Buy to let issues
Discussion
Bought my first buy to let 6 months ago and had tennants in for several months. Specifically purchased for my pension with the plan to buy a new property each year. Cheap start, cost me £110k (small terrace in respectable area) with monthly rental income of £625 on a 75% mortgage. Gross yield 5.7% but like anything "gross" its misleading.
I'm naturally cheap (frugal) so shocked with how much I've had to to contractors for seemingly simple work (fixing sockets, moving switch behind gas hob, handyman to fix fence etc, etc) and it wasnt in a bad state when I got it. Despite price checking and getting the best quotes, its already cost me £3k to get this stuff done (if youre interested see the list below). This means the *net yield* providing they extend their 6 month contract is virtually nothing over 12 months and I've had the tedium of dealing with tradespeople who are in most cases far from professional.
A mate with 11 properties says "at least is hasnt cost you anything" and there is the long term capital growth - but clearly its cost me £29k in initial fees and deposit to purchase. Obviously I'd get £27k of that back (the deposit) when I sell and its a long term game for me (i.e. mortgages all paid off in 20-25 years for part of my pension), but for those of us who already make very good money running businesses and can stick £29k into something and expect to make a lot more back of it within a year, I'm sure I'm not alone when I look at these figures on small BTLs and just think its not worth the effort?! Is it just me?!
Sure I can use agency to manage the tennant and the work required (thus eating into the margin some more) and remortgage every few years to release more equity for more houses, but for the effort involved in dealing with it over a year, its so much time to put into something with virtually no return over the first 12 months due to these initial costs (and this is before the year is even up with other costs that may crop up).
I think its clear anyone can do BTL, like anything in life, the trick is being good at it and I guess my first property isnt one with the greatest appreciation potential - perhaps I should look for something more expensive in an up and coming part of London yet or look at an auction buy for renovation.
Can anyone share their experience or offer any advice?
COSTS THUS FAR
Council tax (for vacant period) £257.02
Electicity + Gas (for vacant period) £63.18
Timpson keys cut £16.50
Letting Agent Fee (came off first payment) £312.50
Electrical work £540.00
Cooker fix £66
Gas work £360
Electical work £540
Insurance Premiums (3% of rent) £284.11
Windows unlocked by locksmith £90.00
Odd jobs (door, sealant, hand rail, fence fix, pointing, paint, tiles, labour) £400
I'm naturally cheap (frugal) so shocked with how much I've had to to contractors for seemingly simple work (fixing sockets, moving switch behind gas hob, handyman to fix fence etc, etc) and it wasnt in a bad state when I got it. Despite price checking and getting the best quotes, its already cost me £3k to get this stuff done (if youre interested see the list below). This means the *net yield* providing they extend their 6 month contract is virtually nothing over 12 months and I've had the tedium of dealing with tradespeople who are in most cases far from professional.
A mate with 11 properties says "at least is hasnt cost you anything" and there is the long term capital growth - but clearly its cost me £29k in initial fees and deposit to purchase. Obviously I'd get £27k of that back (the deposit) when I sell and its a long term game for me (i.e. mortgages all paid off in 20-25 years for part of my pension), but for those of us who already make very good money running businesses and can stick £29k into something and expect to make a lot more back of it within a year, I'm sure I'm not alone when I look at these figures on small BTLs and just think its not worth the effort?! Is it just me?!
Sure I can use agency to manage the tennant and the work required (thus eating into the margin some more) and remortgage every few years to release more equity for more houses, but for the effort involved in dealing with it over a year, its so much time to put into something with virtually no return over the first 12 months due to these initial costs (and this is before the year is even up with other costs that may crop up).
I think its clear anyone can do BTL, like anything in life, the trick is being good at it and I guess my first property isnt one with the greatest appreciation potential - perhaps I should look for something more expensive in an up and coming part of London yet or look at an auction buy for renovation.
Can anyone share their experience or offer any advice?
COSTS THUS FAR
Council tax (for vacant period) £257.02
Electicity + Gas (for vacant period) £63.18
Timpson keys cut £16.50
Letting Agent Fee (came off first payment) £312.50
Electrical work £540.00
Cooker fix £66
Gas work £360
Electical work £540
Insurance Premiums (3% of rent) £284.11
Windows unlocked by locksmith £90.00
Odd jobs (door, sealant, hand rail, fence fix, pointing, paint, tiles, labour) £400
The three places where I have properties, there is no Council Tax to pay on a vacant property (up to 6 months IIRC).
How did you use £63.18 of gas & elec when the property was empty?
I hope you had more than a couple of sockets moved for £1080, or else you possibly need to find a new spark, can't see what your gas man did from your list, unless it was just remove and refit the hob/oven.
Your insurance looks pricey - I pay closer to £180 per property (total value circa £1m) and that is with a £4k claim last year.
But, I would add that I've always experienced a larger number of issues during the first tenancy than subsequent ones... so hopefully much of these will be "one time" fixes.
How did you use £63.18 of gas & elec when the property was empty?
I hope you had more than a couple of sockets moved for £1080, or else you possibly need to find a new spark, can't see what your gas man did from your list, unless it was just remove and refit the hob/oven.
Your insurance looks pricey - I pay closer to £180 per property (total value circa £1m) and that is with a £4k claim last year.
But, I would add that I've always experienced a larger number of issues during the first tenancy than subsequent ones... so hopefully much of these will be "one time" fixes.
Same as UpTheIron. Get council tax freeze for vacant property (something like 6month free within 12 months). Why so much gas and electricity, if empty in summer turn everything off, in Winter if vacant I turn the heating on for a couple of hours a day just to keep everything working nicely.
Your insurance also seems high, we pay only around 100 quid and we take out rental income insurance which is about the same at 100quid.
Your labour prices seem a bit high?
Your insurance also seems high, we pay only around 100 quid and we take out rental income insurance which is about the same at 100quid.
Your labour prices seem a bit high?
Guys, rules changed last year on council tax. A lot of places now only offer 2 months for empty property.
With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
Those sorts of issues are almost inevitable when buying a property, whether it's a BTL or not. Most of them sound like one off costs, but there will, obviously be ongoing costs.
As you've said yourself, property is a long term investment. If you buy right and manage it well then it will make a decent income over time.
You're also right in saying that there are much faster ways to make money, but most of the legal ones involve far more risk or a lot more hard work, or both.
As you've said yourself, property is a long term investment. If you buy right and manage it well then it will make a decent income over time.
You're also right in saying that there are much faster ways to make money, but most of the legal ones involve far more risk or a lot more hard work, or both.
Sir Bagalot said:
Guys, rules changed last year on council tax. A lot of places now only offer 2 months for empty property.
With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
It varies from council to council, the max is 6 months. it is entirely down to the LA how much discount they give... it can be nothing!With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
Sounds like you are overpaying, and of course its a new (to you) property so there will be a bit of initial work to do. In an average year my BTL's cost me only a few hundred at most in repairs.
The only big bill I've had is a new boiler, but I knew that when I bought the place and it was factored into the purcahse price.
My latest purchase has cost me about 3k in doing up costs, but that includes a kitchen makeover (doors/worktops), new carpets everywhere, and two new internal doors. Again it was factored into the purchase price.
Like any business there are usually a few set up costs. Either look at that as part of the capital investment, or that you break even in the first year.
Also to make you feel better about your figures, don't just look at the gross yield. If you have a mortgage then look at your return on investment. Take the expected yearly profit, over your capital investment, as a %. thats how hard your invested cash is working for you. This is because a mortgaged property is a leveraged investment.
My BTL's run at 6-7% yield, which is an ROI of about 10-15% depending on the property.
The only big bill I've had is a new boiler, but I knew that when I bought the place and it was factored into the purcahse price.
My latest purchase has cost me about 3k in doing up costs, but that includes a kitchen makeover (doors/worktops), new carpets everywhere, and two new internal doors. Again it was factored into the purchase price.
Like any business there are usually a few set up costs. Either look at that as part of the capital investment, or that you break even in the first year.
Also to make you feel better about your figures, don't just look at the gross yield. If you have a mortgage then look at your return on investment. Take the expected yearly profit, over your capital investment, as a %. thats how hard your invested cash is working for you. This is because a mortgaged property is a leveraged investment.
My BTL's run at 6-7% yield, which is an ROI of about 10-15% depending on the property.
Edited by 98elise on Wednesday 30th July 20:14
nikaiyo2 said:
Sir Bagalot said:
Guys, rules changed last year on council tax. A lot of places now only offer 2 months for empty property.
With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
It varies from council to council, the max is 6 months. it is entirely down to the LA how much discount they give... it can be nothing!With a new property you have this and that to do. I bought a place that just needed a tidy here and there but still spent over £5K on it. Remember it's tax deductible as long as you're repairing.
At least your not in Leeds, empty homes are subject to 150% council tax, b
ds!
Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
ds!Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
At least your not in Leeds, empty homes are subject to 150% council tax, bds!
Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
ds!Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
At least your not in Leeds, empty homes are subject to 150% council tax, bds!
Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
ds!Your overpaying through the nose for repairs, you should be doing all the odd jobs yourself leaving only gas, electrics and roofing to the pro's.
Costs are high with the first property, but these will be spread out a lot more thinly on subsequent properties and thats when you start to see a good return
OP, I used to build in 1-2% of value per year for CapEx / Repairs and maintenance, depending on condition of property.
Lots of the items that you have fixed will not need re-doing again and you have (in theory) increased the value of the property by doing the work.
You will probably find that cost and effort (per property) is reduced as you scale up and get more properties.
Look on the bright side, your property is in the same country. When overseas, you can get properly robbed. It can be common to be told about a small job that needs doing, which becomes a much bigger job, by a property manager who is employing his brother on inflated rates, whilst taking a cut, and keeping most of your rental income at the same time. With a local property, at least you have control over costs and timings.
Lots of the items that you have fixed will not need re-doing again and you have (in theory) increased the value of the property by doing the work.
You will probably find that cost and effort (per property) is reduced as you scale up and get more properties.
Look on the bright side, your property is in the same country. When overseas, you can get properly robbed. It can be common to be told about a small job that needs doing, which becomes a much bigger job, by a property manager who is employing his brother on inflated rates, whilst taking a cut, and keeping most of your rental income at the same time. With a local property, at least you have control over costs and timings.
see how you like it when the tenant loses their job, does a runner, can't pay, won't pay or is off work sick.
How about late night phonecalls
What about a major repair
Raising interest rates
Being sued
Void periods where you pay the mortgage
Insurance claims
Being fleeced by a tradesman
Falling capital values
Its a lot of work, its another job really.
How about late night phonecalls
What about a major repair
Raising interest rates
Being sued
Void periods where you pay the mortgage
Insurance claims
Being fleeced by a tradesman
Falling capital values
Its a lot of work, its another job really.
jonah35 said:
Ps how much are you paying your accountant.. Don't forget the tax on the income.
You don't need an accountant as its relatively simple. I have an accountant for my Ltd company, but they don't do my BTL's. I simply supply the elements they need for my tax return.Also its tax on profits, not on income
I was too lazy to sell my first house when I moved, so rented it out - not sure how long exactly, but somewhere between 10 and 15 years.
I realised one day that the capital in it would allow me to clear the mortgage in my current house, so I sat down and went through the figures. From a rental income point of view, it made virtually no money at all. By the time I'd paid agency fees, maintenance / repairs and income tax on everything above the mortgage interest payments I think I made about £500 a year. And that was on a property with a 30k mortgage, which - when I sold it - was worth 4 times that.
I concluded that the only benefit was capital growth, and since the market could collapse (which actually it did soon afterwards) I should make the most of it and cash in.
I realised one day that the capital in it would allow me to clear the mortgage in my current house, so I sat down and went through the figures. From a rental income point of view, it made virtually no money at all. By the time I'd paid agency fees, maintenance / repairs and income tax on everything above the mortgage interest payments I think I made about £500 a year. And that was on a property with a 30k mortgage, which - when I sold it - was worth 4 times that.
I concluded that the only benefit was capital growth, and since the market could collapse (which actually it did soon afterwards) I should make the most of it and cash in.
Also just to correct your figures, you a not making 5.7% gross yield, its 6.8%.
£625 x 12 = £7500.
£7500 / £110,000 x100 = 6.8%.
Thats not the whole story though. You have invested 27.5k. Based on your mortgage you are probably seeing £300 pcm gross profit. You are therefore getting a gross return of 13% on your investment.
£300 x 12 = £3600
£3600 / £27,500 x 100 = 13%
this is because your investment is leveraged through the mortgage.
This is also ignoring capital growth, and rent increases which means you returns should grow at least in line with inflation.
Compare that to a cash investment!
£625 x 12 = £7500.
£7500 / £110,000 x100 = 6.8%.
Thats not the whole story though. You have invested 27.5k. Based on your mortgage you are probably seeing £300 pcm gross profit. You are therefore getting a gross return of 13% on your investment.
£300 x 12 = £3600
£3600 / £27,500 x 100 = 13%
this is because your investment is leveraged through the mortgage.
This is also ignoring capital growth, and rent increases which means you returns should grow at least in line with inflation.
Compare that to a cash investment!
Edited by 98elise on Saturday 2nd August 08:25
Edited by 98elise on Saturday 2nd August 08:28
98elise said:
Also just to correct your figures, you a not making 5.7% gross yield, its 6.8%.
£625 x 12 = £7500.
£7500 / £110,000 x100 = 6.8%.
Thats not the whole story though. You have invested 27.5k. Based on your mortgage you are probably seeing £300 pcm gross profit. You are therefore getting a gross return of 13% on your investment.
£300 x 12 = £3600
£3600 / £27,500 x 100 = 13%
this is because your investment is leveraged through the mortgage.
the premise of batmanbegin's post is that:£625 x 12 = £7500.
£7500 / £110,000 x100 = 6.8%.
Thats not the whole story though. You have invested 27.5k. Based on your mortgage you are probably seeing £300 pcm gross profit. You are therefore getting a gross return of 13% on your investment.
£300 x 12 = £3600
£3600 / £27,500 x 100 = 13%
this is because your investment is leveraged through the mortgage.
batmanbegins said:
but like anything "gross" its misleading
£300 x 12 = £3600£3600 - £2929.31 = £670.69
£670.69 / £29,000 x 100 = 2.31%
98elise said:
Compare that to a cash investment!
http://www.moneysavingexpert.com/savings/best-cash-isa#manipulate2.85% Tax Free Cash NISA
98elise said:
This is also ignoring capital growth, and rent increases which means you returns should grow at least in line with inflation.
This is also ignoring property damage, void periods, non-payment of rent and the delights of the eviction process.
Gassing Station | Business | Top of Page | What's New | My Stuff