Is BTL still worth it

Gam2015

Hi all i have some money tucked away in premium bonds (not winning huge amounts) i have been pondering on the idea of paying down my mortgage with said funds. I have just done some quick figures on a 2 bed property for sale in the area for £120k with rent hopefully at £750pcm so it would be about £300 profit per month after mortgage and home insurance payments before tax and any repairs and that would be a 36k out lay 30k deposit and 6k stamp duty 🤔 

Hoenir

BTL is always worth it if the numbers stack up and you can find a stable reliable long term tenant. The reward comes from taking risk. When it does go wrong can be extremely costly and time consuming. 

mlz1413

Is that on an Interest Only mortgage?
If so are you going to save the £300pm to pay off the £90k mortgage in 25 years?

Or will you just sell up and pay the CGT?

It also depends on your lifestyle.   Do you want to work part time or go on lots of holidays?

Is the property going to be handed to children at any point?

Or are you single and want an extra pension in 25 yrs?

UnsureAboutthis

IMO, it is worth it if you are buying with 100% cash.
Everything is piling up against all good LL's

The projections you post, you've not made allowances for awful tenants that may trash your property and pay to zero in rent. To add insult to injury, it may take you over a year to get them out if they know how to play the system whilst they enjoy your place free of charge and/or sublet and enjoy the profits.

It will cost more, but I'd go via a good letting agent and get insurance for non-payment of rent and eviction costs.

When things go wrong, this can drive even the most positive people into wrecks.

So think carefully as 300 quid is not a lot especially if things go wrong.

If you buy a flat, consider the service charges etc.

Try to buy in the nicest location you can buy in, do it to a nice finnsih and ensure you get solid references and even then, some genuine people may not beheave like us when they unexpedly lose their job, become ill, diveroce/seperation etc - so the risks are there in every scenario and this is why you should borrow the absolute min but have money to pay your bills in the bank for at least 18 months should things go wrong.

We are also expecting the change in the law where it will be even more difficult to get a bad tenanat/s out.

ReadySteadyPop

Gam2015 said:

Hi all i have some money tucked away in premium bonds (not winning huge amounts) i have been pondering on the idea of paying down my mortgage with said funds. I have just done some quick figures on a 2 bed property for sale in the area for £120k with rent hopefully at £750pcm so it would be about £300 profit per month after mortgage and home insurance payments before tax and any repairs and that would be a 36k out lay 30k deposit and 6k stamp duty 🤔 

Not worth it, better off in premium bonds, you might win a decent amount sometime and you will have zero costs and hassle, money market fund in a stocks and shares ISA will probably do better than a BTL now, and if you want to get more adventurous just buy a tracker fund for each of the main market areas (US, Japan, Europe, Emerging Markets etc.) and drip in money every time there is an event that causes a market dip ( although recent events that some decades ago would have caused total meltdown don`t seem to even be shifting the dial now!)

 I split it up a bit more with say Asia Ex Japan and then also have a Japan fund, Europe Ex UK and then have pension money going into UK in a decent amount on a different platform etc. just so you can focus on country specific events a bit more (there was a recent Japan market dip around interest rate movements/announcements they were making I think where the main Japanese indexes dropped to late 80`s levels for a short period of time, I happened to see this on the TV at around 1am and managed to buy in in time to make some money as the markets bounced back, not having a Japan specific tracker would have diluted the effect of buying shares during that event.

You can`t really make money like that with a BTL, it is going to be income dependent on a tenant with a load of legal requirements and potential hassle attached.

Grumpy_chap

Gam2015 said:

Hi all i have some money tucked away in premium bonds (not winning huge amounts) i have been pondering on the idea of paying down my mortgage with said funds. I have just done some quick figures on a 2 bed property for sale in the area for £120k with rent hopefully at £750pcm so it would be about £300 profit per month after mortgage and home insurance payments before tax and any repairs and that would be a 36k out lay 30k deposit and 6k stamp duty 🤔 

I am a LL and won't be selling up any time soon.
I would purchase another BTL if I could.

Are you sure those figures are correct?  £750 per month on a £120k property is 7.5% return.  Not all BTLs will generate that rate of return.

Have you considered all costs in your calculations?  Letting Agency?  Void periods?  Etc.

Have you done any research to understand the obligations of a LL?

jimbog

 As RSP has said Premium Bonds are a safe bet but as he/she rightly mentioned stocks and shares can (and do) go down as well as up 

theartfullodger

Gam2015 said:

Hi all i have some money tucked away in premium bonds (not winning huge amounts) 

Is BTL still worth it

Max holding for premium bonds is £50k (I get about 3.8% btw from them)  so very very few BTLs available for that little.  But in answer to your question I, anyone else, you etc don't know if BTL is still worth it - but we can tell you in say 10, 15, 25 years.

Property & BTL is a long-term game, only sensible for those who can afford to gamble.  Been a landlord for 24 years - most years I make money, but not always.  

Toss a coin and decide on that outcome.  As reliable as any other decision process.  Good luck.

Gaberdeen

Post is a little confusing. You talk about paying down a mortgage and then talk about a buy to let - are you paying off the mortgage of your current property or looking to buy a new one?

My general rule of thumb is

1. Clear debt - if you have any outstanding credit cards with 0% terms coming to an end soon, make sure you have enough cash liquid to deal with them as soon as that interest-free term ends. If you have any debt that you are paying better than 2-3% on - pay it off IMMEDIATELY.

2. Swings/Roundabouts: Assuming you are talking about your own property that has a mortgage that you want to pay off - what is the rate and what is the term? If it's ~£50k (you haven't said how much PB's you own) and the rate is very low (sub 3%) you should probably look to deploy that PB money into a better-yielding/growing investment. You can currently get cash ISA's paying 4.92% - that way when the mortgage does come for renewal you'll have more efficiently grown that PB money in the interim

Assuming you end up in a position with zero debt / negligible mortgage and still have cash invested in a PB - it's literally the last place you'd want to put your money. Sorry, I know there are a lot of PB fans on here, just relaying how I feel about them.

My own hierarchy of preference goes;

1. Max out your £20k ISA allowance first - even if this is only in something generating a safe 3-4% - it's going to generate more than £20k in PB's; NB: If you specifically want exposure to BTL's and want to be tax efficient about it, look at investing your ISA allowance in a diversified property fund or REIT (Real Estate Investment Trust) - these normally attract a great deal of tax but the ISA wrapper makes sure you avoid paying any. I will note that instead of "rent" paid monthly, it would be dividends paid quarterly, bi-annually or annually. There's no REIT that pays a monthly dividend at the moment BCPT & EPIC were the last that offered that and have since been merged / bought over / liquidated. My own REIT choices pay between 6-9% and vary between retail parks, supermarkets and warehousing to retirement homes, social housing and car parks.

2. Pension contributions - if you are a higher rate tax payer, it might well be worth increasing your pension contributions so that your salary drops below the higher rate - you'd in effect need to cover any missing expenditure from your PB money, however the tax saved / pension increase will be markedly more valuable. Think of it as trading £1 today for £1.40 / £1.45 in added pension. If you're not a higher rate taxpayer, this option is not for you as the benefits only kick in the higher up the tax chain you go.

3. High interest savings accounts. Yes, even if you somehow have any money left over after Paying-off debt, Maxing your ISA and tuning your pension contributions so your tax is ALARP - a high interest savings account will still be a better investment than PB's and arguably a lot safer than BTL.

In reality, as Artful has already pointed out, you can't have any more than £50k available from PB's, but the above is still what I would do, whether it was £50k or £500k.

I should note, I am also a (reluctant) landlord and while the return from the property is reasonable, it's not always reliable - it was also my previous domicile, so the bulk of the mortgage was already paid off before I got consent to let. The issues other have mentioned are very real and very significant pitfalls to being a landlord and even if you pay a management company to deal with the minutia, you will still be asked to dot the i's and cross the t's on everything that occurs at the property so don't expect it to be a stress-free experience.

Also, the above is not advice, it's my personal opinion, you should do your own research before investing money in anything.

Hoenir

Gaberdeen said:

2. Pension contributions -If you're not a higher rate taxpayer, this option is not for you as the benefits only kick in the higher up the tax chain you go.

There's a considerable benefit even for a basic rate taxpayer. Particularly if they start drawing the pension before state pension age is reached or is drawn. 

Albermarle

 i have some money tucked away in premium bonds (not winning huge amounts) 
You would have to be very lucky to win huge amounts. Although the monthly prizes will vary, you will most likely over time get something around the average prize rate, which is currently 3.8% , dropping to 3.6% in August.

. Max out your £20k ISA allowance first - even if this is only in something generating a safe 3-4% - it's going to generate more than £20k in PB's

You can get 4.5% to 5% currently with an easy access cash ISA, which will on average generate a better return than PB's, although you might get lucky.