Is there money to be made in 2nd/3rd properties?

Is there money to be made in 2nd/3rd properties?

Author
Discussion

Groat

5,047 posts

75 months

Wednesday 3rd March
quotequote all
blueg33 said:
Groat said:
Many people own and let property they've never set foot in to tenants they've never met via managers they've never met either. Other than just for interest what would it benefit anyone from the owner physically being there?

Edited by Groat on Wednesday 3rd March 17:02
I have an apartment in Adelaide that I have never seen. Long story, but it generates money that goes into my Aus bank account. I have never even been to Adelaide, it’s managed by an agent
LOL! I bought a flat in Dubai (Lake View building in Jumeirah Lakes) where I've never set foot via an agent I never met from builders I never met (Damac). It was let and managed by letting agents I never met to tenants I never met and eventually sold by more agents I never met to a lady from Stoke Newington I never met!

This entire series of transactions and events involved virtually no paperwork or lawyers and the closest I ever got to it was when a partner went to Dubai and visited the building and told me it was "really nice".

rockin

9,569 posts

209 months

Wednesday 3rd March
quotequote all
Groat said:
LOL! I bought a flat in Dubai....

This entire series of transactions and events involved virtually no paperwork or lawyers
Well, you paid your money and you "think" you own a flat in Dubai. How's your expertise in UAE property law?

blueg33

26,182 posts

188 months

Thursday 4th March
quotequote all
rockin said:
Groat said:
LOL! I bought a flat in Dubai....

This entire series of transactions and events involved virtually no paperwork or lawyers
Well, you paid your money and you "think" you own a flat in Dubai. How's your expertise in UAE property law?
He doesn’t need to “think”, he is certain, because he says he sold it, so he knows he doesn’t own a property there.

Condi

11,560 posts

135 months

Thursday 4th March
quotequote all
IMO, not unless you can afford to buy outright or like paying tax.

There are people like Groat who do it as a living and are very efficient.

There are other people who bought them 20 years ago, and have benefitted from exceptional capital growth and growth in revenue, and benefitted from a more generous environment.

But if you had £50k in your pocket as an average higher income tax payer...

You'd pay additional stamp duty when you bought it.
You'd have paid income tax on the income used for the deposit (ie your salary).
You'd pay 40% tax on any rental income you get.
You'd pay CGT if/when you come to sell it.


Which, no matter how much I try, I cannot get to add up vs the tax benefits of a pension. Especially so if income tax bands are fixed for 5 years.

hotchy

2,822 posts

90 months

Thursday 4th March
quotequote all
Condi said:
IMO, not unless you can afford to buy outright or like paying tax.

There are people like Groat who do it as a living and are very efficient.

There are other people who bought them 20 years ago, and have benefitted from exceptional capital growth and growth in revenue, and benefitted from a more generous environment.

But if you had £50k in your pocket as an average higher income tax payer...

You'd pay additional stamp duty when you bought it.
You'd have paid income tax on the income used for the deposit (ie your salary).
You'd pay 40% tax on any rental income you get.
You'd pay CGT if/when you come to sell it.


Which, no matter how much I try, I cannot get to add up vs the tax benefits of a pension. Especially so if income tax bands are fixed for 5 years.
Thats the only way I'd do it. Outright buying. Then it can give you a wage for early retirement. They don't pay? Won't affect me too badly as no mortgage on it.

I'd buy uni flats personally. Friends had a few for years. He says most 10 months rent is paid upfront by the parents. Gets summer to clean for the next lot.

ElectricSoup

7,639 posts

115 months

Thursday 4th March
quotequote all
Groat said:
A bit more than that. Many agents aren't comfortable with DSS or asylum seekers or HMO or students or ......many things. Some can't handle lower end properties and just as many can't handle high end stuff as well.

Others (like OpenRent?) are 'online letting agents' and don't really do much of anything at all apart from advertising properties to let.

Others outsource everything to third parties (most commonly lawyers) when anything goes wrong.

Many expect owners to do much of the admin from BI to registration to safety checking to CT....

So there really aren't many who do anything/everything, which makes it important to select an agent with a clear provable history of successfully managing the type of property you're buying and also which manages to the level you require.
Hi Groat, I don't suppose you'd be prepared to recommend a company name please?

blueg33

26,182 posts

188 months

Thursday 4th March
quotequote all
Condi said:
IMO, not unless you can afford to buy outright or like paying tax.

There are people like Groat who do it as a living and are very efficient.

There are other people who bought them 20 years ago, and have benefitted from exceptional capital growth and growth in revenue, and benefitted from a more generous environment.

But if you had £50k in your pocket as an average higher income tax payer...

You'd pay additional stamp duty when you bought it.
You'd have paid income tax on the income used for the deposit (ie your salary).
You'd pay 40% tax on any rental income you get.
You'd pay CGT if/when you come to sell it.


Which, no matter how much I try, I cannot get to add up vs the tax benefits of a pension. Especially so if income tax bands are fixed for 5 years.
We had £100k cash to put in - it came from an inheritance and was earning virtually nothing in ISA's etc
We were fortunate enough to buy during the SDLT holiday, but could have structured at a Ltd company to reduce SDLT
Some asset types allow you to apportion the tax between the owners very flexibly, works where one owner is a low rate tax payer
Some property types benefit from CGT relief, and entrepreneurs relief is available in the right structures.


There are ways to make it work. It is a gamble buy generally property gains far exceed growth in pensions if the hold is long enough

rockin

9,569 posts

209 months

Thursday 4th March
quotequote all
blueg33 said:
He doesn’t need to “think”, he is certain, because he says he sold it, so he knows he doesn’t own a property there.
Taking a big risk and getting away with it doesn't mean everything was OK in the first place. It's the classic mistake made by gamblers and it's why casinos/betting shops/slot machines are able to take so many people's money. The "winners" go back to the tables, play again (and again) with the same odds and pretty soon find themselves firmly amongst the "losers".

xeny

1,564 posts

42 months

Thursday 4th March
quotequote all
blueg33 said:
It is a gamble buy generally property gains far exceed growth in pensions if the hold is long enough
There doesn't seem to be that much in it

https://miro.medium.com/max/4136/1*NtkGKRUEqX97kwi...

and the tax situation with pensions seems rather more favourable?

Groat

5,047 posts

75 months

Thursday 4th March
quotequote all
rockin said:
blueg33 said:
He doesn’t need to “think”, he is certain, because he says he sold it, so he knows he doesn’t own a property there.
Taking a big risk and getting away with it doesn't mean everything was OK in the first place. It's the classic mistake made by gamblers and it's why casinos/betting shops/slot machines are able to take so many people's money. The "winners" go back to the tables, play again (and again) with the same odds and pretty soon find themselves firmly amongst the "losers".
Buying and selling property in Dubai from one of the 'big 3' developers via an experienced agent using their 'streamlined' process must be amongst the easiest and most risk free transactions in the entire world of property dealing. wink

Edited by Groat on Thursday 4th March 13:41

Groat

5,047 posts

75 months

Thursday 4th March
quotequote all
xeny said:
blueg33 said:
It is a gamble but generally property gains far exceed growth in pensions if the hold is long enough
There doesn't seem to be that much in it
Not until you add in the income gains from rental. Then it's a no-brainer.

xeny

1,564 posts

42 months

Thursday 4th March
quotequote all
Groat said:
Not until you add in the income gains from rental. Then it's a no-brainer.
but subtract the tax liability?

Groat

5,047 posts

75 months

Thursday 4th March
quotequote all
xeny said:
but subtract the tax liability?
Which you incur ...why?

blueg33

26,182 posts

188 months

Thursday 4th March
quotequote all
xeny said:
Groat said:
Not until you add in the income gains from rental. Then it's a no-brainer.
but subtract the tax liability?
Pensions have a tax liability with contributions over £40k I think.

The real answer is that whether it works or not is down to individual circumstances

ITP

1,405 posts

161 months

Thursday 4th March
quotequote all
I wouldn’t be buying a rental property with a mortgage now. Certainly not 75% interest only. Those days are long gone.

I can understand why someone who has inherited some money may buy one for cash. Can’t get any interest anywhere these days.

Sometimes people think they’ll make more than the will though. If you buy a 200k property you may get, say 800pm. But you won’t make 9600/year.

Allow for maybe 10 months rented, minus 1600
Letting fees, say 600
Allow 1% of property value average over time for maintenance, 2000/year into a pot.
Tax on 8000, minus expenses, maybe 1500 so 6500 x 20% for a lower rate payer. Minus 1300.

Probably more stuff, sometimes you’ll have rent all year, sometimes not. The figures will be up and down from this of course but so far we are here;

£8000-600-2000-1300= £4100.

That’s only 2% on 200k. Some years it will be more and it’s more than bank interest, and maybe you get appreciation too over time minus any CGT.


blueg33

26,182 posts

188 months

Thursday 4th March
quotequote all
I tend to model lifecycle and voids and factor them in before I look at the yield. Easier with new properties than old though.

superlightr

10,958 posts

227 months

Thursday 4th March
quotequote all
ITP said:
I

I can understand why someone who has inherited some money may buy one for cash. Can’t get any interest anywhere these days.

That’s only 2% on 200k. Some years it will be more and it’s more than bank interest, and maybe you get appreciation too over time minus any CGT.
in my example above that "maybe you will get appreciation too " is a not inconsequential £100k appreciation over 10 years + the rent.



Edited by superlightr on Thursday 4th March 15:30

ITP

1,405 posts

161 months

Thursday 4th March
quotequote all
superlightr said:
ITP said:
I

I can understand why someone who has inherited some money may buy one for cash. Can’t get any interest anywhere these days.

That’s only 2% on 200k. Some years it will be more and it’s more than bank interest, and maybe you get appreciation too over time minus any CGT.
in my example above that "maybe you will get appreciation too " is a not inconsequential £100k appreciation over 10 years + the rent.



Edited by superlightr on Thursday 4th March 15:30
That’s the plan long term!
These days strong appreciation is not guaranteed though. I have 1 that’s gone up just 10k in 5 years (about 10-15%) and another just 15 miles away that’s gone up 70k in 5 years (about 35%).

Best to err on the side of caution over what you may make, anything more being a bonus.



Condi

11,560 posts

135 months

Thursday 4th March
quotequote all
blueg33 said:
It is a gamble buy generally property gains far exceed growth in pensions if the hold is long enough
Not sure I'd agree with that. Too many variables in both pensions and houses.

The current generation of property holders have been lucky in that capital growth over the last 20 years has been very good for properties, and the tax and investment regimes were far more generous than they are now for a new entrant.

rockin

9,569 posts

209 months

Thursday 4th March
quotequote all
Compare and choose;

A. Stamp Duty + transaction costs to buy + voids + tenant default + management costs + interest costs + estate agent/legal costs on sale + Income tax + Capital Gains Tax.
or
B. Up to £20,000 p.a. (double if partner) which cumulates tax free and from which all withdrawals are tax free.
or
C. Up to £40,000 p.a. with full tax relief going in, cumulates tax free, 25% comes out tax free, potential for IHT avoidance.