Am I mad to consider Buy to let

[andye30m3]

I'm after a bit of advise with regards to possibly buying a flat to let out as a long term (30-40 year investment) in order to provide an income once I retire, which is a while away as I'm 30.

I currently own my property out right and have approximately 25% of the value of a flat I'm looking at on Friday.

If I remortgaged my property for the remaining 75% of the flat (in order to get better interest rates) I should be able to rent it out for enough per month to cover the ground rent, maintenance and a 15 year mortgage. Obviously there will be tax to pay on the profit but I was looking at coving this on top in leu of paying into a pension scheme. I think a friend said he was paying in £300 a month with an estimated payout of £17k a year when retired.

Once this is paid of I would look for another with the intension of paying of quickly but with two rental incomes. Over all aim would be to own 3-4 flats the time I come to retire and live off the rent.

I'm not sure I like what I hear about the way pension schemes are performing.

Am I being completely insane in looking at this as an option?

[mk1fan]

If it stacks up as a business plan then why not?

[touching cloth]

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

[andye30m3]

touching cloth said:

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

Are you 100% sure about that?

I read somewhere (I think on here) that you could, might be worth me speaking to the tax man first.

[Wings]

touching cloth said:

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

Wrong, one can mortgage against home to purchase/invest in BTL, and obtain tax relief on the interest. So it is not what you mortgage against, rather the reason for obtaining the loan, thereby tax relief allowable.

As to the OP asking if he should invest in a BTL, since I do not possess the bright lamp of hindsight I can not give an assured answer to that question. What I can however advise is to have a mix spread of investment portfolio, including Pensions and BTLs etc. etc. Whether the property you are going to look at is right for investment as a BTL depends on many things, buying price, condition of property, rental market value, possible management fees, mortgage interests, potential capital growth on property etc. etc.

From my brief experience in the BTL, the first property I bought 15 years ago cost me £170k, a property 2 doors down from mine, sold 9 months ago for £1.1 million, and other properties I bought for £30k are now going for £160k. So I believe both shares/pensions and property prices can only go up, well that is if you buy wisely.

Edited by Wings on Tuesday 20th October 20:46

[Wings]

touching cloth said:

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

Wrong, one can mortgage against home to purchase/invest in BTL, and obtain tax relief on the interest. So it is not what you mortgage against, rather the reason for obtaining the loan, thereby tax relief allowable.

As to the OP asking if he should invest in a BTL, since I do not possess the bright lamp of hindsight I can not give an assured answer to that question. What I can however advise is to have a mix spread of investment portfolio, including Pensions and BTLs etc. etc. Whether the property you are going to look at is right for investment as a BTL depends on many things, buying price, condition of property, rental market value, possible management fees, mortgage interests, potential capital growth on property etc. etc.

From my brief experience in the BTL, the first property I bought 15 years ago cost me £170k, a property 2 doors down from mine, sold 9 months ago for £1.1 million, and other properties I bought for £30k are now going for £160k. So I believe both shares/pensions and property prices can only go up, well that is if you buy wisely.

Edited by Wings on Tuesday 20th October 20:46

[touching cloth]

andye30m3 said:

touching cloth said:

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

Are you 100% sure about that?

I read somewhere (I think on here) that you could, might be worth me speaking to the tax man first.

Not 100% no but it would seem strange to allow it - I would certainly want a cast iron guarantee from the tax man that he wasn't going to change his mind in 10 years and disallow it during an inspection, that would then be an awful lot of tax to have to find. I have always certainly kept them seperate and clear cut, the interest rate differences can be minimised by a decent broker and pale into insignificance against the potential risk of taxation. I'd be interested to hear an official line on it all the same, where is Eric?

Edited by touching cloth on Tuesday 20th October 20:52

[touching cloth]

Wings said:

touching cloth said:

If you can buy at the right price and it's long term anyway, then why not. However don't whatever you do remortgage you own house instead of the BTL as you won't be able to offset the interest element against the rent - interest element on the mortgage of the let flat will reduce massively your income tax on that rent.

Wrong, one can mortgage against home to purchase/invest in BTL, and obtain tax relief on the interest. So it is not what you mortgage against, rather the reason for obtaining the loan, thereby tax relief allowable.

Fair enough but seems slightly mad to me and certainly at odds with what I would expect of the revenue - it seems beset with potential loopholes. In certain circumstances it would warrant repaying any deposit you may have against any mortgage of your own house first, before remortgaging immediately after for 100% of the purchase price, thereby offsetting the maximum you can.

[Wings]

It is what the loan is raised for that decides whether the interest can obtain tax relief, after all many small businesses raise bank loans against their homes, and BTL are no different. HMR&C give a number of examples on their web site on what type of loans against homes can attract tax relief.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700....