Advice starting out as a BTL Landlord

by Readers Question

4 years ago

Advice starting out as a BTL Landlord

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Advice starting out as a BTL Landlord

My wife and I have been considering starting with BTL for quite some time with the aim of building a small portfolio to supplement / provide an income when we retire. We are in our late 40’s, and for most of my working life I have worked for firms that do not provide a company pension scheme – and we want to provide for our retirement before it’s too late. Advice starting out as a BTL Landlord

For various reasons have never dipped our toes in the water – and part of me thinks we may have left starting too late (property prices have never been more expensive) … but then again, when really is the right time to start?

We are looking for capital growth over time rather than immediate cash flow (yield?). Is it true that, on average, property prices double every 10 years?

We have been given opposing advice regarding how we structure our BTL “business”. On the one hand, we’ve been told we should buy and let the properties in our own names and not use a limited company. We’ve been told that getting finance, tax benefits, etc. are better as individuals.

On the other hand, we’d like to have something to leave our children without the taxman taking the majority of it in inheritance tax. It’s been suggested that we structure our BTL business through a limited company. We would obviously still have to stand as guarantors for the mortgages, etc., but as we retire we could continue to collect an income / dividends as directors or “letting managers”. It was also suggested that we could include our children as shareholders, increasing their percentage as we got older, so that when the inevitable happened, our children would continue to own the company and its assets.

However, we were also told that if we started as individuals and then changed to a limited company later on (or vice versa), it would be difficult and expensive to restructure the debts / mortgages, and any tax implications.

We would appreciate knowing the opinions of those of you who have been in the same position, and also the advice from any professionals.

Thanks in advance for any advice you can give us.

Jon



Comments

Mark Alexander

4 years ago

Hi Jon

There is no one size fits all in BTL.

Here are some saying I like and I hope they will make you think .....

1) Today a man sits in the shade of a tree he planted many years ago.

2) Best time to plant a tree is 25 years ago, second best time is today

I have documented my strategies and learning experiences over 25 years of being a landlords here >>> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/

A journey of a thousand miles begins with a single step.

Good luck and I hope you enjoy your journey as much as the destination 🙂
.

John MacAlevey

4 years ago

Jon,

Whereabouts are you based or specifically, where do you want to invest?
Maybe I can help you.

John MacAlevey IcA 27.5.14

Devon Landlord

4 years ago

Jon, you have made a sound move by asking advice now before you start. The best advice I can give you is to join a Landlord Association now even before you start out in the business. A good association will provide help and guidance and possibly a mentor with years of experience to assist you. Find a local association if you can, not a big National one even though they are good in their own way. Local ones provide a better insight and many are run 'Not for Profit' so the people who do so run it because they want to help make a difference to their fellow landlords. Also they tend to charge less and offer just as much. Another piece of good advice is to follow Property 118 and the comments made by other landlords. I notice that some commentators are trying to use the vehicle as a means of gathering business. Well, good luck to them but join an association FIRST and attend some of their meetings and talk to existing members for free.

Best of luck with what you intend to do as it is both a rewarding and a frustrating business.

Devon Landlord.

Anthony Endsor

4 years ago

As a BTL Landlord myself, let me tell you some of the mistakes I have made, to help you avoid them.
My BTL business started almost by accident, as I had equity in my residential so I remortgaged it and used the money to get started. This was mainly because I had seen a property I wanted to live in, and this was the only way I could afford it.
FIRST MISTAKE.
I remortgaged at the top of the market, in late 2007, thinking the only way was up for property prices and I'd better get started quick. Consequently I paid what turned out to be way over the odds for both my residential and then my first BTL.
So my advice is to check house price trends in the area you invest in, and make sure the price you pay is lower than the average over the years. Prices may be going up now, but if you pay the higher price of the moment, prices could easily crash again.
SECOND MISTAKE.
I bought a 'good' property in a troublesome area. Consequently the property soon got destroyed by vandals, burglars, even some neighbours. I would much rather have bought a property that needed a lot of work, but was in a good area so that once it was done it would work well. So I do advise you to be careful about location, etc.
THIRD MISTAKE.
In my early days I used to take on tenants who I sourced myself, rather than go to an agent. Nothing wrong with this in itself, but I trusted some of them a bit too much. I used to take them on without doing proper referencing checks. Consequently, I had one who turned my property into a 'cannabis factory'. Thankfully didn't do as much damage as they might have done, but still a horrendous mess to clear up before it could be re-let. I then had another who I became good 'friends' with. This was a big mistake also as they talked me into getting a lower rent and even changing payment dates in their favour, supposedly in return for doing jobs in the house. It turned out those 'jobs' were actually not good at all. They converted the loft, illegally without planning permission, they changed all the carpets, destroying the fireplace in the living room in the process, they made a mess in the garden which resulted in the neighbours complaining and the Council threatening a big fine, and generally they have made a mess of the property inside and out. So my advice is, ALWAYS do referencing checks on tenants. You can do it yourself, or you can get an agent to do it. And keep your tenants at arms length. Don't befriend them. For this reason it's probably a good idea to have a bit of distance between where you live, and your nearest BTL property. Even if your neighbours offer their house to you on the cheap because they are moving to Australia and need to sell tomorrow, it's not the best idea to buy it to let out, as you will then be neighbours with your tenants, which sounds nice until you see what happened to me.
FOURTH MISTAKE.
I never took RGI on one of my properties. This was a Housing Benefit tenant and I had to wait months before I got any rent from the property. The tenant came up with allsorts of excuses and didn't even pay a deposit. I ended up losing thousands in unpaid rent.
So always take RGI, and be especially careful with Housing Benefit tenants. Most Private Sector Landlords avoid them these days, and I now know why!

And finally.............GOOD LUCK!!!!!!!!!

4 years ago

Dear Jon,

The only time any of us have to get involved in property is "now".

My "now" happened to be 11 years ago.

You cannot buy property in the past, and you cannot buy property in the future, so you only have today to buy.

In other words, take action!

The lights will never all be on green.

You have to take action and then fine-tune your business as you go along, based on your experience.

If you buy a property in an area of high tenant demand where the deal stacks, and manage it effectively, that is about as low risk as you can get.

Become an expert on due diligence. Understand your potential investment from every angle.

Capital growth over time is completely unknown. No one should base a business on what they DON'T know.

So my advice is to focus on cash flow and benefit from any capital growth as a bonus. Capital growth is NOT guaranteed, but cash flow - actual money in your pocket - IS.

Getting finance in your own names will be a lot simpler and give you access to better products.

My advice is create the problem first i.e. a tax issue because you have made so much money, and then find a way to solve it by asking the right person.

It's very common to hear people worrying about problems that don't yet exist, and this stops them moving forwards.

Create the problem first is my advice. Having made a lot of money through property is a nice problem to have. 🙂

I have written a guide: How to get started in BTL ... in 10 easy steps specifically to help people take small steps that will lead to a tangible result

http://www.propertytribes.com/how-get-started-btl-10-easy-steps-t-8255.html

@Anthony

You have certainly had a rocky ride and it is generous of you to share your experiences to help others avoid the pitfalls.

I do not subscribe to the Kirsty and Phil mantra - Location! Location! Location!

It's not enough for investment property purposes where you are investing money to achieve a return on that investment.

My mantra is Due diligence! Due diligence! Due Diligence!

Becoming an expert at due diligence stops people from making the mistakes you made, all of which could have been avoided by understanding what makes a good property deal and how to source a good tenant.

With regards to RGI for LHA tenants - there is no such product to my knowledge.

There are good and bad tenants from both private and LHA sectors and its worth remembering that a private tenant is only a P45 away from becoming an LHA tenant, as my dear friend Mary Latham often says.

Good tenant referencing and screening is absolutely vital as the best way never to experience a bad tenant is never to allow one into your property in the first place.

The informed and educated landlord who invests time in understanding how to do due diligence is the landlord who will survive long term and enjoy a successful and relatively hassle-free landlord life.

Rob Crawford

4 years ago

If I can't achieve a good monthly rental income as well as capital growth then I don't buy. Long term Capital growth is speculative and I believe landlords may suffer more in the future with HMRC and Government clamping down on previously enjoyed revenues achieved through buy-to-let. Selling at the right time is key but how can this be forecast? I am also looking at how to reduce income and inheritance tax. Your solution will depend a lot on your personal position, age of children, life expectancy, annual earnings etc. Your situation will be changing throughout the term of your property business as will mortgage interest rates etc. So I commend you for asking the question but there is no way anyone can answer for you. This forum is a good start but talk face-to-face with accountants / solicitors / mortgage provider / other landlords before you take the jumps. Do the same routinely during the term of your business. Some good marketing analysis (PEST/SWOT) is a good start and remember - location, location, location! Good luck.

Devon Landlord

4 years ago

Hi Jon,

I agree that now is a good time to get into the BTL market. Some properties are still good value for money and achieve a good yield, but it is understanding all the aspects of running the business that makes some landlords successful and others a nightmare both for themselves and their tenants. I can't stress the need to get good advice from an association and any mentoring they can provide, as these people will have years of valuable experience, and by offering themselves to do mentoring are willing to share their experience and give you some of their valuable time for free.

The best advice has been echoed elsewhere but prepare well before you take the plunge as it can be very costly if you get it wrong. have a clear business plan and before you buy choose your area, investigate it thoroughly and get to know the types of property available and what the going rate is for costs and rental income. Once you have done that get some support and training from your association (I assume you have been wise enough to join one at this stage) before you dive in. You seem to be in a good position as you are not an 'accidental landlord' and you still have time to prepare well before you start. It could save you thousands and make you more thousands if you do it wisely.

Devon Landlord.

Neil Robb

4 years ago

Hi

With changes to the way we can get mortgages and how many we can have from each lender these day it is important to work out what you want Ie (how many) and how best to get them.

Do both you and your wife work do you both earn £25,000 not always a prerequisite for all mortgage lenders but is for most buy to lets. Birmingham Midshires have no income required as long as the deal stacks up.

Your are allowed only three mortgages from most mortgage lenders group so any lender that say belongs to RBS then they can give you three joint mortgages. It is better to buy them in each your name or the wife. This means you can have 6 with each group.

Although there is lenders out there that will let you have 10 mortgages.

If one of you do not work and the other does if you can buy a property without a mortgage then put that into the none worker name and use there tax allowance.

It is possible to then to sell between husband and wife and not pay capital gains tax. this is something Mark Alexander taught me through this forum. I have been able to buy a property cash wait six months sell it to the wife bring all my money back out and purchase some more.

Everyone makes mistakes even with advice. It is important that you do not take everything to heart as with all businesses you have problems buy to let no different.

Yes people sometimes don't pay rent. Deal quickly and promptly and cut your losses quickly. Some people do lie but most are genuine and like all of us do fall on hard times. so don't let it build up into an unmanageable problem.

Property will get damaged there is a difference between fair wear and tear than deliberate damage.

Tenants seem to have more rights than landlords. If the land lord runs his properties professionally then they should be ok.

Tenants will agree to anything to get a place but once they have what they want they can change. Most are great tenants.

Always ensure all certificates are in place Insurance (correct amount and landlord), Gas and electric certificates annual checks.

Tenants deposit scheme make a point in fully understanding this to avoid penalties I have a tenant who left a year ago now trying to take action because someone has told him things that are not correct. This takes time to sort out. If the tenant had told him the whole story I am sure the advice given would have been different.

Always deal with tenants request for repairs as it is your property. Good communication with the tenant is important so they no they are not being ignored always be polite.
There are some tenants who wont report things until a small repair becomes a big one this can be costly.

I hope this helps and regardless what you chose to do there is risk with all investments. At least with property you can see it. How many have put money into funds and schemes even with reputable companies that have gone wrong.

I am sure they are more experienced people on this forum than I but I just wanted to be helpful. Good luck with your buy to let future.

Steve Elliot

4 years ago

Reply to the comment left by "Anthony Endsor" at "27/05/2014 - 22:12":

Wonderful and very insightful advice! A must heed!

Jon Harris

4 years ago

Wow ... what a great response from everyone, and some wonderful advice. Thanks - it's certainly given us a lot to think about before we dive in.


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