I have been told Buy to Let is a Win Win – is this true?

by Readers Question

11:18 AM, 1st February 2017
About 2 years ago

I have been told Buy to Let is a Win Win – is this true?

Make Text Bigger
I have been told Buy to Let is a Win Win – is this true?

I’m here for some advice. As a family we are downsizing our house from £580,000 to around £300,000 and looking to invest the remaining sum in property to have some rental income. win win

I read a book about Buy to Let properties and it looks like a win win situation, you pay a small amount of interest to the bank and with the remaining rent income you can live quite comfortably while the equity continues to grow over the years. I am aware the property is not yours in the end, but you have gained money from rent and the equity.

Many people are advising against Buy to Let but can’t give me any solid reasons.

Can any of you advise me on the best thing to do with the remaining £280,000 It would be nice to have £3000-£4000 or more as a return every month

Thanks guys

Tom



Comments

Neil Patterson

11:24 AM, 1st February 2017
About 2 years ago

Hi Tom,

From the sum total of what you have told us about the book it sounds like simplistic nonsense, but at least you are now on the right website 🙂

You need to start investigating the following using the Help Tabs in Orange at the top and the Article searches to the right.

The Deregulation Act
Section 24 mortgage interest relief reduction
Your income tax implications
CGT
IHT
type in "Newbie" in the article search
Use the site Navigation Tools
And read as much on here about every subject as you can.

Your questions may then be narrowed down to something a bit more specific and bite size that we can all help you with 🙂

Richard U

11:30 AM, 1st February 2017
About 2 years ago

Tom, it's true as long as you factor in repairs, cost of your time, have no eviction issues, can find the right property that delivers a strong yield, the property market continues to increase, you do your accounts properly, you manage your costs, you get the right legal contracts in place, you reduce rental voids and you have good tenants. If you want a simple low-work investment. Buy some bonds.

Thom Hill

13:16 PM, 1st February 2017
About 2 years ago

I agree, it would be nice to have a £50k payrise and not actually have to do any extra work. There's that adage about things that are too good to be true.

Why don't you use that £280k to open a local cafe? The reasons are obvious I suppose; (a) there is an enormous amount of regulatory and legal stuff to navigate, research and reading to do, costs to pay and thought/planning you need to put in before you event start, (b) even once you get going, its going to be a lot of graft and headache - probably more or less full time job to keep the place running and (c) you could easily end up losing money on the whole thing or making such a small amount that the business isn't viable.

Same is true of becoming a landlord; just in different ways.

Luk Udav

14:31 PM, 1st February 2017
About 2 years ago

It would be lovely to have a 13% return (at £3K per month). I would dump the book in the nearest skip.

Old Mrs Landlord

15:14 PM, 1st February 2017
About 2 years ago

Also worth mentioning that the "small amount of interest" currently being paid by some borrowers is an aberration which is unlikely to last. Try factoring in what happens to interest-only mortgages when rates increase (as well as all the things already mentioned by others).

Mark Alexander

8:16 AM, 2nd February 2017
About 2 years ago

Excellent thread!

You may also with to visit the Advice page and related articles via our website Navigation.
.

JohnCaversham

10:22 AM, 2nd February 2017
About 2 years ago

Oh dear, have you been hanging out with Arm Glenstrong or Property Progress??

Us LL's are currently being hammered under an incoming new crazy punitive tax regime that taxes on turnover NOT profit plus new and draconian regulation as stated by others, do your research very carefully and seek good advice from an accountant who is ALSO a landlord!

That's not say that there can't be a good passive income to be had, but it really does now depend on any other PAYE income you may have together with your level of borrowing (gearing), but be wary of the hype offered by those (above in my first line) who pedal courses and proclaim to have all the answers and paint a pretty picture of being a landlord, the reality is very different now in an ever changing HMRC tightening landlord hating climate..Ah, i feel better now!

Karl Stewart

10:29 AM, 2nd February 2017
About 2 years ago

Hi Tom,

it is possible to achieve the returns you mention with the right strategy ,with patience,and buying the right property and recycling your deposits etc etc etc.

We have property in the North that is paying a 17% yield and this is after we have recycled about 40% of the set up and refurb costs.

Annie Landlord

12:38 PM, 2nd February 2017
About 2 years ago

To avoid the Clause 24 nonsense you need to be mortgage free. So buy outright - one property, or two or three (depending on where they are) and you get to keep all the rent bar tax, insurance, repairs, management costs etc
You're in a very privileged position to have that much cash to play with so do lots of research before committing to anything. You will make a decent income from rental properties if you're careful, but contrary to the picture painted in the media, it isn't a hands off investment - its quite a labour intensive business. Join one of the landlords associations (around £80pa) to gain access to lots of online information and document templates such as tenant application forms, tenancy agreements and inventories.

Heather G.

12:49 PM, 2nd February 2017
About 2 years ago

Hi Tom,

Whoever said you could make £3K - £4K profit per month sounds like a charletan! As mentioned above, research, research and research some more! If you are in the lowest tax bracket and the rental income doesn't push you into the next tax bracket, the s24 changes shouldn't affect you, especially if you're not highly geared. Think about how much time do you have/want to spend on this investment and work out which investment strategy suits you and your circumstances - there are loads of ways to invest in property.

I did a couple of quick calculations for you to give you an idea of what you could do in property for around £280K.
£600K purchase price
£240K deposit (@ 40%) - therefore £360K mortgage)
£ 38K Stamp Duty
£ 10K Rough costs (assuming it doesn't need a big refurb)
£288K TOTAL OUTLAY (approx)

For the mortgage calculation stress test of 5.5% you would need to be able to get a minimum of £1,650 pm rent on said property.
If you could get a BTL mortgage at say 3%, you'd be paying £10.8K pa interest (£900pm), plus Landlord licence (if applicable), costs for voids (including all services), gas & electric certs, agengy fees, insurance etc. So, potentially you could make a gross profit of £750pm then take off your costs to get your Net Cashflow figure.

You don't say what area you're looking in but from what I understand, up north you can get an ROI of over 10% but in London & the South East, you'd be doing well to get 5% ROI, but the capital growth is stronger/more stable here.

I think most people would agree that property investment can be great if you have a passion for it and are willing to do your due diligence.

Best of luck.

1 2 3

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

And the landlord vote goes to - ?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More