Updating post from Reddit.
So after breaking up with my partner with whom I shared a house, I have since purchased a flat by myself which I will be moving in to in the coming weeks. As it happens I've also met someone else who has a lovely home and there has been talks about the potential of me moving in a few months down the line. If this were to happen I'd like to rent out my flat to keep the property as something to fall back on in the future as well as an investment.
If I did this what do I need to know? I've been told the interest rate on the mortgage (Nationwide) would go up half a percent, I'd imagine the tax etc is significant but I'd only be interested in making enough money to cover the mortgage and any tax, fees etc as well as a bit extra to put in a savings account should anything go wrong that I'd have to pay for. The mortgage is a tiny bit over £500 a month and there is a maintenance charge of £1500 a year so I'd account for that extra £125 a month too. The tenants that have just moved out of the property I've been told were paying £975 a month.
If anyone can tell me anything that would be great, I don't really know what questions to ask at this point but does this sound like it could work or would it be wise to just try and sell it when the time does come?
Thanks.
EDIT: Maintenance charge is £1500 annually not per month.
Picking a good tenant is important if you’re going to manage the property yourself. Do credit checks, get references, make sure they have actually read and understand the contract, and use your gut feeling too. OpenRent can do a fair bit of it for you, though I got a lot of people on benefits (and no guarantor) applying through it.
I’ve got limited experience, but it’s been an absolute nightmare. I wish I had noticed the signs. Failed credit checks because the agency was unable to get suitable references. Turns out my tenant is an absolute nightmare. Destructive, arrogant, delusional… I’m probably going to have to sue him.
If I were to do it again, I’d be hell bent on those references from past landlords. Is this person reasonable? Do they pay? Etc.
Good luck, op!
Yea I'd be intending to manage the property myself. I live and work in a very small town with a great community so I know a lot of people here and I do feel I'd have a very high chance of finding a tenant who I know or who I can at least get some references from friends on.
I'm really sorry to hear about your experience! Your comment has really highlighted the importance of who the tenant is which isn't even something I'd considered in the slightest so thank you!
Do you think managing the property myself is appropriate? I am relatively handy and I will be living a 2 minute walk away from the property. I also know an awful lot of tradespeople in the town too so should be able to get most things sorted the same day but I suppose it;s the other responsibilities to consider?
Thank you for taking the time to comment!
Glad to have helped! And definitely manage it yourself. Agencies take a hefty sum for usually doing very little. Their main benefit is really finding a tenant and doing the paperwork, but you can do that yourself for much less. If you DM me I’ll be happy to share the contract template I used, and you can amend it as necessary.
Since you live close, are handy, and know the local experts - it’s another point towards managing it yourself. All an agency will do is delay the process (something goes wrong out of office hours, your tenant has to wait til they are open, and then all they’ll do is reach out to you afterwards). Without the fees you can split the diff between you and your tenants so they get slightly under market rate, and you get slightly more than other comparable landlords!
Honestly, the main things to consider are the legal docs etc. make sure you adhere to the local and national laws, have everything in writing, etc.
Also, try to avoid renting to friends. I used to live in my property and rented the spare room out. If they were friends, it made certain chats very awkward. Rent increases, paying for damages, etc. You need to draw a line in the sand when they move in and make it clear you will have to be a landlord sometimes, not a friend. I had a friend try to leave without notice, which I thought was cheeky considering they were splitting rent with their partner for that room, so I’d be left with half rent but still full costs. We found a middle ground in the end, but it meant I was out of pocket because they thought certain things didn’t apply because we were friends.
Please dont do it yourself as a newb in the current climate. Take your time and be very thorough finding a reputable agent who is all over current and changing legislation. I know theres a lot of anti agency chat on here (Im a multi property LL btw, not an agent) and I get that it ‘appears’ they do nothing for their fees but when things go wrong they can be invaluable. Tenants in rent arrears have risen by 25% in just the last year. It only takes a minor ommission on your part OP for your rent guarantee insurance to be voided or your request for possession to be thrown out. Learning on the job can be very expensive.
You will get the hang of eveything, so sure, a couple of years down the line (when we all know the impact of the RRB) and ouve become familiar with the specific issues your property throws up, relook at DIY. But straight out of the block? All I can advise is, dont.
don't do it
You can actually pay an agent only to source you a tenant and they will do all the checks and present you with the info for you to choose. I used to pay £400 and it was worth the money.
ah ok thank you! That sounds very helpful!
So you costs are 500+1500 a month at least and the rental is 975£ a month. Thats a big loss.
Sorry, just edited! £1500 per year not per month!
Well, it’s understandable that you want to keep your options open if you need to return back to the property. I don’t think you should start to become a landlord.
Given changes to the renters rights act you simply would not be able to return back to your property without giving 12 months notice.
As a landlord you’re supposed be providing a home, it’s not for you to return back if and when it suits you.
Perhaps you should holiday let instead or just sell.
Remember you will get taxed on the full rental income of the property not just your ‘profit’. Deducting some allowances like 20% interest credits and a few other. New landlord can’t get their head round this concept. You could be making a loss and still owe the tax man.
Plus you could be liable for capital gains tax for the period of the rental if the property price rises, unless you go back and live there yourself for a period.
Realistically I think you're unlikely to break even here, but it's really up to you. There absolutely is value in holding onto the asset, so it's whether the stress and potential cost is worth it to you.
Thank you, it is a difficult decision that I'm trying to weigh up with very limited time. Holding on to the asset is one thing but it is also a place for me to live if things don't work out. But yea I don't really have the income from my job to fund any 'additional costs.'
£1,500 maintenance a month? Seems extortionate unless it’s a typo!
Yes sorry, was a typo. I've edited it now :)
Haha I was going to say, no way to make a profit if that was the case.
There’s a lot to know, this page has some good resources on it though.
First thing regarding the mortgage is to discuss with the lender, apply for consent to let if still mid term, and discuss changing it from a residential to buy to let mortgage if you haven’t done that yet.
Don’t forget to factor in tax on rental income, future repairs/upkeep, cost of finding a tenant, and any property management fees if you decide to go that route (not necessarily required, especially if you live close by).
Thank you! What's the best way to go about finding a tenant? And by management do you mean general upkeep? Making sure the property is clean and dealing with any issues?
I use a real estate company, who’ll take care of finding tenants, referencing them, holding the deposit in a registered scheme, and some possible extras, such as inventory check at the start of tenancy. This is very important as it proves what state the property was in at the start of the tenancy.
You can also get them to manage the property for you, lease with the tenant and organise any repairs if needed. They charge quite a lot for very little, you can easily do this yourself.
The first law of landlording is: don't use agents.
The second law of landlording is: don't use agents.
Don't it's not worth it... Why??? Because I ran similar numbers for someone else and that wasn't even leasehold and they were more or less breaking even on the outcome on a best case scenario. If you want a quick idea of how I decided it wasn't worth it here is the comment I made based on properties in bristol...
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'd be in the lower tax bracket still I think, my regular income is just below £30k. I don't really understand stamp duty? Is it only if you have a 2nd property? This would be my only property still. The purchase price is £130,000 and am I correct in thinking it only comes in above £125k or something?
Essentially I'm not looking to profit. Just to break even and cover myself for any expenses.
My situation is that my solicitors are ready to go and so I already owe then £2000 on the purchase. All was going well until my new partner mentioned me potentially moving in with her and now I just want to make sure I will have the option to do so when the time comes.
So bearing that in mind my options are:
- buy the flat with the intention of renting it out meaning I have a property to fall back on should things not work out as well as somewhere to live for the next 6-12 months
- I move back in with my parents (I'm 26 so not too long moved out) and save like crazy and then put some money into my partners house in 6-12 months but with no security to fall back on if it doesn't work as well as taking the £2000 hit on the solicitors as they have already done most of the work.
- I rent somewhere, take the £2000 hit on the solicitors and throw a good £800-£900 into someone elses pocket for a property I'm not as keen on location wise (the cheapest currently listed in my town is £1000) per month.
Bearing this in mind would you still advise against it? Honestly I haven't got long left to decide and I don't want to make things difficult for myself in the not so distant future.
So the stamp duty stuff wouldn't matter to you that was just from the other post where they were buying a property in your case you already have the property or about to complete as your only property.
So your steps would be consent to let as you need to make sure your mortgage provider will allow you to let it out as you will be on a residential mortgage. Really you should be buying with an interest only btl mortgage to maximise profits or repayment btl to build equity.
As you may wish to move back then the consent to let is suitable for your plans as it means you won't need to mess about with the mortgage (basically you can't move in if it is a btl mortgage to my understanding)
You are in the fortunate position of being able to pull out albeit loosing the £2k fees from solicitor.
If you completed you will be stuck with loosing your FTB benefits, liable for your tenants and the stress it can come with. I see you mention you don't want to be in it for profit but imagine putting trust in your tenants and only for them to throw it out the window trash the place, stop paying rent then you will see how bad the system is to evict. Also how costly it is, you will also have a whole list of legal requirements for being a landlord and some are going to be costly such as min EPC requirements.
Policy will be against you.
Pros to having a property is that the longer you hold it the hope is that the value grows.
Cons if you want to buy somewhere else you will be stung by stamp duty for additional.
Lots of things to think about
Thank you! Heavily leaning towards pulling out now after your comments and similar from others.
A colleague said I should go for it because even if I'm not making money I will at least have a property to fall back on but I feel like as the margin is so incredibly small the second something goes wrong it's cost me money I probably don't have. That could be the place is empty for a few months, tenants ruining something, government changing certain policy or regulation etc.
The reality is it wouldn't be part of a property portfolio and I don't earn a lot in my job so I can't simply absorb costs that come up.
Thank you so much for your help I feel you may have prevented me from making a very costly mistake I could potentially regret for a very long time.
Yeah if it was freehold on a property that most likely would appreciate then 100% get in and take the risk but for a leasehold you may actually be taking on a financial burden.
I had a similar situation 18 months ago. But also was moving away from the area, for work. So I got my house fully managed. They find and vet the tenant, do all the checks, get all the certificates etc, get any work done if needed. Well worth the small % for hassle free renting. Also remember now even if you leave it empty you need to pay council tax and standing charges for utilities. If rented they pay these. It's worth getting a 3rd party inspection report also so there is no dispute when they leave. Ideally do it unfurnished as anything supplied you need to maintain i.e. washing machine. Dishwasher, fridge etc, other option is to gift them to the tenant, so then own them and you're not liable for repair.
Use Openrent, they will advertise on Rightmove and Zoopla for you but you hand all the showing and communication. It's cheap too.
Have an advert that gives lots of info and says 'If you can read this then yes it is available - please tell me about yourself first'. This stops the tens of 'is this still available?' posts. I ignore any that ask this.
When you are ready Openrent can carry out credit checks, reference checks, etc. If they don't pass these then DON'T rent to them.
Look into insurance for rent and also use openrent to collect the rent monthly (costs £10pm but people are much better at paying a company than an individual).
Square it away with your mortgage lender.
You need what's called 'consent to let'.
Others have given very good advice about tax and profitability.
I don't need to repeat but this bit has been missed out about consent, don't overlook it.
How can I be a parasite and steal a working man’s income…
I am intending to put it up for as cheap as I can to break even whilst accounting for everything. I used to rent a place off a family member that did the same thing for me and it was a great opportunity for me to actually have somewhere to live with an honest and friendly landlord I could actually communicate with. All for a bit less than what other similar properties would have cost me and my family member was also benefiting as they had me paying for some equity in a property. Because of that, I was then able to save up for my own place and so now I am in a position to hopefully do the same thing for a friend or colleague :)
You don’t need to apologize without you renting your property the “working man” wouldn’t have anywhere to live.If said working man had made better financial decisions or worked a lot harder he would be in the position of not moaning about landlords. I haven’t raised the rent on my places in years I don’t need to it’s a long game of capital appreciation.
Fair enough I apologise
This is a community for Landlords. You can be anti-landlord in other places like /r/HousingUK/