Is a 8.2% rental yield worth the hassle?

Newheight13

Thank you for all your comments. It does sound like BTL is not worth it then unless you own the property outright. 

So, does it make sense to put all funds towards your new primary residence, and then when you do sell you have no capital gains, less higher rate land tax? 
For example:

If I purchased a 400k main residence only, and prices went up 3% year on year, would that  be better than a 100k primary residence and 3 x BTL’s? I would avoid capital gains and avoid the higher rate and just sell/upgrade every 3 years. I know that comes with hassle and you are not spreading the risk but does this work? Hope that makes sense, I’m sure someone can put that  into better words! 

BV88

What do you mean ‘better’, one option has you living in a £400,000 primary residence and the other you are living in a £100,000 primary residence and owning 3x £100,000 BTL properties? 

Changing your main residence every three years will incur large transaction costs (stamp duty, agent buying/selling fees, conveyancing buying/selling fees, moving costs, mortgage fees if you have one and so on).

If you are looking to generate a 3% annual investment return there is far easier, less hassle, more tax efficient ways of doing so than either of your options, which both sound a little bit crazy! Although you wouldn’t be able to get the kind of leverage you can with a residential or BTL mortgage.

dimbo61

If your looking at a £300/400K property then your a higher rate tax payer ? Sections  24 Tax.
Putting down a 30/40% deposit gets you the best mortgage rates and a few £xxx left to do work on the new home.
Less debt and less stress.
Being a Landlord is hard work and the Government and many other interested parties have declared WAR on Landlords.
Sell your current home save yourself £9,000+ Stamp duty tax and buy your dream home.

sourpuss2021

My landlord gets just 3.37% gross and about 3.2% net on this property which is a London terraced house converted into flats.  He owns it outright and spends very little on it.  It is continuously occupied.

Should he be selling up?   Perhaps he doesn’t because he weighs up the prospect of an enormous capital gains tax bill, versus the hope of future capital growth (though unrealisable by him personally) if he keeps it.

LegallyLandlord

Technically the yield should be the amount the property is currently worth, not what it was worth when you bought it plus the refurb. As that’s the return on the capital invested (including the debt). 

As someone else says, do the sums, including the maintenance and management. (Btw, it’s easy to manage it yourself, so why not save the 10% - read here for more: https://theindependentlandlord.com/self-managing-rental-properties/)

You’ll need a buy to let mortgage of a max 75% loan to value. Assuming you don’t own the property through a company, you won’t be able to set off your full mortgage costs against income tax - only a 20% tax credit on the interest. 

Are you likely to get capital growth? That should be factored in. 

Do the sums, and see what the net income after tax is. 

If it will let in under a week, you might be able to nudge up the rent to £1,300. Do think about letting it yourself via the portals using (say) Openrent. It’s so easy. My only regret is that I didn’t do it earlier. Here are some tips: https://theindependentlandlord.com/how-to-find-renters-without-agents/

If the sums work now, even with relative high interest rates, then it’ll be a nice little income stream with possible capital gains.