sense where stable income is offset by many variables. 

It's not an "investment".
You are starting and running a business...

Nice perspective to look at it this way

It's not a "perspective". It's a simple fact.

although it still feels like an investment as it is an owned asset and will be sold based on market dependent factors.

Yes, it's an asset. An asset of your lettings business.

Nearly every complication seems to be capable of being outsourced to a manager/lawyer/contractor/accountant.

Yes, of course you can pay somebody else to run your business for you.

You might even have a little bit of profit left after you've done so...

Whether theres profit or loss is for sure the 'business' side but even at break even there's an asset that could go up in value. 

It could, yes.
But it might not. It might go down.
Property values have been going up steadily for a few years, for the most part, with a rapid rise recently due to short-term conditions that are changing...

I have a genuine issue I'm trying to solve and am using all feedback including yours as best I can and it is appreciated. Calling an investment property a business isn't actually related to my question. The costs and taxes and profits and losses are still the issue whatever you call it and a decision still needs to be made! Thanks anyway.