Accidental Landlord Twice – needs experienced help please

by Readers Question

11:22 AM, 26th January 2014
About 7 years ago

Accidental Landlord Twice – needs experienced help please

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Accidental Landlord Twice – needs experienced help please

Hello everyone, I need advice as a Buy To Let novice

I am what might be called an accidental landlord. I was living in a flat I had purchased and then I bought another flat in another town as I was due to be moving there with my job. I did not move there in the end and subsequently I let that property out.

The property I was living in I have also let out as I ended up moving somewhere else (again work).

This is all good and well but the problem I have is that the two properties are not making money for the following reasons:
The first one I was a complete novice and let the property to a friend for well below the market rate (this will be sorted later this year when they are due to move and I can adjust the rent). I must add that I am breaking even on this one.
The second property (my old home) is not what I would call a great rental property because I bought it to live in and had no plan to let it. I am just glad that I am not losing money on it and am also breaking even on this one.

I now want to build a portfolio of properties but I need to know what I must do next. I am slowly building up a cash reserve as suggested by Mark Alexander and others.

1. Should I go see an accountant now and set up a business? If so, what type would be best for a landlord and is there anything I should be wary of?
2. Should I try and reduce the mortgage on the second property to get it to the point where it is generating cash flow or just let it keep ticking over? I don’t want to sell it just yet because the value has not gone up yet but it is a new build and there are very big plans for the entire area.

Any advice would be greatly appreciated

Davidaccidental


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Comments

Neil Patterson

11:35 AM, 26th January 2014
About 7 years ago

Hi David,

My first comments:

1. I personally think you can't go wrong employing a good accountant, but I think you are questioning whether to set up a limited company to build your portfolio. This does have some tax advantages, but as we do not know all your personal and work circumstances only someone preferably an accountant can advise you on this. In most private landlords circumstances the disadvantages such as difficulty in finding BTL finance out way the advantages but please do not misconstrue this as qualified insured advice please see >> http://www.property118.com/landlord-tax/

2.Again this very much depends on your personal finances as we do not know if you can afford to subsidise the cashflow on your unintentional portfolio, or if the loans are interest only or repayment. Many landlords will advise not to pay down the mortgages and to see why try starting with Mark's series on how to become a Landlord >> http://www.property118.com/how-to-become-a-landlord/60765/

If you can answer some of the above that will assist greatly 🙂

11:59 AM, 26th January 2014
About 7 years ago

Hi David,

It's great that you got started by "accident", but its good to see that you realise that it is time to start putting your property business on a professional footing.

Most landlords buy in their own names as there is a far wider choice of mortgage products available for vanilla BTL to individuals.

Secondly, as Neil says, we do not know enough to advise.

My belief is that you need to get both these properties properly performing before buying anything else.

Did you get "consent to let" from your lenders, for instance?

Make sure your current house is in order before expanding is what I would suggest.

Howard Reuben CeMap CeRER

12:25 PM, 26th January 2014
About 7 years ago

Hello David

Both Neil and Vanessa have concisely made excellent points. In addition to getting insured tax advice, your BTL mortgages need to be properly advised upon too and of course my award-winning team of Advisers (http://www.property118.com/member/?id=314) would be happy to discuss your specific requirements as well.

You say "I now want to build a portfolio of properties" and so you'll need proper whole of market advice from a Broker who knows the BTL market and also the commercial finance market (eg specialist lenders who offer BTL mortgages for portfolio lending without maximum cap on either properties or finance limits) as only then will you be able to consider and determine the most appropriate way forward.

Hope this helps.

Howard

Gary Nock

12:26 PM, 26th January 2014
About 7 years ago

Hi David

As Neil and Vanessa say it is very much dependent on circumstances. But limited companies for BTL are really only advantageous when you are a big portfolio owner. And even then sometimes its not the best path. A good accountant can advise and also will claim all the relevant allowances. In terms of getting the existing properties performing. Its a matter of maximising income by way of rents and minimising expenses by way of mortgages, letting fees and insurances etc. High St agents are dearer than the online ones who do it cheaper and just as well if not better. And good luck.

David Sables

13:00 PM, 26th January 2014
About 7 years ago

First of all I would like to thank you all for taking the time reply and for the advice you have given.

Neil, I've gone through the Landlord Tax section and it's an eye opener to say the least, thank you. I will also look into getting an accountant that has experience dealing with BTL, it does make sense to go see one.

Vanessa, thank you for your advise, I think that securing my currant position by sorting out my cash flow is the way to go before trying to acquire any more. I did neglect to mention in my initial posting that my mortgages are not BTL mortgages as they were initially for me to live in, I did manage to secure consent to let though, I have heard that it can go very wrong if you don't.

Howard, I will be keeping your business details and once I have got my house in order and am ready to continue I will be getting in touch.

Gary, I think that getting my cash flow into better shape is going to come from the areas you highlighted. Getting better deals on insurances, mortgages, fees etc will hopefully make a big difference.

Again, thank you everyone for getting back so quickly and with such sensible advice, I really do appreciate it. I will passing on this sites details to a few friends who are also looking to BTL.

David

Mike W

13:11 PM, 26th January 2014
About 7 years ago

Hi David,

Sorry in advance. I'm going to be blunt.
So you got into buy to let by accident, the properties are not 'good' btl properties, you are not making any money (over how many years) in a benign market. And you appear to have no reserves for 'disaster' events, but are building a reserve from presumably your job. And you want to expand your 'business'.

What makes you think this is a good idea?

David Sables

13:25 PM, 26th January 2014
About 7 years ago

Reply to the comment left by "Mike W" at "26/01/2014 - 13:11":

That's fine Mike, I prefer it if people are direct.

The reason I posted on the forum was to get advice and not to say I had a good idea. I have been letting the first property for exactly a year and the second for eight months now. Due to the nature of my job I have been abroad for roughly half that time or I would have looked into sorting this out earlier.
I am building a reserve from my salary, which is probably not the quickest way. As a side note I was really interested in what Mark Alexander had to say about refinancing to release funds to hold in reserve.
Apart from that I am looking to expand, it will probably not be this year and maybe not the next but I am looking long term and am starting my preparations now.

I got into this unintentionally but now I want to do it professionally.

Regards
David

Neil Patterson

14:33 PM, 26th January 2014
About 7 years ago

Reply to the comment left by "David King" at "26/01/2014 - 13:25":

David,

It is fantastic that you ask now as there are so many people on P118 that can give you great advice.

A lot of people leave it too late and make all their own mistakes first before learning from others.

Having a normal residential mortgage instead of a BTL is one of the first things I would consider looking at if I were you. As permission to let can or probably will be withdrawn after a period of time so you need to start prepping yourself now.

75% is the industry average maximum LTV for BTL. There are others at 80% and even 85% but as the options are fewer you can't always rely on it being available.

If you LTV is higher than 75% then if the residential mortgage lenders want you to remortgage you may need to add capital yourself or be forced to sell. That is why you need to start considering this now.

If you ever need any help that involves too much personal detail publicly you can always email me offline 🙂

Gary Nock

15:37 PM, 26th January 2014
About 7 years ago

David I forgot to mention that as you have flats a proportion of your monthly outgoings can be taken up in service charges. You can get rid of high charging management companies to reduce this. Along with other outgoings as previously mentioned you increase your bottom line considerably. Pick your biggest monthly expenses and try and reduce them by 20%. See what a difference it can make. Being a landlord is both exciting and frustrating at the same time. In various degrees. None of us know it all but on this forum between us all we know a big chunk of it.

Jeremy Smith

16:07 PM, 26th January 2014
About 7 years ago

Hi David,

One thing that comes to mind is that, if/as interest rates rise, you do not want your properties being a drain on your earned income, they should stand on their own footings, so to speak, especially as interest rates are so low at the moment.
If you only break even now, you should do some calculations and see how much they will cost you when the BBRate (presently 0.5%) rises to, say, 1.5 or 2% in the future.
If you find you cannot make them pay, I should be asking WHY?, then I would seriously question whether to sell them/only keep them for a capital gain, etc. - and plan your exit route BEFORE all your spare cash gets used up !!
- Rents may rise, that's to be considered, but depends on the area.

They should be in a good state of repair and well decorated so you can ask the maximum possible rent, and I have always found the people who are willing to pay the most are also the people who seem to respect and look after your property the most too.!

If you spent some money on them and made a 'loss' from renting in this tax year, it would be offsett-able from your other income and you would be able to reclaim some tax, but you should also keep an eye on your cash reserves, as Mark has excellently explained in his 'tutorials'
NOTE: - I am not a tax adviser, I give my opinion only !

Good Luck with them, it is a great feeling when you put in effort to get your properties up to a good standard and people look after them !

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