Buy to Let - Worth it For Me?

Dave2018 · 12 August 2018 at 7:05PM

Hello

I'm new to the site, and I'm seeking advice on being a landlord, which I feel I've no choice but to do.

I'm 43 and a late bloomer in life. I've been too generous with my money over the years, and certainly haven't thought about saving as much as I should have - I've thought more about going out and enjoying myself and buying presents for my Godchildren. In my teens and twenties, I thought, "I wish I knew how to go out and enjoy myself instead of being so painfully shy and anxious," while my friends thought, "I'm going to save for a house, get a wife, learn to drive and have some kids." Let's just say they've achieved their ambitions and I've achieved mine. Blessed as I am with good friends, it's time to grow up.

I currently live with a parent and sibling. One of my parents died, so my surviving parent and I bought our council home through the right-to-buy scheme. We have no mortgage, we paid outright, the house being signed over to me and my parent (not my sibling) in March this year. My sibling is my parent's carer, and the two of them don't want to move out any time soon but I need my independence and a future, even though I'm about ten years behind everybody else.

I earn around £18500 in my current role for a public organisation. Savings at the moment include approximately £20,000 in a current account with one bank (this is where my wages go, and yes, I know it's a large amount for a current account), £21515 in another newly-opened current account with another bank which I opened to help with the house-buying, plus £30219 in a savings account - but I don't want to touch that if I can help it, though I think I probably may have to.

I do feel on occasion as though I've made a big mistake and in the heat of family arguments it's been suggested I sign over my share of the house to my parent, which again I don't really want to do.

Properties in my city are too expensive, but properties in neighbouring towns are affordable - one of those towns being where my friends are, but I still want to be near my family and work. I currently work ten minutes' walk from home.

This has led me to look at buy-to-let. I have no knoweldge or expertise on maintaining a property so I'd have no choice but to use an agent. I've read that recent tax changes could make doing this doing less desirable. However, I've no desire to become a property tycoon. I merely wish to let out a property in a neighbouring town while making enough money to live comfortably in a rented property near my family whilst being 'me' for truly the first time in my life.

There are specific questions I have, though I need to speak to banks and agencies about that, but at the moment I just wanted people's general thoughts and any advice that springs to mind.

Many thanks.

ACG · 12 August 2018 at 7:40PM

BTLs are not what they once were and are only getting worse for the majority of people.

You will be liable for higher rate stamp duty as a starting point.

What are you looking to achieve with the BTL?

Pixie5740 · 12 August 2018 at 8:09PM

Why do you keep saying that you have no choice? Of course you have choices. What makes you think that owning a BTL property is going to help you achieve what you want? If you do go down the BTL route why do you think using a letting agent is going to make things any better? How would you even go about choosing one if you don't know what they're supposed to be doing?

sparkey1 · 13 August 2018 at 1:30PM

Hello Dave 2018.

Just looking through your post.

1 Most BTL mortgages in a personal name require another source of income such as employment. Most set the bar at a minimum of 25K per year.

2 Most BTL lenders, wont lend to borrowers that don't own their own property first. Whilst I appreciate you do, some specified you actually have to live there, where as you are proposing letting another property to live in.

3. As you now own a property jointly, and are planning to buy a BTL property, you will have to pay the additional stamp duty surcharge on top of the normal stamp duty rate.

4. You provide no figures for expected rental income, but there is a thing called Clause 24 which by 2020 will mean that you get no tax relief at all on mortgage interest expenses. To give you some idea what that means. Your tenant pays £800 per month rent, or £9600 per year. So your tax bill will be calculated on 18.5K your income, plus the 9600 per year. In some cases you could actually make a loss each year.

BTL is not easy. In fact, if you get it wrong, you could go to jail or pay huge fines.

sal_III · 13 August 2018 at 2:07PM

Any scenario, where you are letting out one property, while simultaneously renting another to live in is rarely a good idea.

Add the fact that you already own part of a property and the additional SDLT could easily wipe out any gains in property value on the BTL, even without the risk of being a LL. And it makes it even less of a good idea for you.

somethingcorporate · 13 August 2018 at 2:12PM

Do you want to be a landlord? It's a painful and expensive experience.

csgohan4 · 13 August 2018 at 3:40PM

as with any business, what are your overheads, what's the income generated, what's the contingency plan and worse case scenarios'.

Do you know the maintenance required or how long and how much it costs to evict a tenant.

Why all of a sudden a BTL?

You will find buying your RTB house means you are more restricted. Money and family don't mix as you are finding out. You have your own house but cannot access the equity for a long time? not to mention Stamp duty

you need to do more research and reap what you have sown, with your RTB, employment choices, e.t.c

Thrugelmir · 13 August 2018 at 5:47PM

Dave2018 wrote: »

I earn around £18500 in my current role for a public organisation.

Then you'll have options to buy additional pension. Often a worthwhile investment. Or alternatively move some of your savings into an alternative pension plan which could start to generate an income prior to your normal retirement age.

BTL's aren't a goose that by default lays golden eggs.

tlc678910 · 14 August 2018 at 11:09AM

If you buy to let you will pay tax on the income from your buy to let property while gaining no tax relief on renting yourself. If your tenants don't pay you will be paying the mortgage as well as your own rent. You will pay for maintenance and repairs to your let property as well as gas safety checks and landlord insurance - if something breaks like the boiler tenants don't expect to wait for a repair.

Could you afford a smaller property in your own home town?

Can I ask why you got involved in buying the family home and whether you put any of your own money into it. I think this influences what it is reasonable for you to do now.

As you have quite significant savings on a modest income I wondered if your savings come from an inheritance/life insurance? Again because what might be for the best for you is very different depending whether if you are an extremely frugal saver or burning through an inheritance.

There are pros and cons to removing yourself from the family home ownership.

If you remove your name from ownership you might be able to look at shared ownership or help to buy. There will not be any capital gains tax issues if the house is sold in the future as your parent lives there and so is exempt from capital gains tax. If you inherit it in the future no tax would be due unless the estate exceeds the threshold. If your parent needs care in the future the property may be sold to pay for it unless they live with someone who is disabled or over 60.

If you don't remove your name from the family home ownership: you will pay an extra 3% stamp duty on property purchases. You will become liable to pay capital gains tax on the period of time that you own but don't live there. You may be able to avoid selling the property if your parent needs to pay care fees in the future (I'm not certain about this as although it is jointly owned but you don't live there). This could be important if it is still your siblings home.

Lots to think about
Tlc

jonnygee2 · 14 August 2018 at 11:36AM

I don't get it. You start by saying you are a 'late bloomer' who needs their independence soon, then say your only solution is buy to let. Becoming a landlord is a financial decision only. It won't grant you any independence!

You already own a house, or part of one. The most obvious solution here is just to rent a flat out with your annual salary.

I've been too generous with my money over the years, and certainly haven't thought about saving as much as I should have

You have savings roughly equal to three times your pre-tax annual salary. I find it hard to believe that you have achieved this without thinking about saving.

If your goal is just to capitalise on your current savings, I'd suggest looking at investment options beyond just becoming a landlord, which is potentially very time consuming. Like transferring to stocks and shares ISAs etc. All investments hold risks, of course, including buy to let.

Buy to Let - Worth it For Me?

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