Passive Income

[Eleven]

Sideways Rich said:

Should have added I'm a Scot born 10 miles away from Glasgow so wasn't being a snob, just aware you can pick up flats there very cheaply that rent for £3-400 per month.

And get legals, repaint and carpets done for £1000. I am assuming that Scotland still uses sterling and will be procuring law, paint and shag pile north of the border from now on.

[BoRED S2upid]

Eleven said:

And get legals, repaint and carpets done for £1000. I am assuming that Scotland still uses sterling and will be procuring law, paint and shag pile north of the border from now on.

I imagine these flats aren't big carpet 2 rooms with cheap carpet two tins of paint well under £1000 it's not difficult.

[Siscar]

BoRED S2upid said:

I imagine these flats aren't big carpet 2 rooms with cheap carpet two tins of paint well under £1000 it's not difficult.

Who would be doing it? Legal, carpets, paint, bits and pieces for £1k....There seems to be someone running all of this who isn't costed for which would make a big dent in the suggested profit margin.

If you could get one person running 30 properties for you on these figures you might start to get somewhere but at this level there's a lot of work and risk for limited return when you cost in someone doing it for you for 17.

[zuby84]

Siscar said:

Who would be doing it? Legal, carpets, paint, bits and pieces for £1k....There seems to be someone running all of this who isn't costed for which would make a big dent in the suggested profit margin.

If you could get one person running 30 properties for you on these figures you might start to get somewhere but at this level there's a lot of work and risk for limited return when you cost in someone doing it for you for 17.

Legals + searches £400, no stamp duty. Leaves £600 for a lick of paint in some rooms and some cheap carpets in 2 rooms. This is a one off expenditure - not regular outgoings. One employee can look after about 60-70 properties comfortably. If you're outsourcing property management - take 10%-15% of the collected rent as an extra cost.

There's been families in properties which have been there for years and years and there's others who make a bit of a mess when the leave every 6 months or so (without telling us). You need to be a "good" and fair landlord and that's why people like renting with us; I would say our customer service is miles ahead of the "high street" managing agents. I'm sorry, but I'm no more of a "slum landlord" than the council or various housing associations.

It's risky if you don't have a clue what you're doing but that's the same in any business/investment (ie buying £200k new build flats in 2007.) I'm very much risk averse and I think this is a safer strategy than the game 95% of BTL'ers play where they *hope* for capital appreciation and have interest only mortgages. Each to their own though.

Edited by zuby84 on Friday 7th March 22:41

[Siscar]

I'm not questioning whether someone set up to do it can do well with it, but I do question whether it works for a newbie at this level. I can imagine that with a decent employee collecting the rent, doing bits of maintenance, keeping it going would work well, but you need more than 17 of them to do it. Start with £500k and a good employee or a lot less and do it yourself could work, but at this level unless you are intending to do the work it could be hard.

As for slum landlord, that's what it is, just as councils and housing associations are, it's not intended as an insult - call it impaired location & quality landlord if you prefer.

[Eleven]

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

[Siscar]

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

[Eleven]

Siscar said:

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

No, that is not the definition of a slum landlord. Like I said, you either need to educate yourself or stop trolling.

[Siscar]

Eleven said:

Siscar said:

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

No, that is not the definition of a slum landlord. Like I said, you either need to educate yourself or stop trolling.

"an absentee landlord with more than one property, who attempts to maximize profit by minimizing spending on property maintenance, often in deteriorating neighbourhoods"

As I said, the difference is massive.

[Eleven]

Siscar said:

Eleven said:

Siscar said:

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

No, that is not the definition of a slum landlord. Like I said, you either need to educate yourself or stop trolling.

"an absentee landlord with more than one property, who attempts to maximize profit by minimizing spending on property maintenance, often in deteriorating neighbourhoods"

As I said, the difference is massive.

Ah, you're quoting from slightly odd, American and half-baked Wikipedia definition of "slumlord". But even if you use that definition the chap in question doesn't appear to qualify. Look up "slum" - on Wikipedia if you must.

[Siscar]

Eleven said:

Siscar said:

Eleven said:

Siscar said:

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

No, that is not the definition of a slum landlord. Like I said, you either need to educate yourself or stop trolling.

"an absentee landlord with more than one property, who attempts to maximize profit by minimizing spending on property maintenance, often in deteriorating neighbourhoods"

As I said, the difference is massive.

Ah, you're quoting from slightly odd, American and half-baked Wikipedia definition of "slumlord". But even if you use that definition the chap in question doesn't appear to qualify. Look up "slum" - on Wikipedia if you must.

I know what slum means, as I expect most others do as well, I doubt that there are many around who think that a property you can buy for £20k or £30k escapes that definition, but if you want to then go ahead. What I am questioning is that it is viable for most people to make £48k a year out of £200k with this route.

The big gap is that you either have to spend a lot of time yourself on it, which isn't being costed in the £48k, or you have to employ someone to do it, which also isn't costed in the £48k.

I am also suggesting, and call this snobbish if you want, that it takes a special skill to go round properties in this price band doing the maintenance and collecting the rents, no matter how good a landlord you are you are in a tough sector to operate in that isn't what most of us would want to be doing.

So if you want to prattle on about whether or not the definition of slum landlord applies, that's up to you, the real question is whether it is really possible to make the returns claimed.

[Eleven]

Siscar said:

Eleven said:

Siscar said:

Eleven said:

Siscar said:

Eleven said:

Siscar said:

As for slum landlord, that's what it is, just as councils and housing associations are...

It almost certainly isn't. You either need to educate yourself regarding what a slum is, or stop trying to be inflammatory.

Of course, you are right, a slum landlord is someone who buys property in very low cost areas, spends the minimum on them and rents them out for as much as they can. This is totally different.

No, that is not the definition of a slum landlord. Like I said, you either need to educate yourself or stop trolling.

"an absentee landlord with more than one property, who attempts to maximize profit by minimizing spending on property maintenance, often in deteriorating neighbourhoods"

As I said, the difference is massive.

Ah, you're quoting from slightly odd, American and half-baked Wikipedia definition of "slumlord". But even if you use that definition the chap in question doesn't appear to qualify. Look up "slum" - on Wikipedia if you must.

I know what slum means, as I expect most others do as well, I doubt that there are many around who think that a property you can buy for £20k or £30k escapes that definition, but if you want to then go ahead.
.

Ten seconds of searching came up with this:

http://www.rightmove.co.uk/property-for-sale/prope...

Perhaps you could clarify how it fits the description of "slum".

[Siscar]

Eleven said:

Ten seconds of searching came up with this:

http://www.rightmove.co.uk/property-for-sale/prope...

Perhaps you could clarify how it fits the description of "slum".

It's £20k, why is it £20k?

Amongst other things it says it needs upgrading, PLEASE NOTE THE PROPERTY IS BEING SOLD ON A SOLD AS SEEN BASIS. The clue could be there that maybe it's not in great shape.

If you don't think that a property that can be acquired for that isn't flirting with the description of slum then that's your prerogative. I suspect that if you went there just maybe there are some sub-optimal qualities that make it less than entirely desirable.

But this has still got bugger all to do with the point I was making that you have to take into account the time spent to determine the profitability, regardless of whether these are slums or desirable homes.

[Eleven]

Siscar said:

Eleven said:

Ten seconds of searching came up with this:

http://www.rightmove.co.uk/property-for-sale/prope...

Perhaps you could clarify how it fits the description of "slum".

It's £20k, why is it £20k?

Amongst other things it says it needs upgrading, PLEASE NOTE THE PROPERTY IS BEING SOLD ON A SOLD AS SEEN BASIS. The clue could be there that maybe it's not in great shape.

If you don't think that a property that can be acquired for that isn't flirting with the description of slum then that's your prerogative. I suspect that if you went there just maybe there are some sub-optimal qualities that make it less than entirely desirable.
.

Whether it needs upgrading or not is immaterial, it isn't a slum property and it's for sale at £20k. Which puts paid, it would appear, to your assertion that any property available for £20-£30k is going to be a slum property.

[Siscar]

Eleven said:

Whether it needs upgrading or not is immaterial, it isn't a slum property and it's for sale at £20k. Which puts paid, it would appear, to your assertion that any property available for £20-£30k is going to be a slum property.

Is eleven your age or IQ? Starting to wonder. If you want to call it a palace, go ahead. To me by UK standards, I'd call that a slum.

But whatever the hell you call it it still doesn't change the point I was making, perhaps one too complex for you to grasp. How is the financial analysis correct when it's not taking into a account the time spent running it?

Would you like to focus on the issue? Or do you want to keep showing pictures of places that I and, I suspect, 99.9% of other people on here wouldn't want to live in and go on about what you'd call it. If you don't like slum, would you prefer hovel? Or just sthole? It really doesn't matter.

So ok, if you like, keep whittering on about how some incredibly undesirable place is or isn't a slum, I and, I suspect, the rest of the world are past caring.

[Eleven]

Siscar said:

Eleven said:

Whether it needs upgrading or not is immaterial, it isn't a slum property and it's for sale at £20k. Which puts paid, it would appear, to your assertion that any property available for £20-£30k is going to be a slum property.

If you want to call it a palace, go ahead. To me by UK standards, I'd call that a slum.

But then, as you mentioned in another thread recently, you come from a privileged background and at your public school you mixed with kings, lords and other aristocrats. Perhaps if you were a little more grounded you'd understand that millions of people live in cheap properties, but cheapness doesn't make them slums. By extension the people who run them are not slum landlords. My point being, if you're going to start insulting people it's probably best to get your facts straight.

[Siscar]

Eleven said:

But then, as you mentioned in another thread recently, you come from a privileged background and at your public school you mixed with kings, lords and other aristocrats. Perhaps if you were a little more grounded you'd understand that millions of people live in cheap properties, but cheapness doesn't make them slums. By extension the people who run them are not slum landlords. My point being, if you're going to start insulting people it's probably best to get your facts straight.

You know virtually nothing about me and all I know about you is that you are fixated on this word slum.

As I've said before you can call them anything you want but this thread is about the economics of it, whether it's a good investment.

In the figures given the bloke coming for rent and fixing any problems has not been costed in regardless of whether these are slums, palaces or somewhere in between. As such the figures don't work in the way portrayed.

[zuby84]

Siscar said:

In the figures given the bloke coming for rent and fixing any problems has not been costed in regardless of whether these are slums, palaces or somewhere in between. As such the figures don't work in the way portrayed.

It's not that much more resource intensive than "standard" BTL letting - most of the discrepancy comes at move in/move out time (ie dealing with council, benefits, cleaning up.) Ongoing maintenance is probably less costly than a regular BTL as they might not complain if a bit of paint is peeling off the wall or if you replace a broken washing machine with a second-hand one. The property management side (if you don't want to get your hands dirty) can easily be costed as an expense. But you're right (just as in regular BTL) - you do need to know what you're doing and also vet the tenants carefully (or have someone good do it for you.)

There are phenomenal returns to be had; especially if you also focus on capital appreciation (properties I'm getting now are about 50% of their pre-recession values.) I think prices will start to go back up in the next few years (although I hope they don't.) An example; I bought a large 3 bedroom ex-council flat for £34k about 9 months ago. Spent about £2k on it (including legals.) Valuation came back at £58k. It's been rented to a single mum and her 3 school aged children. Really settled there; will probably be there for another 5 years at least until kids start to move out. I went to see it last week with my bank manager and it's completely spotless and in very good condition. She even managed to get herself a new free boiler under the Government energy efficiency scheme. She pays £650 every month right on time which gives a 21% gross yield.

It can be as passive as any other BTL investment - with higher yields you have a lot more money to play with to outsource the property management side of things if you don't want to do it yourself. However, I treat this as a business as opposed to a wholly passive investment so I do pop into the office once or twice a week and get an update on things.

You're assuming cheap property = slums, that're you prerogative but I personally wouldn't have and qualms about staying in the majority of my properties (if it ever came to it - and I'm not typically one for "slumming it up") However being called a "slum landlord" has negative connotations for the landlord; not everyone can afford to live in a little cottage in the country or in a townhouse in Central London.

Edited by zuby84 on Sunday 9th March 09:57

[ATV]

To zuby84 and Eleven, could I please ask you to answer whichever the following question you feel happy answering:

1) I assume you are dealing with LHA tenants. Do you get paid direct or does the Hosuing Benefit go to the tenant and then to you? Do you get many rent arrears?

2) Would this type of investment only work for you if you lived in the local areas where you invest? Or could someone from say London invest up in Glasgow and hope that there is a decent letting agent who can deal with LHA tenants and all the hassles that come with it?

3) Do you have problems getting mortgages at your purchases prices? I thought that most mortgage companies have a minimum purchase price and do not like LHA tenants?

4) Does this introduction of Universal Credit affect you or worry you in any way?

5) If you are on Interest Only mortgages, what provisions have you made to pay off the loan when the term comes to an end?

Thanks for answering these questions, I've been looking at the LHA market as a potential area of investment as the return on investments and cash flows seems to be very attractive, even if you factor in the possibility that the houses values may nor appreciate as well as in some prime areas of the country (I might even start a new thread on it)

[Eleven]

ATV said:

To zuby84 and Eleven, could I please ask you to answer whichever the following question you feel happy answering:

1) I assume you are dealing with LHA tenants. Do you get paid direct or does the Hosuing Benefit go to the tenant and then to you? Do you get many rent arrears?

2) Would this type of investment only work for you if you lived in the local areas where you invest? Or could someone from say London invest up in Glasgow and hope that there is a decent letting agent who can deal with LHA tenants and all the hassles that come with it?

3) Do you have problems getting mortgages at your purchases prices? I thought that most mortgage companies have a minimum purchase price and do not like LHA tenants?

4) Does this introduction of Universal Credit affect you or worry you in any way?

5) If you are on Interest Only mortgages, what provisions have you made to pay off the loan when the term comes to an end?

Thanks for answering these questions, I've been looking at the LHA market as a potential area of investment as the return on investments and cash flows seems to be very attractive, even if you factor in the possibility that the houses values may nor appreciate as well as in some prime areas of the country (I might even start a new thread on it)

You assume incorrectly in point 1) making the rest of your post largely off track. However:

We never, ever, knowingly take a benefit claimant as a tenant. Sometimes existing tenants experience changed circumstances and end up on benefits, so we bear with them. Sometimes it works, usually not.

The problems with benefit claimants are many, including:

1. They spend a lot of time at home wearing out your property.

2. Benefits are paid in arrears...

3. ...By councils who are often anti-private landlord and also inept. So after you've waited 4 weeks for the rent it may not show up and you'll face a long wait to get it and...

4. ...Benefit claimants have rarely got savings to buffer late benefit payments.

5. Rent may never show up because the tenant is not eligible for benefits, or ceases to be.

6. Benefit may be paid, the tenant wasn't eligible for the sum paid, the council will stop paying until the amount is made up. The tenant still isn't working, you've got someone in your property that cannot pay and who may not be easy to evict.

7. Tenants on benefits are often (not always) feckless and with a bad attitude to work / entitlement.

I could go on, but you get the idea. Some people do OK out of benefit claiming tenants, but we never have and don't plan on entering that market again.