Updating post from Reddit.
I'll have two years accounts come Sept at which point I believe this will open me up to more BTL mortgage products.
What should I be thinking about at this stage when it comes to a. Preparing to be a landlord and b. Choosing a suitable property?
I am looking in Bristol/South Glos as I know the areas and probably leaning towards small freehold properties (save the agro with ground rent/service charge etc). Are most LL leaning towards new builds/newer houses now because of EPC issues?
Any advice for planning ahead would be great or things I should be thinking of at this stage?
I am looking to provide someone a nice home and have this as part of my future pension/later life planning if that makes any difference.
I don't think anyone has ever leaned towards new builds
The profit now is in renovating.
No profit in renovating - materials and labour cost a fortune.
Exactly this the only profit in Reno is by doing it yourself and even then when you factor in the time its dead
I think the common thinking now is that btl with a large mortgage isn't worth it and that the only ones doing okay are those that have chipped away and don't have mortgages. I don't think many people will be able to advise you without knowing budgets and your expectations so that we can provide the insight as to if you are missing anything and actually calculated if it is a good or bad investment.
That is interesting - I was leaning towards having a mortgage and based in prices in my area it would be 75 pcnt LTV. Looking £180k - £220k absolute Max.
What is it that you feel makes it not worth it having a mortgage on it? Any input is really helpful to be honest.
We will be mortgage free on our main home in about 9 years so we would have the capacity to chip away in the future.
What sort of property are you looking for so bedrooms, flat or house and what would you think the achievable rent pcm would be? I could probably give a breakdown then on what you are going to be heading into and people can then offer their advice on it a bit more as everyone will have their own opinions.
I will try doing this with what we already know
For example based on small freehold properties in the areas you described at £200k purchase would roughly be £900-£1200pcm. Also to note it will be subject to the additional stamp duty at purchase which I think will be £11,500.
A 75ltv on £200k interest only will cost around £400-£600pcm
Year Gas check if required £90 (some have it around £45 depending on who you find)
5 year electrical test (could be hundreds to thousands of failed but let's keep it best case for now and just estimate the fee to check) £100-£250/5 = £20-£50 per year
Yearly Insurance £250
Then optional but I take it you might be using an agent to let it out typically it is 12-15% of the monthly rent.
900-1200@12%=£108to£144pcm @15%=£135to£180pcm
Taking this for a start and let's look at best case scenario monthly breakdown
£900-1200pcm rent Minus £400-600pcm interest only mortgage Minus £5ish for gas check Minus £2.50ish for electrics Minus £21 for insurance Minus letting fees (based on £900pcm rent)
@12% fees would be looking at £363.50pcm left over @15% fees would be looking at £336.50pcm left over
Then don't forget you have taxes each year which is based on your tax bracket so basic payers 20% and higher 40% and this is on the entire year rental income minus a few allowable expenses which won't bring it down much.
So your £900pcm would be £10,800 per year minus £1k allowable so £9,800 taxable which could easily be £1960 basic tax or £3920 higher rate tax payer
So from the left over money once you deduct taxes you will be looking at a final of:
12% letting fees total £4362 Minus basic tax £2402 left over Or minus higher tax £442 left over
15% letting fees total £4038 Minus basic tax £2078 Minus higher tax £118
So you can quickly see the final numbers are crap are you sure you want to do all this hard work and risk for a best case yields of
For the 4 different outcomes above
1.2% 0.22% 1.04% 0.06%
You get more in savings accounts with no stress. The only people making it work are without mortgages to get those yields high. Also Some are happy with this crap return if they think the property will appreciate over the years in value another key way to make money.
One final note is that a bad tenant could trash the place or even not pay rent and evictions can take 6 months to 2 years this potentially could wipe out many years worth of your investment dreams.
Like I said run your figures properly and make sure you are happy with it before learning the hard way.
I really appreciate you taking the time to go through this! I do think for me its not necessarily about a huge monthly yield but keeping hold of something long term to go up in value etc (as in Bristol prices are increasing year on year).
This is the thing I know Bristol market quite well and the big increase I believe has already happened my brother bought there in the crash and made crap load from the increase but overall I think it has slowed right down. Some of the areas outside might see some increase especially commuter routes but we have a new gov with different views on property building you need to remember they want to build heavily on unsuitable land which could limit growth in the areas you are looking at. You need to look at the future and what the plans are with housing rather than the past which has already happened.
Also to note Bristol apparently had a -0.2% drop in house price as of July 24 over 2023. I'm not sure what the 2025 figures are yet but again you need to question will this type of investment beat the alternatives. For example the global tracker funds are averaging around 9% I really can't see you beating anywhere near that with property. When I have raised this before the people that choose property was for it's leverage so I guess there is still pros and cons to either.
Thats a really helpful insight - I suppose there are figures i need to be looking at more than just the actual purchase itself. Thanks for your feedback it has all been really helpful!
That is okay, just see a lot of new landlords enter then realise they haven't ran the figures and realise it was a big mistake. I for one entered without doing my numbers but have finally figured out the best way to make it work for me.
I like 2 bed properties because they are easier to maintain and will always have a tenant demand. Lots of landlords trying to go for most rooms as more rooms equals more rent. However this ends up in HMO territory and that has its own pros and cons. 3 beds will cost more and tenants will stay longer but you potentially could be sat waiting for new tenants for a while depending on rent. I find in cheaper cities those properties are harder to let because people can just get a mortgage and buy the property whereas 2 bed properties will always have youngsters looking to start their next chapter before buying a property. It will also have lots of demand for elderly looking to downsize.
I guess location and demand is two things you need to research then determine what sort of people will be wanting to rent in those areas. Bristol will have a high demand for small properties as prices are too high to buy for most.
This makes sense. Lots of angles to look at! I was thinking 1/2 bed houses as you skip leasehold charges but as you say, don't have to start dealing with renting each room which I wouldnt ever want to do.