Thinking of investing in a property - advice?

Ash_Pole

Hi all I'm new to this subject, but I'm thinking of buying a flat to let out. I'm 53, working part-time (basic rate taxpayer), max out my pension and ISA contributions. I have some savings in cash and premium bonds, but I'm worried about inflation. I've never invested in property before, beyond owning my current flat.

There's a nice furnished 2 bed flat near me on the market for £195,000. I've got the cash to buy this, and rents should hopefully be around £800 a month. I'm aware I will have to pay stamp duty, solicitor fees, landlord's insurance, need annual electric & gas safety checks, and pay the service charge. After all this I think I'll be looking at around a 3.3% yield, and hopefully my 200k will be shielded from inflation better than sitting in a bank account. 

I hope I'm not missing anything important. Any advice or opinions welcome 🙂

Grumpelstiltskin

I hope I'm not missing anything important. Any advice or opinions welcome 

Tax on the income?

Stubod

..how will you feel if your tenants decide to stop paying rent after they move in and it takes you 6+ months to get them out?

theartfullodger

And contact you ('phone or knock on your door) regarding toilet leaking on lounge carpet & sofa: At 10;23 pm Saturday night.

And let you know it's been leaking 4 days.

Plus unexpected big repair bills, increased taxation by that nice Mr Sunak, voids etc etc etc..

Then property prices drop (they will, they will).

propertyhunter

Whatever you do make sure you're aware of the fire safety scandal surrounding the leasehold flat market, and that the property you intend to purchase is not affected by it. 

dimbo61

EPC of C or better

EICR
PAT testing
Smoke alarms and carbon monoxide detector
Freehold rather than leasehold

House rather than flat 
BTL mortgage as you own your own home

scottishblondie

Have you factored in the additional dwelling supplement on the stamp duty?  Assuming of course that you already own your own home.  Is there any potential the income would put you into the higher tax band, so you are then paying 40% tax on it?  Void periods, "professional" tenants, letting agent fees, maintenance and repair bills?  The stress of dealing with tenants?

All of the initial outlay will take a while to gain back.  And the biggest problem I have with investing in property is that it's a completely illiquid asset.  If you need that money, it's not easy to get it back and there are significant costs associated with doing so.  You're also entrusting that asset to people that you don't know, and even with the best vetting in the world there is always the possibility that you'll get a tenant who doesn't pay and then trashes the place.  There are definitely easier, lower stress and more accessible ways to invest your money.

As someone who is a LL, I wouldn't recommend it to 95% of people.  

Brie

Adding a side question as I've been thinking vaguely of getting a flat to rent out in a town full of uni students....

There's a local firm that advertises that if they are the rental agent they will guarantee continuous rent no matter what.  I expect that there's more to the "no matter what" bit then they mention in radio ads.  Anyone had experience with these as it would put some distance between the landlord owner and the actual tenant(s) while ensuring a steady income?

dimbo61

Read up about Small and large HMO

3 unrelated tenants make it a small HMO 
5 or more unrelated tenants make a property a large HMO which will require a HMO Licence.
If you change a residential property or Rental property with a family into a HMO you need change of use from the council and Good Luck with that.
Lots of Cowboys out there offering to manage your rental for you but the Buck stops with the owner.

steampowered

Buying a reasonable property is definitely better than letting money sit in a bank account, getting eroded each year by inflation.

It is worth considering whether you should top up your pension as an alternative. This would get you a big whack of tax relief.

saajan_12

Ash_Pole said:

Hi all I'm new to this subject, but I'm thinking of buying a flat to let out. I'm 53, working part-time (basic rate taxpayer), max out my pension and ISA contributions. I have some savings in cash and premium bonds, but I'm worried about inflation. I've never invested in property before, beyond owning my current flat.

There's a nice furnished 2 bed flat near me on the market for £195,000. I've got the cash to buy this, and rents should hopefully be around £800 a month. I'm aware I will have to pay stamp duty, solicitor fees, landlord's insurance, need annual electric & gas safety checks, and pay the service charge. - also repairs, maintenance, voids, tenant finding & referencing.. How much are all these? , After all this I think I'll be looking at around a 3.3% yield, and hopefully my 200k will be shielded from inflation better than sitting in a bank account. - yes better than a bank account, so are other stocks & shares investments..  

I hope I'm not missing anything important. Any advice or opinions welcome 🙂

The most important thing missed is the swathe of other investments other than bank accounts, ISAs and property. You can open a stocks & shares investment portfolio investing in an index tracker which historically has done better than bank accounts. Unlike an ISA, you'd pay tax on the returns, but so would you on a property. 

With the property route, there's other costs you've missed - factoring those in, plus the time it takes to manage, you're well below the 3.3% yield. That's already not a particularly good yield compared to S&S index trackers. The main reason is you're looking to buy in cash - property usually works when you have a high expectation of capital growth and the leverage to boost the returns.