Updating post from Reddit.
My dad died and left me some money. He was keen for me to invest it in property, and I am too, but I don’t know if the figures work.
£240k purchase price, £75k deposit, approx £1100pcm rent. I’ve done the figures and I might be overestimating monthly costs, but it doesn’t look like I’d do much more than break even, even on an interest only mortgage. I’ve accounted for agency fees, annual accounting fees and approx £100pcm to go into a maintenance pot/cover vacant periods etc.
Am I missing something or is this unlikely to work?
Don’t forget taxation.
Sorry for your loss but your dad may have been harking back to a different time when for instance mortgage interest was fully deductible..
Understood but also he definitely was doing it in the golden age of BTL! I want to give it proper consideration but I’m not so sure it’s worth it these days
There are better investments out there now.
Was his desire that you invest, or that you buy a house?
(Also, consider the risks of putting all of you funds in one investment. My father did - the "guaranteed" investment failed and he lost his pension pot. Died in debt.)
Not worth it on a house that costs that much.
It’s not about breaking even on the month to month but the profit you make when you sell it in 20 years
Absolutely, but still need to make sure I’m not going to be in the red between now and then!
You need to be thinking about why you want to do it and what you want to get out of it. It sounds for starters that you’re looking at the wrong sort of property. There’s lots of useful books and podcasts about worth your time. You need to really treat it as a business decision more than anything. Run the sums, know how long you want to keep the property, have an exit strategy. That’ll help. Good luck!
(I’ve used my inheritance to invest in property. I manage myself and my partner has 20 years in trades and compliance, and we’ve always been keen on this a business. I think it’s only really viable these days if you can add value, do it at scale and can be across everything enough to self manage. If I could only do one property, the numbers and effort just wouldn’t be of any benefit).
Minus capital gains tax...
Yeah. Obviously. .........
I have property. And my advice would be invest if a tracker fund and max out your ISA allowance each year. This gives tax free income from the ISA. Property is a risk and I wouldn’t advise investing in it now.
Thanks. This is what I’m leaning towards. It’s hard to let go of the idea of property - it’s truly an interest and passion of mine and having a B2L has long been my ambition. Now i have the cash and it’s a potential reality it’s hard to let go of the dream!
If you can’t do it all cash then I’d avoid as your expected margin is way too tight. Do something else. You’re literally better off buying gold
In the last couple of years we have started using OpenRent and doing it ourselves instead of using an agent. We’ve used 3 agents over 10 years all were as bad as each other. It really isn’t that much hard work. And if you’re doing it yourself you get to meet and choose the tenants yourself. The agents won’t care who it is. Think the fee is £70 and £20 a for reference. We get Rent guarantee insurance with them too at £200 per year.
You also can do your own self assessment (i assume that’s what annual accounting fees are), it really isn’t that hard.
£100 a month maintenance seems fine. There are also home care packages you can get that will cover a bunch of issues… more than just heating and these are around £30 a month. The reviews will vary but I’ve always found them good if you’re not using an agent and you don’t have trade contacts. And gives more peace of mind.
You’ll have to pay tax on any income you receive so remember to factor that in.
You’ll also need to get a gas safety certificate every year (£60) and you should get the boiler serviced (£60). Every 5 year you need an electric inspection (£165) and EPC every 10 years (£70).
It’s worth looking into whether it makes more sense to start a limited company and purchase the house via it.
Put a spreadsheet together with all the figures for the next 20 years. Adding 3% each year for inflation. Of course it won’t be exact but will give you a good idea of what to expect. Create different scenarios with interest rates and house prices using historical data so you can see best / worst / realistic positions you might end up in.
Do the same for other investments you could make. And see what you’re more comfortable with. S&P 500 would be a lot less work.
You’ll get a lot of doom and gloom from people if you mention this idea but it’s a solid investment if the numbers add up. Remember if you only break even most years and the house prices increase your equity is still going up. Also remember you’re going to have to pay capital gains on any profit if you sell.
All the best
Thanks for the detail - really appreciate this. My plan was to start with an accountant and agent for a year or two, to ease myself in and make sure I’m compliant, and then to start doing this stuff myself, saving the £150PCM ish it’ll come to.
It’s about doable from my calculations but then when I consider tax on the small profit and CGT when it comes to selling (plus any stress along the way!) I fall back to the idea of stocks and shares.
The figures are about right however as long as it wipes its own face and there’s a little each month in the slush fund that’s all good you’ll be banking on capital appreciation. That’s of course if you have good tenants otherwise it is a nightmare.
On an interest-only mortgage, you’re really just banking on appreciation. That’s not necessarily bad, but it means the investment is tied to the market, not the rent. I’d only do it if you’re comfortable basically parking your money for growth rather than chasing monthly income.
Thanks got the reply
New legislation is about to drop making being a landlord a real headache. First off, what is the EPC rating on the house? it needs to be a C or you cannot rent it out by 2030, unless you spend to make it a C rating
Absolutely. But not necessarily for you personally. Do you have or do you intend to have kids of your own someday? Once this place is paid off, and presumably the family home too, you'll have built some generational wealth that ok, maybe you don't get rich off of, but your kids will always have that safety net, and a place of good credit to launch businesses from. In 3 generations your family if they run things right could be millionaires. This is in a time where the trend is that middle class folks are either getting properly rich or poor, the middle class of comfortably well off people are disappearing, losing property, becoming genuinely poor in 2 generations. If you can live frugally and build that wealth your descendants won't be among those falling into poverty.
Thanks but I’m looking at interest only mortgage so sadly it will never be ‘paid off’. I think your point still stands with the idea of the property price increase over a generation, but I’m concerned it’ll cost money until then
If you only pay interest then your only profit selling it is the increase in the property's price - while all other property is also increasing in price. It's risky because if the property bubble bursts you can be left with negative equity - the property's worth less than the original principal, you paid off all that interest, you're still owing the principle, but the house value no longer covers it.
I'm on an interest only mortgage for my own home, but all the while we've been paying interest we've also been paying into a fund for when the principal is due, at the end of the mortgage in 2 years from now. We're confident that we'll have enough. I can't wait, personally: for a few years we'll have no more mortgage to pay & a decent income still coming in, plus the rent on my parents' old place. I'm hoping we can put together enough of a fund from the rent that together with the house, when I die my kids will be alright no matter what.
Stick in an ISA or GIA.
If you want property exposure then buy a property ETF.
I would look into property sourcers, take your time.
My new deal i accepted today is £50,000 purchase price, no work needs done, its worth £65,000/£70,000.
I will refiance this in 6 months time after purchase date, and pull out most of my money.
rent will be £650. cashflow £400-£450 (i'll manage it myself)
dont get me wrong, this is Scotland, so the deals are so good up here)
How do sources find these deals below market value? It sounds too good to be true?!
Buy 2 properties in the north east for below the stamp duty threshold of 40k...they rent out for at least £400 pcm each. No mortgage, no stamp duty. Manage them yourself.
Have you added in the second property stamp duty costs as well?