BTL honest opinions

[minimad69]

I'm selling a few of my cars at the end of the summer. And should be on target to have a deposit for a small cheap BTL property. I'm looking in an area about 45 mins from my house here in Oxfordshire, or back home in South Wales.

I'll have about a 25 - 30% deposit on a 2 bed flat.
I'll be able to afford the Mortgage payments should the property be empty. The plan being that any income get re-invested and purchase a second property in a few years.

I am looking for experience of people here, horror stories or for anyone to talk me out of it.

[dmahon]

There was some discussion in this thread yesterday:

https://www.pistonheads.com/gassing/topic.asp?h=0&...

[ILikeCake]

We had 1 BTL we have recently sold. Even though we had good tenants, it's not something I ever want to do again.

Not sure why owning a BTL seems to be such a common goal for Brits... Maybe something to do with the English obsession with property.

My view is there are too many negatives... You get extra tax on the way in, taxed on your profits, taxed when you sell. Your capital is illiquid. Risk of having all that capital in one/few assets. Risk of bad tenant. Work to keep up with regs, or alternatively management fees. Private landlords are easy scapegoat for gov, recent tax/expense changes have not been in favour of private landlords.

I'll stick to nice pension, LISA, ISA, and general fund account (in that order). Much more tax efficient, liquid, spread over many assets (REIT for a property buzz?), capital gain allowances can be crystallised... And most importantly, a passive Vanguard tracker doesn't call on New Year's Eve to say a radiator is leaking and water is coming through the lounge ceiling!

There is a Scottish slum landlord who will no doubt offer a different opinion 😉

[Drezza]

I'd be focusing on maxing out the S&S ISA allowance first, then only invest in property when I'm too heavily invested in the stock market to diversify a bit. My parents have a few rentals are looking to sell up as the returns are pretty shocking for the hassle involved.

[audi321]

There's a lot of drawbacks to BTL, in particular the taxman hates them. They are taxed every which way possible (unless you buy them in a ltd company - which has benefits and drawbacks in itself).

I'd stay away from leasehold. The management fees seriously impact on the yield.

However, get a decent house, with a garden and you'll potentially have a familiy in there for years. These are the ones less likely to default and more likely to look after the place. Flats have a higher turnover, meaning void periods are more frequent.

They do have pros and cons. If you plan carefully, choose the right house in the right area, get a good tenant (I pay a letting company to find me the tenant, do the checks and agreement, but not manage it going forward) I'd say they're a good long term investment.

But factor in mortgage payments, leasehold fees, repairs and void periods, don't expect to make a fortune overnight. Long term increase in value could be ok, but again consider CGT.

If you're planning to "reinvest the income and buy another one in a few years" I would say you'll be waiting a long time! Better off reducing the mortgage significantly, and hoping the value goes up. These 2 things combined might allow you to remortgage in a few years and equity release to put down as another deposit.

Long story short, if you're buying today they're ok if you do your research and don't expect quick wins.

Edited by audi321 on Sunday 11th April 12:35

[Mr Pointy]

OK, you asked for horror stories:

https://www.pistonheads.com/gassing/topic.asp?h=0&...

It's a long one.

[Groat]

"There are 8 million stories in The Naked City"

BTL is a business. One of millions. Some try it, some don't. Of those who try it, some lose the lot and some develop it into great empires. Some like it, some love it, some hate it and most just see it the way they'd see any business they're involved with.

Years ago I used to invite interested PHers to visit and see a large busy letting agency and personal portfolio in action, including going into properties and chatting with tenants. Quite a few came. Some were surprised. Some were amused. Many seemed puzzled. A few were horrified.

Nobody (as far as I know) was inspired. Bit like we felt as kiddies on a school trip to visit a factory.

[dmahon]

As I mentioned in the thread above, I am just wrapping up my 1st year in BTL. I have probably broken every rule going and though I’m not pushing the business too hard I will net 5% after all costs which I’m over the moon with for the effort invested. If it runs like this for the next 15-20 years with some capital growth as the kicker it will be a job well done.

I think a lot of the common criticisms are overblown:

- Almost all income is taxed so this is a fact of life. It would be a similar tax profile on share dividends and capital appreciation.
- Stamp duty I negotiated quite hard on purchases to offset on this, and 6k per property is sod all over 15 years.
- A good estate agent will take a lot of the day to day hassle out of it.
- Buying slightly more upmarket and being selective on referencing can hopefully avoid non payment issues.
- You can raise mortgages for liquidity within a few weeks if you need it.

I’m sure it will inevitably create some headaches but I don’t think it’s as bad as people make out.

This said, I’ve set things up for an easy life rather than maximising yield. Buying with high LTV, lots of bank charges, in rough areas and self managing would be a completely different kettle of fish.

Edited by dmahon on Sunday 11th April 13:58

Edited by dmahon on Sunday 11th April 14:00

[MrChips]

We've rented out our old house for 6yrs now, and on our third set of tenants. Our house is a 2bed semi, very large garden and plenty of parking. We've never had any issue finding tenants even though we've priced it around 15% above all of the other two beds on the same estate.

We initially got into it as we could afford to move house without selling, so it was a bit of a comfort blanket in case things went wrong (we'd be happy to move back into the old house as it's lovely). We lived there for 8yrs before renting it out and since starting, we've seen the £40k CGT letting relief withdrawn meaning we're now facing an increasing CGT each year whereas we would have had a few more years before it impacted us.

Overall once all costs are taken into account, we're making around 6% return, plus any house price gains (or losses!). We've had two great tenants including a family with twins, but our new ones are causing us a bit of stress...with lots of minor issues being raised, most of which are absolutely normal things. I think as they're young, i've ended up feeling more like a life coach rather than landlord.

We do all of the advertising and management ourselves with the exception of the inventory that's done by a local independent.

Overall if it wasn't for us already having the house, then i'd say don't bother. The tax at each stage of purchase, running and sale are way too high to make decent returns unless you're very lucky with the house/flat value going up, and the level of responsibility and time is a fair bit higher than i'd anticipated.

[xeny]

dmahon said:

- Almost all income is taxed so this is a fact of life. It would be a similar tax profile on share dividends and capital appreciation.

? I get an annual CGT allowance which is easy to make use of, I get a dividend tax allowance (ditto) and I can put £20,000 in an ISA each year which exempts me from either. How is that a similar profile?

[anonymous-user]

ILikeCake said:

***lots of negatives about BTL***

I'd agree there are many negatives. For me it was about diversification when I sold my business a few years back. I originally had cash (premium bonds!), ISA, old masters and pension. The cash is a waste of time and money as far as I can see. The ISA and pension were based on shares so feared a stock market crash so thought BTL would help with diversification.

I bought 5 but when it looked like Corbyn might get in, and after several years of Tories adding tax after tax, I sold 2 a couple of years ago. At present I'm happy with a good roi and capital growth but do often wonder if I should sell them all and move to funds of some sort and accept getting a smaller roi plus less diversification. Landlords are an easy target for all colours of government, councils, the courts etc etc. For example in the first lockdown the government suddenly decided that no tenant can get evicted for 6 months even if already in debt and in the legal system. Some tenants have gone 18 months without paying any rent with Tory government collusion imo.So the government and its policies are the biggest risk to a landlord imo.

Add to that when things go wrong (new boiler, bad tenant etc) you can lose a year's income just like that so I'd only go into it if you are not reliant on the income and can cover the bills from your normal salary else you could get into a very difficult situation quite easily.

If I was younger (20s to 40s) I'd definitely go in to btl, especially if a basic rate tax payer. As I'm older (50's) I'm getting to the point where I don't want any hassle in my life and it's time to spend the money on fun before it's too late.

Landlords get the blame for first time buyers being unable to buy a house and lack of social housing. I have some sympathy for that view but I don't see why it's my problem that Tony Blair decided it was a good idea to allow unfettered immigration of people to an overcrowded island with insufficient land to even feed itself (70% of food imported or something like that), and Councils don't have the gumption to build the type of accommodation in volume these people now need. Rather than deal with the root causes it is easier to simply blame landlords.

TLDR: Buy your btl and good luck!

[dmahon]

xeny said:

dmahon said:

- Almost all income is taxed so this is a fact of life. It would be a similar tax profile on share dividends and capital appreciation.

? I get an annual CGT allowance which is easy to make use of, I get a dividend tax allowance (ditto) and I can put £20,000 in an ISA each year which exempts me from either. How is that a similar profile?

I’ll give you some of that, but I was not advocating going all in on BTL. ISAs are the obvious first port of call and I personally am 50/50 across stocks and property so wont be leaving these allowances on the table. At that point, it’s a bit of a wash tax wise where you put the next pound.

Especially when you consider a BTL LTD company director has things like directors loans, entrepreneur relief, pension/PAYE hacks, wife as a director, estate planning to factor in for tax planning.

Edited by dmahon on Sunday 11th April 15:10

[Condi]

You pay a lot of tax......

+3% stamp duty when you buy it
20%/40% on all the rent depending on your tax rate - for a property renting at £1000 per month that is £400 straight to HMRC.
Then CGT when you come to sell it.


As part of a mixed and balanced portfolio, maybe, but you're best using all your tax free options first IMO (ISA, pension etc).

[dmahon]

Condi said:

You pay a lot of tax......

+3% stamp duty when you buy it
20%/40% on all the rent depending on your tax rate - for a property renting at £1000 per month that is £400 straight to HMRC.
Then CGT when you come to sell it.


As part of a mixed and balanced portfolio, maybe, but you're best using all your tax free options first IMO (ISA, pension etc).

As discussed above, apart from the allowances this is similar from a tax perspective to stocks or a salary increase.

In addition, that £600 income remaining could also end up funding your ISA and pension accelerating you from that perspective too.

I’m not even a big fan of BTL and I likewise have done it for diversification. However, I do feel it gets painted in a more negative light than it deserves.

[Condi]

dmahon said:

- Almost all income is taxed so this is a fact of life. It would be a similar tax profile on share dividends and capital appreciation.

That's not really true though, when it comes to savings. You have £20k/year or £1m total you can put into an ISA, from which all gains are tax free. You also have £1m you can put into a pension during your life which for many people buying a BTL will mean a saving of 40% income tax, of which 25% can then be taken out tax free later in life.

Why not pay into a pension while working (and thus save the 20%/40% tax) and then withdraw 25% tax free at 55, which can then be used to buy a house outright if that is what you want? Far more tax efficient than paying 40% tax to save for a deposit, to pay additional income tax while you're working....


EDIT - just seen your post above. Once you've paid the £400 tax the remainder obviously has to pay for your mortgage, any repairs, upkeep, letting agent fees etc. The people who have done well out of BTL are not people buying now, but people who bought 20 years ago when tax regimes were more favorable and capital growth was bigger, enabling additional leverage to be taken on in a way which isn't possible today.

Edited by Condi on Sunday 11th April 15:21

[audi321]

Condi said:

You pay a lot of tax......

+3% stamp duty when you buy it
20%/40% on all the rent depending on your tax rate - for a property renting at £1000 per month that is £400 straight to HMRC.
Then CGT when you come to sell it.


As part of a mixed and balanced portfolio, maybe, but you're best using all your tax free options first IMO (ISA, pension etc).

Indeed, and lets not forget the total killer. The reduction of relief on mortgage interest! Not that it's much nowadays with rates so low, but it's another nail in the coffin.

Here's a real life example of one of mine (figures rounded):

Income £500/mth
Mortgage interest £150/mth
Management fees £60/mth
Ground rent £10/mth
Tax on £400 @ 40% (assuming 20% relief on mtg int) - £160/mth
Profit - £120/mth

That's best case scenario. Anything like a months loss of rent when they move out, or a bad payer kills it for months. Then there's the repairs. If the boiler goes, that's a year's worth of profit gone.

£120/mth (best case) return on £25k (my equity) is still a net annual return of almost 6%, and then there's the potential for capital gain. So it's not all bad, and like I said earlier, a freehold property is much better (both for tenant longevity and no management fees or ground rent).

[Groat]

Condi said:

You CAN pay a lot of tax if you avoid proper advice.

+3% stamp duty when you buy it apart from the numerous exceptions

20%/40% on all the rent depending on your tax rate - for a property renting at £1000 per month that is £400 straight to HMRC.
When did they stop allowing deductible expenditures

Then CGT when you come to sell it. unless you plan to whom or when or why it's being disposed of and all this assuming you HAVE to dispose of it at all

I GUARANTEE you that once all opinions are considered, BTL will be understood to have its good points and its bad points - same as not only any and every business, but also everything else in life as well.

I am not by any means a pessimist, but going into a 'new' business I firstly consider the potential negatives and ask myself if I can live with them comfortably. So that's what I'd advise the OP to do with his BTL adventure. (other opinions are available).

Edited by Groat on Sunday 11th April 16:07

[financialbloke]

Don't worry about the tax. Most landlords don't complete self assessments and those who do are probably lying about the expenses involved.

[dogz]

Everyone seems to slate BTL as an investment opportunity - do your own research and consider the pros and cons. Yes there are down sides but there are also significant upsides. Most seem to just focus on the short term cash in the bank view. In reality, someone else buying a significant asset for you. It’s not a short term bet

BTL has served my parents pretty well and continues to do so, it’s certainly going to be the bulk of my retirement income and once myself and my parents are pushing up daisies, my kids are going to be fine

Make your own view instead of listening to random internet naysayers

[xeny]

Sit down with a spreadsheet and do a comparison, with estimates/projections where there aren't hard figures available, and maybe play around with best/worst case scenarios for what you're estimating.