BTL in the tail end of 2023 - should I?

Eternal_Newbie

My circumstance - I own my own house, mortgage paid off, 46 years old. I have accumulated some savings of around £130,000 and am in employment. I'm as much if not more looking at a hedge against inflation as I am rental income - which I expect to be quite low, really. So I'd probably hold on to a property I buy until retirement or after. I'm not looking to get out of working any time soon so with my current mortgage paid off I could repeat buying a property to let again every few years. I figure this is probably better than an ISA...?

So I've been looking at flats in city centres and found a surprising number below my savings level. Often quoting 6% return on investment or thereabouts. I well know that most things are more complicated than they appear and I have zero experience in renting out properties. I have checked out ground rent and service charges compared to what I could expect to make in rent if I could keep a flat occupied 12 months of the year (probably optimistic!) and it would bring in some.

All that said, I don't think I'd make any money in the first year what with solicitor fees, stamp duty on a second property, etc. And I do have a few reservations of if I even want to do this as it was hard for me to become a home owner and part of the reason for that is because of BTL keeping property prices high. I don't really want to be part of the problem. But I also don't want to see savings I've worked hard for eaten by the inflation moths which are already here.

In my circumstances, would you BTL? I keep seeing properties reduced to sell which should tell me something but I don't know what.

Keep_pedalling

Almost certainly not. You don’t mention pensions and that would be the area I would looking to improve and it is also going to be the most tax efficient use of your savings.

Richard1212

Almost certainly yes. Although I have a very large shares' portfolio, gold coins and other valuable collectibles and all sorts of savings' accounts both here and offshore, my monthly income from the flats I own is really a very solid income every month of the year---and owning them is probably my best move and the asset I feel safest with.

If you were planning on buying just one BTL, I'd offer other ( different)  options for you but, as you imply that you are thinking of buying a number of flats over time, I would go ahead : owning properties is the best source of assured income IMO, especially now that rents have gone through the roof in the last year or more as buying houses becomes nothing but a faint glimmer for so many people.  You should acquaint yourself first with the many aspects of owning a flat to rent out----it's important for you to be au fait with the details and the main Landlord&Tenant Act, including a Rent Reform Act being enacted next year. You should also make sure you have a trusty management company which deals with all the day to day hassles and legal requirements that you don't want to get involved with. And try not to get yourself personally involved with the collection of rent-----get it paid by D/D to an agent or a special account set up to handle just rents. BTW, it is usually possible to include the service charges within the rent you charge the tenant.

Whatever you choose, all the very best.

ProDave

I would say not.  Speaking as a former landlord.

You are looking at this as a growth investment, but I would say why would you want a growth investment that when you want to sell it, you may not be able to sell it for a year or more (time to evict a tenant who does not want to leave) and who knows how much more the law will have change in favour of the tenant by then you might not even be able to evict them.

And when you do get vacant possession to sell it, you have a huge chunk of capital gains tax to pay.

As others have said, invest in some other growth investment within the tax shelter of a pension.

Or property investment for yourself, gradually move up to a bigger, better more valuable house for yourself, safe in the knowledge you could sell and downsize at retirement and being your main residence, no CGT to pay.  (yes I guess that could change over time so not a given)

Eternal_Newbie

Keep_pedalling said:

Almost certainly not. You don’t mention pensions and that would be the area I would looking to improve and it is also going to be the most tax efficient use of your savings.

You're right. A pension is something I've neglected. Frankly, my life wasn't very stable up until around ten years ago and at that point I was putting everything I could into getting a home. And as someone self-employed there was no automatic pension or guidance I received. My only concern with pensions is that I do worry sometimes just how safe that is. At least with property it should always be there for me. I would also want to look into what happens if I die and how I can pass on a pension. I don't necessarily expect to live into my dotage so if property or pension has an advantage over the other, that might be a consideration.

Richard1212 said:

Almost certainly yes. Although I have a very large shares' portfolio, gold coins and other valuable collectibles and all sorts of savings' accounts both here and offshore, my monthly income from the flats I own is really a very solid income every month of the year---and owning them is probably my best move and the asset I feel safest with.

If you were planning on buying just one BTL, I'd offer other ( different)  options for you but, as you imply that you are thinking of buying a number of flats over time, I would go ahead : owning properties is the best source of assured income IMO, especially now that rents have gone through the roof in the last year or more as buying houses becomes nothing but a faint glimmer for so many people.  You should acquaint yourself first with the many aspects of owning a flat to rent out----it's important for you to be au fait with the details and the main Landlord&Tenant Act, including a Rent Reform Act being enacted next year. You should also make sure you have a trusty management company which deals with all the day to day hassles and legal requirements that you don't want to get involved with. And try not to get yourself personally involved with the collection of rent-----get it paid by D/D to an agent or a special account set up to handle just rents. BTW, it is usually possible to include the service charges within the rent you charge the tenant.

Whatever you choose, all the very best.

Thanks for the advice. If I do this I fully intend to look into as many aspects as I can so I really appreciate the pointers. I've just been reading through the Rent Reform Act you referenced and definitely things to consider in there like the prospect of my being stuck with an unshakeable tenant and not being free to decline to rent to someone. That's concerning. BTW, I appreciate you addressing that I want to continue with this overtime. It depends how the markets go but I could potentially buy a small city-centre flat maybe once every two years or two every five years.

ProDave said:

I would say not.  Speaking as a former landlord.

You are looking at this as a growth investment, but I would say why would you want a growth investment that when you want to sell it, you may not be able to sell it for a year or more (time to evict a tenant who does not want to leave) and who knows how much more the law will have change in favour of the tenant by then you might not even be able to evict them.

And when you do get vacant possession to sell it, you have a huge chunk of capital gains tax to pay.

As others have said, invest in some other growth investment within the tax shelter of a pension.

Or property investment for yourself, gradually move up to a bigger, better more valuable house for yourself, safe in the knowledge you could sell and downsize at retirement and being your main residence, no CGT to pay.  (yes I guess that could change over time so not a given)

I really appreciate the balance of opinions here. I don't know much about the area but one thing I'm sure of is that it wont be as easy as just buying the place and sitting back. So you're raising some good points. In particular, you address a point I raised earlier which is that of the massive capital gains tax vs. pension. Which I guess can factor into inheritance if I die and leave these to someone. Thanks for all replies.

ProDave

It can be anything from a perfect tenant, that looks after the property, pays the rent on time, and at the end of the tenancy leaves without issue and always communicates with you.  To the other end of the spectrum a tenant who stops paying rent, trashes the property, only leaves after you have gone through the eviction process, got a possession order from the courts and sent the bailiffs in and then they are either untracable or have no money to chase for.

And anything in between, 

Stubod

..no..........................

Keep_pedalling

As you seem to have little or no pension that should be a priority. If you are a basic rate tax payer for every pound you add to a pension the government add 20 pence. If you are a higher rate tax payer you can also get another 20% rebate on your contributions. Any unused SIPP can be passed on to your loved ones and unlike property it falls outside your estate so is not subject to IHT. 

 https://www.ajbell.co.uk/sipp/tax-benefits-sipp

For more advice on starting a pension post over on the pensions board.

Albermarle

 I figure this is probably better than an ISA...?

If you are looking for an income in retirement then investing via a pension is usually the best idea.

If you stick with mainstream providers then there will be no worries about them going bust or your money disappearing. Of course investments will go up and down but normally the long term trend is up and better than inflation.

Have a read of this.

Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)