Updating post from Reddit.
I have been thinking about becoming a landlord for a couple of years now. I have the money for a BTL but I've dragged my heels as I've heard so many landlords are selling and the ROI isn't as good anymore. I'm a higher tax payer so I would want to do it as LTD and it seems super complicated to know what I could claim as tax deductable etc. I feel like I would become a mini accountant.
Basically is being a landlord worth it still and does anyone have a guide or list of things to do to maximise profits? TIA
You'll likely do better using tax advantaged savings vehicles like ISA, SIPP or employer pension, L-ISA etc.
If your situation is such that someone can be a lodger then that's slightly different, even in an annex-type scenario.
I bought my first BTL 30 years ago this year, I now have five and I have made a great deal of money. But that is because I bought them many years ago when BTL was just starting up, property prices and interest rates were a fraction of what they are now. Back then gross returns of 15% or even more were not unusual and you also had exponential growth in capital values. But those days are over, both prices and rents are at the borderline of affordability, BTL is not the goldmine it used to be. But many people’s perceptions have not caught up with this reality, there is still a widespread and misplaced belief that it is a sure fire get rich scheme. Which it is not.
What would you suggest now?
I think I’d spend time studying the equity markets and set up a portfolio which might be roughly 25% bonds, 60% “established” equities/trackers and 15% higher risk investments -AIM companies etc
If you're in it to make money, you won't. And it's not going to get better.
If you have a property that you want to hold on to for a different reason then you may break even.
Short answer - no Long answer - nooooooooooooooooooo
Why did I read the second no in an Australian accent? 🤣
Naiouuuuu
The stamp duty and tax structure make it very difficult to make money and the laws are very lopsided in favour of tenants. Oh and despite this the public perception is that you are loaded and a bastard.
There’s a reason the industry is in turmoil, landlords are saying ‘fuckit’ and selling up
If you think its lopsided in tenants favour don't look at European countries
A BTL only makes sense if you bought before the stamp duty change and it is mortgage free.
It’s been worth it for us over the last 10 years but it’s certainly not a licence to print money, a way to get rich quick or the right thing for everyone.
ROI’s and yields very much depend on the property you buy, how you rent it out and the finance structure you use.
Most costs can be taken straight off your profit reducing your tax liability or CGT liability down the line, the only one that’s generally not is finance costs if you buy as an individual… hence the Ltd option. That said if you aren’t getting a mortgage then this reduces the advantages of a Ltd and especially and on a cheap low yield rental the accountancy costs could chew into profit.
Consider where you are buying? We keep our BTL’s close to where we live so we can self manage, though I use an agent to source tenants. I’d rather get a phone call at 4am to tell me there is a leak and pop round and get the water isolated, than a phone call at 10:00 next day to tell me there has been a leak for the last 6 hours and an emergency plumber will be round at 11:00 for £200…
Post what you’re thinking of buying and your best guess of figures and I’ll happily pick it apart and give you my thoughts.
I’ve got 3 BTL’s. The rent doesn’t cover the mortgage payments only by about £100 month. But I’ve only got 10yr mortgages. As a seafarer I get to use my tax allowance so not paying tax on the revenue. The properties are my pension pot for when I retire
My understanding is that revenue generated from UK property has to be subject to tax. Even if the LL is non-dom, foreign company/ owner etc.
Also, I’d be interested in what lender you got to agree to this. Most lenders require rent + 20%-40% as a minimum so lenders I know of wouldn’t let you fix for 10 years at a loss. Who’s your lender and taxman I guess my question is?
Yes I’m liable for tax but as a seafarer my salary is earned outside the UK. I’m out of the UK for min180 days a year. So I still get my tax allowance for the rent (haven’t done a full year on all 3 yet) My lender is NatWest. I paid 25% deposit and my salary is sufficient to cover the cost even without tenants
Edit: To add my taxman is Seatax. Specialists for seafarers.
When buying the properties they where vacant possessions so could state what the rent was at the time
Why aren't you on interest only since that's the only tax deductible part and then utilising capital growth?
You're obviously on a repayment plan so whilst "it's costing you money" you're just tying that money up in an asset subject to capital gains down the road, this seems really really inefficient.
Go interest only, say a property has 100k mortgage and 200k value, keep the 100k mortage at interest only and in 8 years sell at 300k and pay off the 100k mortgage.
If you don't want that route utilise the leverage for more interest only BTLs, it makes no sense in a portfolio to do repayment mortgages, there's 0 upside
I wanted a guarantee that in 10 years the properties would be paid off. Properties will go to our kids once the Mrs and I are gone.
Index funds are also guaranteed (to the same level) , have nice neat tax wrappers and don't have the hassle. I assume. You're fully utilising the JISA AND junior pension, in which case, OK sure, out of options of where to park money
So let's clarify if your mortgage is £1500, your rent is £1400, so basically you are covering £100 out of your own pocket every month!?
My mortgages total about 2200. I receive about 2050pcm from the agents. Yes I cover the shortfall. But as I said I only have 10yr mortgages on them. 5 yr fixed deals. Give it 2 years and with rent increases I’ll be up on the mortgages. Just the gas certs & insurance I’ll need to cover
Yeah as mortgage payments going to go down! Rents will go up,
10 year mortgages means mortgage will be paid off quite quickly so I think you have chosen that instead of 25 year mortgages
Due to my age I wouldn’t get a 25yr deal. I’m 50 (just) mortgages paid off by time I’m 60 (I may over pay a little and get them paid off earlier) then I’ve got 5-7 to build a nest egg off them before I retire
Do you have interest only or repayment mortgage?
Repayment
Most people go for interest only to be able to leverage and buy more. Out of curiosity, why did you choose repayment option, if you don’t mind sharing.
I wanted the security that they would be mine at the end of the term. I haven’t done them so much for income now. It’s a retirement and inheritance for the kids plan
Makes sense, thanks!
I don’t understand there comments. I’m making a 27% gross return, across 10 properties (no finance costs).
If you’re just buying residential houses at market value and expecting to make easy money, obviously that’s not going to happen.
I’m finding the ones which are struggling are the ones who thought property investors just stuck a wad of cash in and hoped for the best. Which in all honesty worked for some for many years.
I had a friend a few years back decide he wanted in on the industry, he completely ignored me and didn’t even tell me he was buying a rental. However his approach was to buy a over-valued home (he was insistent it had to be something at the high end of the market incase there was a recession his would always be rented out for some reason), spend years and tens of thousands renovating the home (with no increase in property price from the works) and then rent it out for what he felt he now needed to earn to see a return.
He’s now convinced I’m somehow cheating or scamming people and I understand plans to sell his rental at the first chance as he would have made much more in a savings accounts.
As always success can be found from figuring out where you can add value where others aren’t/ can’t. Throwing money at something isn’t investing, it’s just a gamble.
We need more positivity around these parts.
Have you done any training to be a landlord? Do you understand the law? Honestly there are far better Investments at the moment, and it's extremely hard to make a better return than you would on a building society account - which comes without any substantial risk or work. There are people who claim reasonable returns usually based on nonsense calculations.
There is a reason people are exiting this sector so you would need a bloody good reason and special skills to be moving in the opposite direction.
If you have interest to build a portfolio, go for it - why not try. If it’s just one BTL - it may be a good idea to consider SIPP & options others suggested.
Did you consider commercial?
TBH you can get a better yield using it shares in an ISA,look at those solar company yields, also pHP properties etc,it's just less hassle and more income with less tax.
BTL are not worth it. I own outright, much better position to be in. As I get that money no letting agents involved. & pay my taxes on that. With the certificates I need.
The gravy train has been derailed. I’ve just sold three of my BTL. Keeping two (with minuscule service charges). No mortgage on either, so I turn a profit (albeit not like the glory days).