[Finance] Buy to Lets

Super Steve Earle · Mar 5, 2022

Any Buy to Letters on here? I have a friend about to buy a new home for himself and family. He intends to keep his previous apartment as an investment to supplement his pension in about 25 years time WW3 permitting. The mortgage gets switched to a Consent to Let and with rental income will only wash it's face for the first few years as he plans to keep it on a Capital and Interest mortgage. Hopefully any increase in value and decrease in mortgage will make it worthwhile. He's a newbie to BTL though and not much advice I can offer. Looks like a minefield. Anyone else tried this and succeeded or failed? Maybe know a good tax accountant in that field?

southstandandy · Mar 5, 2022

Not from the BTL perspective. Years ago we bought half a dozen properties over a number of years which were in desperate need of renovation, did the work ourselves and sold on for a healthy profit. I think the rental issues now are far more convoluted than they once were, but it can still work if you're buying in the right area where demand is high.

HantsSeagull · Mar 5, 2022

just need to be wary that he can only offset the interest payments (rather the capital repayments) against the rental income and then only at 20% and so it might not wash its face as much he hopes.

any half decent accountant should be able to advise. but i use cardens.

HantsSeagull · Mar 5, 2022

also when the current mortgage deal finishes he will have to change it to a buy to let mortgage, which wont be as cheap.

Live by the sea · Mar 5, 2022

Be careful of buying flats in purpose built blocks especially blocks built in the 60’s & 70’s . Over the med to long term they seem to increase the least in value .

houses in central areas even small ones have performed the best over the last 10 years certainly in Brighton / Hove - not sure if that’s the same out in the sticks .

Surport Local Team · Mar 5, 2022

Super Steve Earle said:
Any Buy to Letters on here? I have a friend about to buy a new home for himself and family. He intends to keep his previous apartment as an investment to supplement his pension in about 25 years time WW3 permitting. The mortgage gets switched to a Consent to Let and with rental income will only wash it's face for the first few years as he plans to keep it on a Capital and Interest mortgage. Hopefully any increase in value and decrease in mortgage will make it worthwhile. He's a newbie to BTL though and not much advice I can offer. Looks like a minefield. Anyone else tried this and succeeded or failed? Maybe know a good tax accountant in that field?

Loads of really good advice and threads on all subject on a website called property tribes
https://www.propertytribes.com/

The Mole · Mar 5, 2022

It is a lot of work- you need access to a good sparky, plumber, decorator in the area because tenants won’t treat the property as your own.

New regulations keep coming in which are of little use to tenants a pain to landlords but great for bureaucrats.

As has been mentioned the tax offsets on costs such as mortgages are always being cut.tax returns are a bit trickier.

Do your projected income on about 80% occupancy especially if you expect one year leases

So, it does provide a good income but it’s nowhere as good as people make out.

Comrade Sam · Mar 5, 2022

The 20% on interest will depend on whether you are low income. There is no point paying the capital as the profit on a future sale is little affected, especially with the current low interest mortgages. Make sure you can manage the property as agents can sting you for fees and hire expensive trades. They can also lumber you with tie ins when finding new tenants. Be wary of service charge in lease hold properties. Also let unfurnished is less of a faff. Also get creative on your accountancy, you need to pass off all your domestic work onto the rental property to minimise tax, such as boilers and washing machines.

mwrpoole · Mar 5, 2022

I’ve been letting my old house out for about 15 years. In that time it’s been empty for 2 weeks.

You need to find good letting agents. Mine take 10% but it’s worth it, the tenants they find have always been decent and left the property in decent state. They have to have excellent references to pass the tests. The letting fees come off your net profit.

My top tip would be to employ someone to do a professional check in/check out. It will cost about £150. But they produced a 50 page document for a 2 bed house covering every nook & cranny, loads of photo’s etc so if they was ever any issues you’d have the proof of how it was handed over. Only ever had 1 problem tenant who basically said he had to leave quickly, gave a months notice but said he wouldn’t have time to clean up etc. Because of the proof I had I was able to keep his £1500 deposit to pay for the clean up. He got about £300 back in the end. If I didn’t have the proof he’d been able to say that’s how it was handed over.

As a landlord you have to get a gas safety certificate every 12 months. I have a boiler service & gas safety check done together for about £120. You now also have to have electrical safety check every 5 years, cost me £80 last year.

mikeyjh · Mar 5, 2022

The Mole said:
It is a lot of work- you need access to a good sparky, plumber, decorator in the area because tenants won’t treat the property as your own.

New regulations keep coming in which are of little use to tenants a pain to landlords but great for bureaucrats.

As has been mentioned the tax offsets on costs such as mortgages are always being cut.tax returns are a bit trickier.

Do your projected income on about 80% occupancy especially if you expect one year leases

So, it does provide a good income but it’s nowhere as good as people make out.

Much of this - I find a good handyman is a god send, some tenants are better than others but there's always going to be bits and bobs. Some will baulk at using agents but remember they stay on top of the multitude of regulations that you need to be aware of (EICR, Gas Safe, EPC etc etc), they'll manage referencing, contracts, deposit schemes, disputes (they will happen).

If the expected rent is only going to wash it's face then they should expect to lose money on month by month basis and there will still be tax to pay if there's any 'profit' pre mortgage costs - As an example, we allow 15% contingency for maintenance and renovation on our houses.

Take care in thinking about the ideal tenant profile - You may find that someone in their early 20s, for instance, doesn't have the life skills that someone in their 40s may have, they're likely to be putting washing on rads, taping over vents and then complaining when there's mould (so I'm told :dunky:

)

As implied in the post above, it's hard work to make it pay. Oh, and be a good landlord, look after your tenants.

B-right-on · Mar 5, 2022

HantsSeagull said:
just need to be wary that he can only offset the interest payments (rather the capital repayments) against the rental income and then only at 20% and so it might not wash its face as much he hopes.

any half decent accountant should be able to advise. but i use cardens.

Per my recall, the Govt are doing away with 'interest' being tax deductible. They're dropping the % claimable over a few tax years.

We've had a couple of BTLs for years. Had good tenants which have been great and some nightmares. One we lost £10,000+ in unpaid rent, damages and legal fees to evict the 'poor tenant being put upon by the nasty landlord'. They get all the free legal aid, don't pay rent damage the house and leave it as a right shithole which I have to pay to fix.

Shropshire Seagull · Mar 5, 2022

B-right-on said:
Per my recall, the Govt are doing away with 'interest' being tax deductible. They're dropping the % claimable over a few tax years.

We've had a couple of BTLs for years. Had good tenants which have been great and some nightmares. One we lost £10,000+ in unpaid rent, damages and legal fees to evict the 'poor tenant being put upon by the nasty landlord'. They get all the free legal aid, don't pay rent damage the house and leave it as a right shithole which I have to pay to fix.

Yes, no longer tax-deductible. Stated B2L in 2002 and off-loaded my last one in 2019 and one of the [many] main reasons for getting out was the phased removal of mortgage interest against rental income [to reduce income tax exposure].

If you move out of your main place of residence, but keep it to rent out, you MUST inform your mortgage lender. They will then convert your home-buyers mortgage to a "Let to Buy" - well that was the case back in 2002 when I left Sussex but kept my house and rented it [may have changed now so do your research].

The benefits vs risk of being a landlord have been significantly eroded over the last 10 years to the point where IMHO it just ain't worth the hassle.

If you're serious, then going down the limited company route for property lettings seems to be gaining in favour ....

B-right-on · Mar 5, 2022

Shropshire Seagull said:
Yes, no longer tax-deductible. Stated B2L in 2002 and off-loaded my last one in 2019 and one of the [many] main reasons for getting out was the phased removal of mortgage interest against rental income [to reduce income tax exposure].

If you move out of your main place of residence, but keep it to rent out, you MUST inform your mortgage lender. They will then convert your home-buyers mortgage to a "Let to Buy" - well that was the case back in 2002 when I left Sussex but kept my house and rented it [may have changed now so do your research].

The benefits vs risk of being a landlord have been significantly eroded over the last 10 years to the point where IMHO it just ain't worth the hassle.

If you're serious, then going down the limited company route for property lettings seems to be gaining in favour ....

Thanks, that is what I thought. I agree, the Govt have done everything to get rid of the 'buy to let' market', which arguably is a good thing, per some. Except for those who rent, will only ever rent and never own their own homes, they are suffering from a lack of homes as landlords are increasingly getting out of the property market and lack of supply of rental properties pushing the rent prices up.

The only ones coming good in this are those super rich who own multi properties over many years and are not financed so its a lovely cash cow.

jcdenton08 · Mar 5, 2022

Once when I was a naughty youth, I drunkenly added an "i" to a To Let sign, amusingly making it read "toilet", thus changing the meaning of the sign. How we laughed.

Seagull58 · Mar 5, 2022

Super Steve Earle said:
Any Buy to Letters on here? I have a friend about to buy a new home for himself and family. He intends to keep his previous apartment as an investment to supplement his pension in about 25 years time WW3 permitting. The mortgage gets switched to a Consent to Let and with rental income will only wash it's face for the first few years as he plans to keep it on a Capital and Interest mortgage. Hopefully any increase in value and decrease in mortgage will make it worthwhile. He's a newbie to BTL though and not much advice I can offer. Looks like a minefield. Anyone else tried this and succeeded or failed? Maybe know a good tax accountant in that field?

I've been renting out my old 2 bedroomed terraced house for 12 years. The agent does everything and charges me 8%. It's only been empty for 3 weeks when a tenant did a midnight runner and wouldn't answer the phone for a week. We got another tenant in before the end of the month and made a small profit on the change. I don't have a mortgage on the property though and I would say this is the worst possible time to go into BTL. Interest rates will be going up and tax relief is no longer there.

HantsSeagull · Mar 5, 2022

B-right-on said:
Per my recall, the Govt are doing away with 'interest' being tax deductible. They're dropping the % claimable over a few tax years.

We've had a couple of BTLs for years. Had good tenants which have been great and some nightmares. One we lost £10,000+ in unpaid rent, damages and legal fees to evict the 'poor tenant being put upon by the nasty landlord'. They get all the free legal aid, don't pay rent damage the house and leave it as a right shithole which I have to pay to fix.

they did away with your ability to claim 40% relief on the interest costs over a period of years if you were higher rate payer

nwgull · Mar 5, 2022

Super Steve Earle said:
Any Buy to Letters on here? I have a friend about to buy a new home for himself and family. He intends to keep his previous apartment as an investment to supplement his pension in about 25 years time WW3 permitting. The mortgage gets switched to a Consent to Let and with rental income will only wash it's face for the first few years as he plans to keep it on a Capital and Interest mortgage. Hopefully any increase in value and decrease in mortgage will make it worthwhile. He's a newbie to BTL though and not much advice I can offer. Looks like a minefield. Anyone else tried this and succeeded or failed? Maybe know a good tax accountant in that field?

I did the exact same thing as your mate is planing on doing, but found it more hassle than the extra money was worth after a couple of tenants. If he really did want to supplement his pension, his best bet would be to sell the apartment and plough the money into a pension and take advantage of the tax relief claimable on this payment.

Herr Tubthumper · Mar 5, 2022

B2L is a lot harder to make work these days, only the owner will know if his figures stack up or not.

I imagine the consent to let is only temporary, this will need to be changed to a B2L mortgage which is more expensive.

And if the numbers do stack up, a dodgy tenant can blow a big hole in your finances; like [MENTION=32905]B-right-on[/MENTION] I had a bad tenants which cost me a lot in legal fees and some lost rent. Generally, tenants have been excellent but it only needs one to screw your finances.

And be nice and understanding to your tenants and keep them onside, aside from being the right thing it pays in the long run.

Pavilionaire · Mar 5, 2022

Comrade Sam said:
Also get creative on your accountancy, you need to pass off all your domestic work onto the rental property to minimise tax, such as boilers and washing machines.

As an accountant I strongly advise landlords don't do this, mainly because it is illegal.

Secondly, there is a lot of people unclear about tax relief on mortgage interest. You do get tax relief - at 20%. So if you pay £3,000 a year interest the relief will reduce your tax bill by £600.

LANGDON SEAGULL · Mar 5, 2022

I’ve B2L for 7 years. Lived in the property for 14 years before that so had to change mortgage status. Letting agency does everything for 10% and had two good tenants so far (vital if you live 90 minutes away - only had to pop back four times )

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