Purchasing an Investment Property

tyroneshoelaces

Albermarle said:

tyroneshoelaces said:

Albermarle said:

OP- If you asked this question on the Savings & Investments forum.
Savings & investments — MoneySavingExpert Forum
Then probably 9 out of 10 answers, would be do not invest in rental property and instead invest in a pension, or Stocks and shares ISA and keep some in cash savings. 

The main reason is that it is a lot less hassle and less time consuming than being a landlord. In the past a more benevolent tax regime made this hassle worthwhile financially, but not any more.

You might want to watch a few episodes of this programme ( also some episodes on Youtube)
My5 - Nightmare Tenants, Slum Landlords - Season 1 - Episode 2 / Episode 2 (channel5.com)

While I wouldn't be against investing in a pension - Which I already do, I  would want to try and earn some passive income from it and then hopefully use that in a couple of years I can purchase again - that is what I am leaning towards. As for stocks and shares ISA, there is a risk with those as well if I am correct?

Pension is really for retirement, and is not available for withdrawal until 55 ( going up to 57) and even then many people wait yo take them until later. I do not think you have mentioned your age?
S&S ISA is more for the medium to long term ( say 7 to 12 years)
Assuming investments are in the mainstream, the longer you hold them, the lower the chance of loss and the greater the chance of growth. After 7 years the odds are very much in your favour.
Of course the actual choice of investments will affect the result, just the same as any choice of property you buy, but in both cases you only know for sure with hindsight.

Sorry when I said I wanted to earn passive income, I meant from the investment into a property. Obviously, the ideal scenario would be to earn passive income and the property to go up in value in the long term. Of course, none of that is guaranteed. I am 39, and I have two children so I want to try and invest and make my money work hard without it dwindling away in my bank account if I was to get a job which I know is what will happen. As you can tell,this is a new idea to me but is something I have wanted to do for some time but not bothered looking into it because my business was going so well. 

I will certainly look at a stocks and shares isa though as that could be worth a look at. 

Hoenir

tyroneshoelaces said:

FreeBear said:

tyroneshoelaces said:

I was after some advice regarding the purchase of an investment property.

So, I am looking to plan ahead. I have savings of around £60,000 and I am contemplating using this to purchase an investment property that I think I would like to rent out. I would be looking to use around 20k-30k for a deposit. I do need to protect some savings for obvious reasons, so using it all would not be an option.

Have a chat with a financial advisor - It will cost you a few pounds, but I suspect he/she would advise against property investments. These are illiquid assets that are difficult to get rid of if you need tap in to funds quickly. The returns are not as good as they have been in the past either. And legislation is adding more burdens on landlords with extra costs involved.

This is where I need more clarity, hence looking for experience from people. I can pick up a property within ten miles of me for £95-£110k. These can generate around 600-800 per month in rental and of course, there are associated costs with that, so I am aware of that. 

Rather than just being aware. You need to crunch the numbers properly. Consider all scenario's you might encounter. Plan for longer term maintenance on the property as well.  Easy to get to sucked in by the jam today headline numbers. Nor forget you might encounter the tenant from hell. Letting property is a business. 

RHemmings

tyroneshoelaces said:

RHemmings said:

tyroneshoelaces said:

DE_612183 said:

There is lots of help out there - but a lot of people think being a landlord ( even for just one property ) is an easy business ( which it is not ).

I am not expecting it to be easy. Running my own little business has not been easy and the last year has been quite tough (thanks to AI), so I have the gumption to face the tough times at least. My father had a few properties that he rented and he found it stressful but I am different to him as he is someone who gets stressed easily. You might ask why I am not going to him for assistance or advice and I will but I want to try and arm myself with as much information as possible first. 

Out of curiosity, would you be thinking of BTL'ing with a mortgage, or for cash? 

And would the purchase price be money that you could afford to lose, get tied up, or generally decrease in value? 

It would be with a mortgage. I mean no, it would not be money that I could afford to lose if you know what I mean. I wouldn't be out on the streets if I did lose it but nobody wants to lose 20-30k do they! I don't mind tying it up if it was a long term thing and of course, as with property then it could go down but in the long term, property tends to go up doesn't it but it is not guaranteed!

My only thinking is that I have a good lump of money and I want to put it to good use.

I'm not as familiar with this as others, but I believe that recent tax changes make it less attractive to BTL if you have a mortgage and pay interest. (googles) This is what I was thinking of: https://www.charcol.co.uk/guides/buy-to-let-tax-changes/#:~:text=Tax credits, which came into,relief on mortgage interest payments. 

Buy to Let Mortgage Interest Tax Relief Changes

In 2020, the UK government introduced a new change that saw tax credit on mortgage interest payments replace finance costs restriction.

Before 2017, you could deduct finance costs from your rental income, like mortgage interest. HMRC started phasing out the finance costs you could deduct in 2017 over a 4 year period, simultaneously introducing a new relief called “tax credit”.

Tax credits, which came into full effect from April 2020, mean that landlords can no longer deduct any of their mortgage interest from their rental income when calculating their taxable profit. Instead, landlords receive a 20% tax relief on mortgage interest payments.

For more information on how this tax credit system works, see our guide: Rental Income and Other Landlord Taxes.

Not as recent as I was thinking - have there been more recent changes? 

tyroneshoelaces

Hoenir said:

tyroneshoelaces said:

FreeBear said:

tyroneshoelaces said:

I was after some advice regarding the purchase of an investment property.

So, I am looking to plan ahead. I have savings of around £60,000 and I am contemplating using this to purchase an investment property that I think I would like to rent out. I would be looking to use around 20k-30k for a deposit. I do need to protect some savings for obvious reasons, so using it all would not be an option.

Have a chat with a financial advisor - It will cost you a few pounds, but I suspect he/she would advise against property investments. These are illiquid assets that are difficult to get rid of if you need tap in to funds quickly. The returns are not as good as they have been in the past either. And legislation is adding more burdens on landlords with extra costs involved.

This is where I need more clarity, hence looking for experience from people. I can pick up a property within ten miles of me for £95-£110k. These can generate around 600-800 per month in rental and of course, there are associated costs with that, so I am aware of that. 

Rather than just being aware. You need to crunch the numbers properly. Consider all scenario's you might encounter. Plan for longer term maintenance on the property as well.  Easy to get to sucked in by the jam today headline numbers. Nor forget you might encounter the tenant from hell. Letting property is a business. 

Absolutely, as I am running my own business, I do know the importance of getting things right, so I would have to do all of that. to be honest, the passive income would go into a pot that is kept aside for the property. I see so many Instagram posts that make it out to be a stroll in the park when it is anything but that.

njkmr

You may be quickly surprised how stressed " you " become being a landlord..!
I won't put you off with my tales from the last 20+ years of it but it is becoming less and less attractive keeping up with the legislation etc. Damage, no payment, refurbs, mortgage payments etc etc.
You would be better off speaking with your father and ask him was has stressed him about it and it may put you off.
Personally I would look at other investment options.
Rob
Ex Landlord...!

annetheman

I'm sorry that I have no experience to share as a property investor but I as a purchaser, every single house I have viewed since January has been from BTL landlords who are selling up. Every single one - and I've had my offers accepted below asking, indicating how much they want to sell. This is in inner London.

London lettings agents notoriously have tonnes of prospective renters lining out the door and crazy bidding wars for good value rooms or flats in prime locations.

So I was very confused and asked the estate agent why this is - they said the Landlord's rent increases couldn't keep up with the higher mortgage rates, new regulatory requirements, rates and taxes. They've had the house since 2012 and where it was turning a small, decent profit before, it is a monthly loss for them now.

I mentioned the recent increase in average rents and they told me even this VERY high demand area in inner London cannot command a high enough rent to cover the aforementioned. 

I have an aquiantance who, after I shared I was buying in the area, has started looking for an investment in the area, too. They seem to be okay with the fact they are paying a premium to buy the scorched assets every other mortgage'd Landlord in the area is getting rid of while they can, and the fact that every area has a ceiling, past which a BTL just won't pay itself back. It is their first time, too.

The best outcome these days seems to be the appreciation in the sale value over time. Or if you've already paid off the mortgage.

Good luck though - people need private rentals, I just think you need to be quite brave and probably not reliant on it making any money during its time as a rental for it to be worth it these days.

propertyrental

https://forums.moneysavingexpert.com/discussion/6514836/renting-out-investment-property#latest

Albermarle

London lettings agents notoriously have tonnes of prospective renters lining out the door and crazy bidding wars for good value rooms or flats in prime locations.

 Situation seems to be changing according to this article.
London rents drop by 10 per cent as landlords under pressure to review prices | Evening Standard

Albermarle

Similar running thread.
Renting out investment property — MoneySavingExpert Forum

FreeBear

annetheman said: The best outcome these days seems to be the appreciation in the sale value over time. Or if you've already paid off the mortgage.

Don't forget that capital gains tax will need to be paid on any increase in value when sold. With recent cuts in the allowance, it could reduce the "profit" drastically.