BTL - is it worth it?

BTL - is it worth it?

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Discussion

red_slr

Original Poster:

17,122 posts

188 months

Tuesday 7th April 2015
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Calling BTL land lords!

What is your view on the value of doing BTL? I.e once you paid your mortgage, insurance, repairs etc and any admin is it genuinely worth it?

What kind of other costs do you regularly see?

Any other major issues?

Total newbie here so go softly!

red_slr

Original Poster:

17,122 posts

188 months

Tuesday 7th April 2015
quotequote all
Oh and another question - what kind of time scale do you use to refurb the property? 5 years? 10 years?
I am thinking light refurb after 5 and full refurb after 10?

oldnbold

1,280 posts

145 months

Tuesday 7th April 2015
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Well BTL works well for me, I have four, three are student houses which pay considerably more than most BTL's and in all honesty are a lot less trouble.

The key is to buy a property that will attract good tenants. My first BTL was an ex local authority house on a large estate, it was cheapish and provides a good yield on paper, but the tenants it attracts are always a problem. A good pal of mine purchased a smaller property on a new private estate for about 20% more than I paid, the yield is very slightly less but his tenants are never a problem and in 6 years he has had no voids and no refurb costs. Most of his tenants get their deposits back in full and the place rarely requires a proffesional clean.

Student lets for me are a much better option. My houses are of a fairly high quality with good quality bathrooms and kitchens, built in appliances, wood floors, natural stone tiles etc. This quality gets looked after on the whole and it it is very easy to prove damage if there is any.

With parental guarantees and good deposits (usually paid by the parents) they are normally left clean and tidy, but money for any repairs is easily recoverable. Yeilds are generally much higher and in a lot of uni towns now the lets are for the full 52 weeks.

About 35% of gross income goes on agents fee's, mortgages, repairs and tax but I put 40% deposits down when I purchased.

Cheib

23,112 posts

174 months

Tuesday 7th April 2015
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red_slr said:
Oh and another question - what kind of time scale do you use to refurb the property? 5 years? 10 years?
I am thinking light refurb after 5 and full refurb after 10?
I don't think a refurb needs to be anything like that often.

My BTL is my old two bed flat in a decentish area of London, when I bought it twenty years ago I put in a cheapish kitchen and an okay bathroom but nothing at all flash...mostly wooden floors and carpets in the two bedrooms. Apart from decorating which can often be partly paid by a tenant if they haven't looked after the place the only thing I have had to spend money on is new carpets for the bedrooms and furniture if you choose to let it furnished.

Maybe I am lucky because I put down a decent wooden floor etc 20 years ago but I did ask my letting agent recently what the rent would be if I put a more modern kitchen in etc. The answer was that I would probably get another 10% a month in rent. There's no way on earth that justifies a refurb...we're talking say an extra £200 a month just not worth the outlay. I reckon a refurb worth doing would be £10k.

DUMBO100

1,878 posts

183 months

Tuesday 7th April 2015
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Tenants can be a pain in the arse. I recently had a new one move in and she has paid £50 short of the monthly rental every month for 3 months. It's not enough of a debt to ask her to leave but it is infuriating

markwm

144 posts

219 months

Wednesday 8th April 2015
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New council tax rules are a major pain. Gotta allow for paying council tax on an unoccupied property between tenants.

BoRED S2upid

19,643 posts

239 months

Wednesday 8th April 2015
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IMO it depends on the price of property in your area I see people renting £180k houses for £600 pm which to me doesn't work the value of a £550 -600 let should've more like £100k.

Refurbishment yes 5 years or a light touch up between tenants it all depends on the tenants some will look after the house and treat it as their own mine looks better now than 3 years ago when the current tenants moved in.

Student lets are big risk but big rewards I've been there done that I think the numbers were £50k property £800 PM rent but big hassle.

Is it still worth it? Yes with the right property in the right area with good tenants it can work very well.

gibbon

2,182 posts

206 months

Wednesday 8th April 2015
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My own theory is I would rather have fewer high value, high rental income places than several lower level ones. I understand the downside of potentially slightly lower yields (though in reality this is arguable), and the lack of spread risk, but I think the upsides out way this.

  • You get a better tenant, who is far less likely to trash the place/default on rent.
  • Many associated costs are fixed, such as a new boiler, washing machine, carpet, even mortgage and legal fees etc, thus making them proportionally far better value for a higher value property.
  • You have less admin and hassle with less properties.

I have a flat in zone 2 London worth circa 5-600 that I rent out for £2k a month. I recently had a new boiler and some associated repairs, it cost me a months rent, rather than 3 months rent for a cheaper 'higher yielding' property, much the same, my mortgage arrangement fee was a months rent, etc etc.

I think claimed yields are can be misleading.

Are BTL still worth it? Depends what you want from it, but potentially for sure, yes.

oldnbold

1,280 posts

145 months

Wednesday 8th April 2015
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BoRED S2upid said:


Student lets are big risk but big rewards I've been there done that I think the numbers were £50k property £800 PM rent but big hassle.

Is it still worth it? Yes with the right property in the right area with good tenants it can work very well.
I'd have to disagree about student lets, in my experience provided you use a good agent and provide a good quality product, student rentals are less hassle and risk than a normal BTL. Certainly they, or their parents, are much easier to track down if you need to, rather than some scumbag who owes you 4 months rent, wrecks the house and then disappears from the face of the earth.

For all BTL's you also need to look further afield than your own area, mine are 1 hour away but I've a couple of pals who have some 2 - 3 hours away, they use agents to manage them and I doubt if they personally visit them even once a year.

BoRED S2upid

19,643 posts

239 months

Wednesday 8th April 2015
quotequote all
oldnbold said:
I'd have to disagree about student lets, in my experience provided you use a good agent and provide a good quality product, student rentals are less hassle and risk than a normal BTL. Certainly they, or their parents, are much easier to track down if you need to, rather than some scumbag who owes you 4 months rent, wrecks the house and then disappears from the face of the earth.

For all BTL's you also need to look further afield than your own area, mine are 1 hour away but I've a couple of pals who have some 2 - 3 hours away, they use agents to manage them and I doubt if they personally visit them even once a year.
What's the thinking on purpose built student flats / apartments like this :

http://www.rightmove.co.uk/new-homes-for-sale/prop...

Lots of these for sale in most big student cities.

gibbon

2,182 posts

206 months

Wednesday 8th April 2015
quotequote all
BoRED S2upid said:
What's the thinking on purpose built student flats / apartments like this :

http://www.rightmove.co.uk/new-homes-for-sale/prop...

Lots of these for sale in most big student cities.
I would be very wary of such things. Just my opinion.

Sheepshanks

32,530 posts

118 months

Wednesday 8th April 2015
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gibbon said:
BoRED S2upid said:
What's the thinking on purpose built student flats / apartments like this :

http://www.rightmove.co.uk/new-homes-for-sale/prop...

Lots of these for sale in most big student cities.
I would be very wary of such things. Just my opinion.
If they were a good deal, surely some institutional investor would have snapped up the whole block?

One issue with student accommodation is that many uni's are building tons of their own.

blindspot

315 posts

142 months

Wednesday 8th April 2015
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The starting point with deciding whether BTL is worth it has to be your aim. What do you want to get out of an investment, how do you and other half feel about risk, do you need investments to remain relatively liquid, how do you intend to exit and so on.

You need to thoroughly know the market in which you intend to invest. Up north, yields are good but in many towns prices are still below 2007/8 peaks and moving up at glacial pace. In southern towns yields tend to be lower, but prices have in many places reached new highs. ONS figures show annual rise of 8.4% to Jan 15, which is down on the 9.8% annual increase to Dec 14. Feb figures out on the 14th of this month. Lower yields typically mean better capital appreciation. Higher yields, less capital appreciation but often worse tenants.

One strategy for longer term investments is to pick an area in a growing town that you expect to outperform the market, suitable for rental to families, professionals. Moderate to low yield, ensure rental income >125% mortgage payments and allow it to appreciate over the years. Overpay the mortgage if you can't get a better return on other investments. Once you've increased equity sufficiently, begin the hunt for property 2. Consider buying late Nov/Dec. Tend to see some bargains around then.

Bit rambly, but probably yes, depending on what you want to get out of it. Crossrail route is looking a good bet at the moment, Reading is worth considering but also near town/villages, especially Newbury.

red_slr

Original Poster:

17,122 posts

188 months

Wednesday 8th April 2015
quotequote all
Thanks all good stuff. So light refresh at 5 years might be good plus perhaps a more serious refit after 10.
In terms of our circs we are moving but keeping our old place - so its not technically BTL. The main concern is people trashing the place!
I can live with it - but the wife not so keen!!

Pheo

3,324 posts

201 months

Wednesday 8th April 2015
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You have to realise it is no longer your home, it is now a business. Other half is a letting agent, and its a nightmare where landlords still see it as "their house"

Also - the person earlier saying the tenant pays for light refresh - uh, hope you don't get a wise one to that, sounds very much like betterment to me!

blindspot

315 posts

142 months

Wednesday 8th April 2015
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I wouldn't get hung up on time-based refreshing - do the maintenance and decoration as required.

The key concept is fair wear and tear. You only get to claim from your tenants' deposit for damage over and above fair wear and tear. And you have to demonstrate the damage. You also don't get new for old, and items have a generally accepted life, with straight line depreciation. So, fancy cream carpet will generally be said to have a 10 year life. After 10 years, condition might be great, but value is zero. If tenants leave it covered with puke and blood you have little chance of getting anything back for it if they dispute your claim. Level of wear and tear is also dependent on the tenants - a family of 6 with 3 dogs and 15 cats will be permitted an awful lot more wear and tear than 2 working middle-aged professionals.

Key to ensuring your property is kept well is finding good tenants, understanding their situation, full referencing, making sure they understand their responsibilities as tenants, full detailed schedule of condition prepared and signed, and then regular property inspections.

Singh911

956 posts

240 months

Wednesday 8th April 2015
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For sure its worth it. In my view its an industry in its own right quite apart from a play on rising house prices.
I manage my own portfolio and avoid agency charges, deal with tenants direct.
Look for up and coming areas with good transport links. Follow the big money - if there's lots of infrastructure going into an area, it will pay to follow that flow of money. What usually follows is trendier shops and by the time they go in prices are up already.
Go in with a 10-15 year view minimum. Avoid new builds, the premiums are too high on those. And if you are building up a portfolio, try and get the properties in one locality so they are easy for you to manage.

HTH

1

2,729 posts

235 months

Wednesday 8th April 2015
quotequote all
Cheib said:
There's no way on earth that justifies a refurb...we're talking say an extra £200 a month just not worth the outlay. I reckon a refurb worth doing would be £10k.
£200pm for £10k sounds well worth doing. Get the refub done, keep tenants longer/attract better tenants and get 24% return. Sounds like a pretty good investment to me.

boyse7en

6,671 posts

164 months

Wednesday 8th April 2015
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I've got one property which I let out which has been absolutely fine. Same tenents for 10 years now, fitted a new bathroom suite about 5 years ago.

I've been thinking of taking on another place, but so far can't make it add up so I've resisted. Obviously depends on your circumstances, but local to me a property worth £130,000 rents for about £600pcm. By the time you take off insurance, gas service, etc etc, then the rent will just about cover the mortgage interest payments but won't cover repayments.

1

2,729 posts

235 months

Wednesday 8th April 2015
quotequote all
BTL works for some but certainly isn't the panacea most seem to think it is. I think you have to decide what type of investor you want to be, what you want out of it and what level of risk you are comfortable with.

Do you want yield or capital growth?
Do you want to get your hands dirty or just get a return?
What level of LTV are you comfortable with?
What are you looking for - enough income to leave work, a pension, a lump sum, an income top-up or a job as a builder?

Personally I have no desire to become a builder/plumber/handy man or estate agent so finding good people has been key, focusing on a certain area and acquiring a decent size portfolio makes this much easier. I enjoy the project management side of the development/refub so concentrate my time there.