BTL - is it worth it?

[traxx]

When it comes to Student BTL do you guys use an agency to manage them or do it yourselves - my recollection of University is that the property management must be a real pain?

[coetzeeh]

OP - As part of your research consider what the impact of BTL rates at 6%+ will be e.g. when your interest repayment increases by 50%+. The historic low rates will be coming to and end.

[oldnbold]

traxx said:

When it comes to Student BTL do you guys use an agency to manage them or do it yourselves - my recollection of University is that the property management must be a real pain?

I now use an agency, however I did self manage one of them until last year. To be honest it was still less hassle than my normal BTL. Like all BTL you get the odd breakage or problem during the year, but even now I have the agents call me on all occasions if there is a problem and then I can decide if it's worth my while going to fix or just let them sort it.

One thing to be aware off with student BTL's is that many councils are trying to stop/reduce student "ghetos". So they have introduced "article 4" permission. Which means that if you buy a house and want to turn it into either a licienced or un licienced HMO you have to apply for permission. If the property is in a high student population area it will be refused normally.

However any property already in use can continue with a new owner, but if you rent to a family one year you can't then go back to students without permission.

This didn't apply when I purchased mine, but I bought with student tenants already in place and the following years already signed up. So I had 18 months guaranteed rent.

[hornet]

I became something of an accidental landlord when the relationship I was in started getting serious and we decided to move in together. My property was a one bed flat that was in no way big enough, so I ended up letting it out. As has been noted upthread, severing the emotional link was hard, but the agents are good and I've not had a peep out of the tenants. Motivation wasn't and still isn't to hold it as a long term BTL, but it's serving a purpose currently, so I'd say as long as you know what you want out of the experience, it's worth considering.

[Zippee]

Final daft question from me at the moment, if buying a flat (seen a couple with tenants in situ and good rents) is it the responsibility of the landlord or the tenant to pay the service charge? Ie/ does the rent of say, £650pcm include the service charge and hence I pay it or is it then paid on top by the tenant or is it more a case of depends on the agreement?

And thankyou to all for your help and to the OP for allowing me to hijack the thread

[Burrow01]

Zippee said:

Final daft question from me at the moment, if buying a flat (seen a couple with tenants in situ and good rents) is it the responsibility of the landlord or the tenant to pay the service charge? Ie/ does the rent of say, £650pcm include the service charge and hence I pay it or is it then paid on top by the tenant or is it more a case of depends on the agreement?

And thankyou to all for your help and to the OP for allowing me to hijack the thread

Service charges are normally the responsibility of the Landlord, something to take into account in the calcs

[ATG]

Comparing leveraged investments in housing to unleveraged investment in shares without pointing out the far greater risk of leveraged investment would be deeply irresponsible.

If you have only put down 25%, then in a worst case scenario you could lose 4 times your original investment.

It is worth bearing in mind that housing and shares have performed similarly even though the housing market had been hugely inflated by geared investment pouring into it. That should tell you a great deal about how well underpinned each market's returns really are.

[Phooey]

ATG said:

If you have only put down 25%, then in a worst case scenario you could lose 4 times your original investment.

Eh, like as in someone Half Inches it??

[Singh911]

ATG said:

If you have only put down 25%, then in a worst case scenario you could lose 4 times your original investment.

Really?

[98elise]

Singh911 said:

ATG said:

If you have only put down 25%, then in a worst case scenario you could lose 4 times your original investment.

Really?

Indeed, if house prices drop to zero then we will have far more to worry about than owing the bank money.

Its fair to assume that if you are investing for the long term then house prices will go up. There are not enough houses to go around as it is.

[coetzeeh]

98elise said:

Indeed, if house prices drop to zero then we will have far more to worry about than owing the bank money.

Its fair to assume that if you are investing for the long term then house prices will go up. There are not enough houses to go around as it is.

Agreed - my concern however is how future governments will change/amend the tax deductible allowances associated with BTL. While there may be capital gain long term but the cost of BTL ownership I suspect is going to increase.

That together with increasing interest rates on the horizon is going to change the BTL land scape, especially for those who have joined the BTL party in the last 7 years with marginal returns. I doubt it will ever again be as good as it is now.

[98elise]

coetzeeh said:

98elise said:

Indeed, if house prices drop to zero then we will have far more to worry about than owing the bank money.

Its fair to assume that if you are investing for the long term then house prices will go up. There are not enough houses to go around as it is.

Agreed - my concern however is how future governments will change/amend the tax deductible allowances associated with BTL. While there may be capital gain long term but the cost of BTL ownership I suspect is going to increase.

That together with increasing interest rates on the horizon is going to change the BTL land scape, especially for those who have joined the BTL party in the last 7 years with marginal returns. I doubt it will ever again be as good as it is now.

I assume you mean interest payments. I can't see it happening as its a very real expense, and no different to any other business that can deducts loan interest before calculating what profit is made. It that did happen then it would make BTL way more expensive and would limit the supply of rental homes, driving rents up.

Also would that same loan interest rule apply to all property companies, or just one man bands? It would be fundamentally wrong to penalise a small business and not a large business. That would be a bit like not letting a local butcher deduct his business loans, but its ok for tescos.

Rising interest rates are certainly something to consider, but I think were about 5 years from any significant rises.

[audidoody]

Unless you have a tame plumber, electrician, heating engineer, and carpenter who will drop what they are doing when you call - you will probably need a managed service from an agent. Which is expensive.

[98elise]

audidoody said:

Unless you have a tame plumber, electrician, heating engineer, and carpenter who will drop what they are doing when you call - you will probably need a managed service from an agent. Which is expensive.

The only person you need decent plumber, and you will have one of those for your gas cert.

A tenant doesn't need other repairs any faster than an owner occupier.

Also "plumber" and "heating engineer" are the same thing, and I can't imagine how I would have a carpentry emergency

[coetzeeh]

98elise said:

I assume you mean interest payments. I can't see it happening as its a very real expense, and no different to any other business that can deducts loan interest before calculating what profit is made. It that did happen then it would make BTL way more expensive and would limit the supply of rental homes, driving rents up.

Also would that same loan interest rule apply to all property companies, or just one man bands? It would be fundamentally wrong to penalise a small business and not a large business. That would be a bit like not letting a local butcher deduct his business loans, but its ok for tescos.

Rising interest rates are certainly something to consider, but I think were about 5 years from any significant rises.

Not just the interest payments but the whole spectrum potentially - maintenance, repairs, insurance. CGT could be another option for government to target especially for 2nd or 3rd BTL etc. The again reading that fewer than 50% of BTL properties are registered with HMRC as such is an area they'd need to close in on.

As for interest rates I think most economists thought rates would start rising by now but the collapse of the oil price mid 2014 caused inflation to nose dive and hence rates staying low. The oil lows have forced 35% (and counting) of rigs being mothballed in the US over the last 9 months and we are seeing oil price creeping up as a result of the reduced output. Oil prices are up probably 20% from the lows, and creeping up - just a matter of time till that feeds through into our economy (and inflation).

Time to keep a close watch - this is as good as it gets.

[98elise]

coetzeeh said:

98elise said:

I assume you mean interest payments. I can't see it happening as its a very real expense, and no different to any other business that can deducts loan interest before calculating what profit is made. It that did happen then it would make BTL way more expensive and would limit the supply of rental homes, driving rents up.

Also would that same loan interest rule apply to all property companies, or just one man bands? It would be fundamentally wrong to penalise a small business and not a large business. That would be a bit like not letting a local butcher deduct his business loans, but its ok for tescos.

Rising interest rates are certainly something to consider, but I think were about 5 years from any significant rises.

Not just the interest payments but the whole spectrum potentially - maintenance, repairs, insurance. CGT could be another option for government to target especially for 2nd or 3rd BTL etc. The again reading that fewer than 50% of BTL properties are registered with HMRC as such is an area they'd need to close in on.

As for interest rates I think most economists thought rates would start rising by now but the collapse of the oil price mid 2014 caused inflation to nose dive and hence rates staying low. The oil lows have forced 35% (and counting) of rigs being mothballed in the US over the last 9 months and we are seeing oil price creeping up as a result of the reduced output. Oil prices are up probably 20% from the lows, and creeping up - just a matter of time till that feeds through into our economy (and inflation).

Time to keep a close watch - this is as good as it gets.

So are you saying that they will be taxing turnover not profit? That will cause the colapse of just about every property company in the country. Ultimately any changes will be paid for by renters, thats just market forces.

CTG is already levied against BLT properties, thats not something new. Its only your own home thats free from CTG.

[coetzeeh]

98elise said:

So are you saying that they will be taxing turnover not profit? That will cause the colapse of just about every property company in the country. Ultimately any changes will be paid for by renters, thats just market forces.

CTG is already levied against BLT properties, thats not something new. Its only your own home thats free from CTG.

No, not sure how you got to that conclusion.

Not sure what CTG or BLT is but I was suggesting we could potentially see increased CGT rate.

[98elise]

coetzeeh said:

98elise said:

So are you saying that they will be taxing turnover not profit? That will cause the colapse of just about every property company in the country. Ultimately any changes will be paid for by renters, thats just market forces.

CTG is already levied against BLT properties, thats not something new. Its only your own home thats free from CTG.

No, not sure how you got to that conclusion.

Not sure what CTG or BLT is but I was suggesting we could potentially see increased CGT rate.

If you can no longer offset any loans repairs etc, then its no longer taxing profit its taxing turnover. No large company could survive if its turnover was taxed instead of profit.

For BLT read BTL, and CTG read CGT. Fat fingers and typing on a phone to blame.

Do you see the rate increasing for everything, or just property? Either was CGT doesn't bother me, I'll never be selling my properties as they are my pension.

[Stevemr]

I remember having a discussion with an IFA about private pensions v buy to let 15 years ago. I was advocating buy to let v pensions. I am a mortgage broker but I also have all qualifications to be an IFA.

I am so glad I followed my own opinion. I will retire in 2 years on enough income to have a very comfortable life style age 56. No way would I have been able to do that if I had put my money in to private pensions.

[ATG]

98elise said:

Its fair to assume that if you are investing for the long term then house prices will go up. There are not enough houses to go around as it is.

It's this kind of complacency that has driven house price inflation. There is no good reason to think the rates of inflation we have seen are sustainable over the long term. Tenants are not in a position to pay higher rent and rates can't go any lower. There is very limited upside for property over the medium term. Longer term are we really sure there will even be a sustained housing shortage?

If someone has borrowed 3:1 against a property, how is the lender going to react if the relevant bit of the property market dips by 25%? Is a 25% dip in a small investor's undiversified property portfolio completely unthinkable?

Landlords who are geared are wide open to an increase in mortgage rates. Even if we assume that general rates are going to stay pretty low by historical standards, we have to consider that mortgage rates can move independently of general interest rates. If the PRA or the BOE think individual financial institutions, the sector, or the economy as a whole is dangerously exposed to the housing market, then they can increase the amount of capital that lenders need to hold against their mortgage portfolio. That increases the lenders' cost of capital for that lending activity and they will pass that through to their customers. People should consider that this could be targeted specifically at BTL lending, not at general mortgage lending. With the current levels of debt being so high, growth returning but not being long established, and inflation not being evenly distributed across the economy, the Bank is already making unconventional monetary interventions. We can't rule out that that will become the new norm. And in these circumstances it is not likely that geared landlords will be able to pass their increased costs through to their tenants.

It is in most speculator's nature to "talk their own book" ... i.e. once they have made an investment they tend to focus on the reasons why it will work in their favour and discount the reasons that it might fail; they lose their objectivity and can't look at the market dispassionately.

Is this all pessimistic? Yes. Is it outside the realms of possibility? No. If you're running a business it may well be appropriate to take a fair bit of risk. If you are saving for your retirement, then you should be pretty risk averse.

I see an awful lot of people saying they are running a BTL business, but in fact taking speculative positions in the property market because their current and expected earnings don't provide a reasonable return on the capital employed in the business. They say they are running a business, but actually they're saving for their retirement. They have limited capital invested and have taken out big loans. They have all their "assets" in one market; no diversification. By any normal standards of risk management, to put it politely they are being incredibly naive.