BTL, is it still viable?

[kuro]

Been thinking about this for over a year now but after the recent changes to btl by Osbourne is it still a viable investment?

I’m not 100% sure but my partner is convinced it’s the right way to go. She’s done the figures on investing around £50k on a 2 bed property of approx £150/160k. Rental value would be about £650 a month and my town is a very popular location in these parts so shouldn’t be issues with getting tenants and we would hand over management to an agent to minimise hassle.

We wouldn’t be doing it to make huge profits as I know those days are gone, we are looking at it more as long term investment. I should also mention that we are both lower rate tax payers if that makes a difference.

We have to make a decision soon so any advice is appreciated.

Thanks

[ATG]

What mtge rate can you get?

[Sarnie]

ATG said:

What mtge rate can you get?

Will be circa 2% at that LTV..............

[Taita]

Any mileage in reducing existing mortgage (if you have one)?

Quietly interested in the answer to the OP question too!

[Porsche911R]

BTL is a 15 year investment these days imo, with a loss if you get out sub 5 years.

I look at them as retirement income only, or an income after 15 years if you get in while you are younger.
They are hassle also and a new boiler can knock you back 2 years, or bad tenants even worse.

Still if you don't need the £50k ever then still a good idea.

just looking £650 rent will not pay it off in 15 years ;-(

Edited by Porsche911R on Tuesday 14th March 15:27

[kuro]

Porsche911R said:

BTL is a 15 year investment these days imo, with a loss if you get out sub 5 years.

I look at them as retirement income only, or an income after 15 years if you get in while you are younger.
They are hassle also and a new boiler can knock you back 2 years, or bad tenants even worse.

Still if you don't need the £50k ever then still a good idea.

just looking £650 rent will not pay it off in 15 years ;-(

Edited by Porsche911R on Tuesday 14th March 15:27

Okay thanks. Just mentioned the paying of aspect to my partner, she is talking about an interest only mortgage.

[dazwalsh]

As a long term investment I think its viable but I wouldnt expect to make much money each month from just one house with all the regulations and tax changes, the goverment seemingly despise smaller landlords at the minute and feck knows what brexit will do to the housing market.

[ATG]

Back of an envelope calc comes out at about a 6% return per annum on your 50k before tax and it'll require some of your time to manage the property even if you employ an agent. You will be shouldering house price risk too. If the housing market goes up, you'll make a capital gain. If it falls you could in extremis lose its entire value leaving you with 100k to find to repay the lender. If you have a strong view on the value of this property, then this investment might make sense, but you must consider the risk it exposes you to carefully. It might be a useful hedge if you want to buy a bigger house in the future. You should also think about the other things you could do with this money. For example, you could pay off outstanding loans. Another alternative might be to buy shares (and that would likely be a lower risk way of achieving a 6% rate of return and can be made tax efficient by holding them in an ISA). Lots of competing options, no one obvious answer.

[mjb1]

kuro said:

Okay thanks. Just mentioned the paying of aspect to my partner, she is talking about an interest only mortgage.

I'd have thought an interest only mortgage will make it less viable as a long term investment? Particularly with the changes to mortgage interest loosing it's tax relief. In 10 years time, you'll still be paying the same amount of interest (quite possibly more, assuming rates have much more scope to go up than down from current), and that is going to hurt.

[-Pete-]

mjb1 said:

loosing

[IREvans]

kuro said:

Been thinking about this for over a year now but after the recent changes to btl by Osbourne is it still a viable investment?

I’m not 100% sure but my partner is convinced it’s the right way to go. She’s done the figures on investing around £50k on a 2 bed property of approx £150/160k. Rental value would be about £650 a month and my town is a very popular location in these parts so shouldn’t be issues with getting tenants and we would hand over management to an agent to minimise hassle.

We wouldn’t be doing it to make huge profits as I know those days are gone, we are looking at it more as long term investment. I should also mention that we are both lower rate tax payers if that makes a difference.

We have to make a decision soon so any advice is appreciated.

Thanks

For a buy to let investment, I'd want a return of at least 7% gross on the capital value. I'd suggest you research buying it through an SPV so you can get mortgage interest relief, and pay less tax on any potential capital gain. You'll need to compare this against the tax relief you'd get if you purchased it in your name, or via a partnership with your wife.

If you want a 'hands off' property investment, its worth also considering commercial property. Yields in the region of 6-8% plus are achievable, and you generally get longer tenancies (5yrs plus), and the terms are FRI (full repairs and insurance) for the tenant.

I've been involved in residential and commercial BTL for 20 years, happy to pass on any advice should you prefer to DM me.

[gibbon]

Dont forget refinancing costs.

To get the best mortgage rate you will have to refinance fairly frequently, every 2 or 3 years. This is currently £1500-£2k a pop.

On a property renting out at £650 a month thats a significant cost factor to build in.

If you want more exposure to uk property risk, then i guess it can still work, but i would only do it now in an area where you are backing gentrification so should seen increased rental yield and capital uplift, and yes, its a long game now.

[kuro]

Useful replies which seem to clarify my doubts about entering into btl. My partner seems sold on the idea and gets uptight when I suggest looking at alternatives. In her eyes she sees a small income of between £150/200 per month and relying on the property increasing in value. While I like the idea of it, I'm concerned about the potential risks, hassle and expenses that have been pointed out here. We have looked at stocks and shares isas's aswell and I'm more inclined to go down that route.

[DonkeyApple]

dazwalsh said:

As a long term investment I think its viable but I wouldnt expect to make much money each month from just one house with all the regulations and tax changes, the goverment seemingly despise smaller landlords at the minute and feck knows what brexit will do to the housing market.

It's not so much that they despise smaller landlords but that they had become a systemic risk to the housing market and therefore the banks, so the whole of U.K. PLC

All the changes in the last couple of years have been to specifically target those high risk landlords and get them out of the market so as to protect everyone from their risk. It's all about removing the highly geared, dismantling high risk pyramids and halting the flow of novices who lack solid financial foundations.

BTL is still a perfectly good investment product but no longer for the cowboys and high risk punters. Which is a very good thing for everyone.

The changes also have the added bonus of reducing the number of crazy buyers who outbid owner occupiers via silly man maths.

The ultimate goal is for enough of the rental properties in the U.K. to be held by ungeared investment funds with very long term criteria so that when rates eventually go up and overshoot the BTL market does not represent a large supply of stock to the market at a time of low demand.

[Steamer]

gibbon said:

Dont forget refinancing costs.

To get the best mortgage rate you will have to refinance fairly frequently, every 2 or 3 years. This is currently £1500-£2k a pop.

On a property renting out at £650 a month thats a significant cost factor to build in.

Thats a good point to keep in mind, and roughly another £50 - £60 per month cost (although you can add it onto the existing mortgage cost.. but its still a cost).

Having recently done a quick skim of mortgages available it all seemed like 2 year products at a cost of £1500 as Gibbon stated.

ETA: Actually the product I was looking at was £1495.00 + £315.00 Valuation fee - based on 2 years fixed at 2.99%.... but it did have £500 cash back (halifax)

Edited by Steamer on Wednesday 15th March 11:19

[drainbrain]

kuro said:

Been thinking about this for over a year now but after the recent changes to btl by Osbourne is it still a viable investment?

I’m not 100% sure but my partner is convinced it’s the right way to go. She’s done the figures on investing around £50k on a 2 bed property of approx £150/160k. Rental value would be about £650 a month and my town is a very popular location in these parts so shouldn’t be issues with getting tenants and we would hand over management to an agent to minimise hassle.

We wouldn’t be doing it to make huge profits as I know those days are gone, we are looking at it more as long term investment. I should also mention that we are both lower rate tax payers if that makes a difference.

We have to make a decision soon so any advice is appreciated.

Thanks

I always wonder why people want to kick off their btl ventures with a 6 figure debt.

I mean, what's wrong with buying something like this without any loan at all?

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

LHA rate's about £400pcm, full management would be about £50pcm inc vat, and you could bank £300pcm most months without any hassle.

Put another way, I'd rather have 3 of these all day than the one you propose buying.

[kiethton]

Why not get the benefits of BTL in a more tax efficient manner (this is what the government is pushing IMO)

Try investing companies like Grainger (UK), or even LEG Immobilien/Deutsche Whonen (Germany), you can invest via an ISA tax free. Being REITs the risk is diversified across thousands of properties minimising the one-off risks (tenants smashing the place), management manage LTV's cross-cycle to minimise the debt/cyclical risk and distribute the income they generate without paying tax.

You have the benefits of spreading your risk, keep the capital gain though share value increases, get a stable income (dividend) and maximise liquidity should you need the cash, you can sell in a day should you need to. You also have far lower frictional costs (£12.50 dealing price and 0.5% stamp vs. normal stamp and conservancy fees) and the benefit of a professional management team to make sure they are operating in your best interests.

NB, this is not investment advice

[Steamer]

drainbrain said:

kuro said:

Been thinking about this for over a year now but after the recent changes to btl by Osbourne is it still a viable investment?

I’m not 100% sure but my partner is convinced it’s the right way to go. She’s done the figures on investing around £50k on a 2 bed property of approx £150/160k. Rental value would be about £650 a month and my town is a very popular location in these parts so shouldn’t be issues with getting tenants and we would hand over management to an agent to minimise hassle.

We wouldn’t be doing it to make huge profits as I know those days are gone, we are looking at it more as long term investment. I should also mention that we are both lower rate tax payers if that makes a difference.

We have to make a decision soon so any advice is appreciated.

Thanks

I always wonder why people want to kick off their btl ventures with a 6 figure debt.

I mean, what's wrong with buying something like this without any loan at all?

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

LHA rate's about £400pcm, full management would be about £50pcm inc vat, and you could bank £300pcm most months without any hassle.

Put another way, I'd rather have 3 of these all day than the one you propose buying.

You could take that view, although that particular flat is an auction guide price and it needs the lease renewing (plus I'd avoid flats and bungalows)

Also is a property at that end of the market going to increase in capital value to the same degree as a £150K house over the whole term of the investment?

[DonkeyApple]

drainbrain said:

I always wonder why people want to kick off their btl ventures with a 6 figure debt.

I mean, what's wrong with buying something like this without any loan at all?

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

LHA rate's about £400pcm, full management would be about £50pcm inc vat, and you could bank £300pcm most months without any hassle.

Put another way, I'd rather have 3 of these all day than the one you propose buying.

Absolutely agree but part of the problem is that many people want the leverage to create the enhanced return rather than the location, which is understandable, although less feasible now due to the enforced deleverage.

What you may begin to see is retail money moving into that bottom end of the market and yields being destroyed.

[trowelhead]

DonkeyApple said:

It's not so much that they despise smaller landlords but that they had become a systemic risk to the housing market and therefore the banks, so the whole of U.K. PLC

All the changes in the last couple of years have been to specifically target those high risk landlords and get them out of the market so as to protect everyone from their risk. It's all about removing the highly geared, dismantling high risk pyramids and halting the flow of novices who lack solid financial foundations.

BTL is still a perfectly good investment product but no longer for the cowboys and high risk punters. Which is a very good thing for everyone.

The changes also have the added bonus of reducing the number of crazy buyers who outbid owner occupiers via silly man maths.

The ultimate goal is for enough of the rental properties in the U.K. to be held by ungeared investment funds with very long term criteria so that when rates eventually go up and overshoot the BTL market does not represent a large supply of stock to the market at a time of low demand.

Spot on.

Do you think there is any chance of removal of interest relief from (small) ltd cos now that a chunk of investors are moving their portfolios into ltd structure?

And at what level would one be considered highly geared? Are we talking the 95% + same day remortgage crowd, or your average 75% LTV?