Should we invest in buy to let?

Swipe

Personally, I wouldn't touch it with a barge pole but I like a hassle-free easy life. On the two occasions I did find myself lumbered with a fully paid empty second home, I sold them as soon as I could get them off my hands.

ABFG

Assuming there's 2 of you then you have a £40000 combined ISA allowance. If you've not filled it up you can go into a stocks and shares ISA and the likelihod is ***over time*** if you go with reputable index funds you should average out 4-5% pa easy on your money. Obviously, that's an aggregate, not guaranteed like a savings account. It wouldn't take long and you'd have tax free sum gaining  tax free dividends and appreciation, accessible pretty much instantly and requires no work. If I had that sort of money lying around that would be my go to place for it. Getting advice on how/where to invest is a good idea.

palford

A collective ‘thanks’ to everybody who’s replied with such useful information and perspectives. Definitely food for thought. 

Woolsery

rigolith said:

palford said:

Hi thanks for the replies. I agree there’s an ethical component which is part of our consideration. Also thanks for the reply with practical advice about ability to pay mortgage if not let. 

The only ethical component is that it's unethical.

I must point that out to the old couple opposite who rent from my friend, but it will be sad to diillusion them when they tell me they're happy in the little 1 bed cottage they've occupied since falling on hard times of some sort. They even walk the landlord's dog, which obviously shows what an evil hold she has over their lives!

saajan_12

palford said:

Hi, we have around £100,000 to invest and don’t want to keep it in the bank for obvious reasons. We’re thinking about investing in a buy to let property in London. We saw one at £365,000 which would mean borrowing a lot possibly using our existing home as collateral to raise the funds. With an interest only mortgage and a good rental income (the current property has an HMO license) we could clear around around £1,000 per month but there’d be agency fees and other expenses. We’d also be partly banking on the value of the property increasing. There are other options we’re considering - buying a local less expensive buy to let, pension, ISAs, invest in commercial property through a property syndicate. Would love to hear your thoughts.

High level, if you invest 100k and borrow 265k:
* Rental income with 1 month void = 1k x 11 = £11,000
* Financing costs = say 2.5% x 265k = £-6,625
* Agent costs = say 1 months rent = £-1,000
* Repairs, certificates say 10% of monthly rental income = £-1,100
Net £2,275 profit, ie 2.27% return on your £100k investment. 

This is better than most bank accounts (~1%), but not better than the general average you get from most tracker funds (~7% over long term). You may be able to improve the above if you self manage, but then it can take a significant amount of time to learn and attend to repairs / documents etc. 

Also this is the pre tax picture - taxes on residential property are particularly punitive, due to stamp duty, higher capital gains tax, partial relief only on financing costs.. If you have room in your pension and ISA limits, I'd max those out first as you have 0 tax, and beyond that work out which investment gets to the biggest return for the risk you're comfortable with. 

blackshirtuk

saajan_12 said:

High level, if you invest 100k and borrow 265k:
* Rental income with 1 month void = 1k x 11 = £11,000
* Financing costs = say 2.5% x 265k = £-6,625
* Agent costs = say 1 months rent = £-1,000
* Repairs, certificates say 10% of monthly rental income = £-1,100
Net £2,275 profit, ie 2.27% return on your £100k investment. 

This is better than most bank accounts (~1%), but not better than the general average you get from most tracker funds (~7% over long term). You may be able to improve the above if you self manage, but then it can take a significant amount of time to learn and attend to repairs / documents etc. 

Also this is the pre tax picture - taxes on residential property are particularly punitive, due to stamp duty, higher capital gains tax, partial relief only on financing costs.. If you have room in your pension and ISA limits, I'd max those out first as you have 0 tax, and beyond that work out which investment gets to the biggest return for the risk you're comfortable with. 

I would agree with your numbers but don't forget the appreciation of the property itself, which on a long term average is 5% pa.

£365K x 5% = £18250 
When added to the profit thats £20,525 or 20.525% return on the £100K investment

Ramouth

I’m a relatively cautious person so would consider a single BTL as a very risky investment.  The potential profits are good, but the potential losses are also large. 

Personally, I would look at putting the money into easy access savings and use it to subsidise living expenses while maximising salary sacrifice pension contributions.  The tax benefit is pretty hard to beat and you can then choose to invest in a property fund if you are particularly keen.  This is of course assuming you are working and are not already at the £40000/ year limit for pension contributions.

mahoney

I've asked a similar question before...Interest rates on savings are so bad, that is sounds appealing, but there's so much to it that I'm put off somewhat.  There's also the insurance you have to take out on it.
Possibly if we move house we will rent the one we're in now, we know the property and area so I think that helps.
Good luck

Rumana03

w12ee3e said:

No we don't need any more HMO, AirBNB or b2l. The world isn't all about you, I'm sorry to break the news. Be nice and let a young couple or family who are strugging to buy have a chance to get on the housing ladder.

Have you looked at property prices?? Most people are struggling to buy a property. There are less rental properties for those who cannot afford to buy their own place. The government keeping building expensive flats that regular people cannot afford. So stop blaming landlords and wake up.

Rumana03

palford said:

Hi thanks for the replies. I agree there’s an ethical component which is part of our consideration. Also thanks for the reply with practical advice about ability to pay mortgage if not let. 

I wouldn't advise getting a buy to let at the moment. My tenants having been sitting in my property for 2 years without paying rent and owe me £14k which I doubt I will ever get. It's honestly not worth the hassle. There's so much paperwork and checks to be done constantly. And then every year you have to do a self assessment tax return...