Is a buy to let flat purchase now a really bad idea?
Discussion
All i hear at the moment in the BTL chats is doom i.e. imminent crash, inflation, interest rates up, landlords leaving the sector, tax changes, tighter environmental controls coming etc.
Is now a terrible time to get into it as a first timer landlord?
Never had the financial clout to do it before but feels like I’ve missed the boat on btl from what I hear but is it really that bad out there?
Is now a terrible time to get into it as a first timer landlord?
Never had the financial clout to do it before but feels like I’ve missed the boat on btl from what I hear but is it really that bad out there?
small flats tend to get a higher % return on your investment short term but may not do as well capital wise plus as has been mentioned subject to other charges and tend to have a higher turnover of tenants/more voids.
2 bed house tend to give a fair % return on your investment long term and do well with capital wise - its more under your control, longer tenants, less voids.
Running a letting agency business - we have seen a growth since xmas of BTL and are directing them all into 2 or 3 bed houses as they are easy to let, high rents, few voids best historic capital growth.
They also tend to give a very consistent short or long term compared to the stock market short term in reliable income.
We suggest LL work on it being let 10 out of 12 mths a year. Often it will be 11/12 in the first year and then if renewed 12/12 - keeping the same tenant on a gently increasing rent is important but demand is very high in our area Sussex so most will go very quickly and we are only having a void of about 1-2 weeks per year as we only do 12mth Tenancy agreements. So our olf 10/12 may be old hat now but its a safe calculation - with a bit of planning/good letting agent it will be higher.
Clearly some locations are better then others hence talk to your local letting agent as to what makes the best buy in your local area and whats easy to let out/returns etc.
2 bed house tend to give a fair % return on your investment long term and do well with capital wise - its more under your control, longer tenants, less voids.
Running a letting agency business - we have seen a growth since xmas of BTL and are directing them all into 2 or 3 bed houses as they are easy to let, high rents, few voids best historic capital growth.
They also tend to give a very consistent short or long term compared to the stock market short term in reliable income.
We suggest LL work on it being let 10 out of 12 mths a year. Often it will be 11/12 in the first year and then if renewed 12/12 - keeping the same tenant on a gently increasing rent is important but demand is very high in our area Sussex so most will go very quickly and we are only having a void of about 1-2 weeks per year as we only do 12mth Tenancy agreements. So our olf 10/12 may be old hat now but its a safe calculation - with a bit of planning/good letting agent it will be higher.
Clearly some locations are better then others hence talk to your local letting agent as to what makes the best buy in your local area and whats easy to let out/returns etc.
Edited by superlightr on Tuesday 17th May 08:54
Edited by superlightr on Tuesday 17th May 08:55
Edited by superlightr on Tuesday 17th May 08:55
My view on this is that it's still possible to make a profitable BTL investment, but it's much harder.
The tax changes, interest rate increases. the changes to tenants expectations (post covid) and the seemingly never ending increases to maintenance costs mean that you have to be very careful when choosing a property.
Most people still believe that property values will go up forever, but don't overlook the fact that earnings to house price ratios are at an all-time high, so if house prices continue to go up, I'm not sure who's paying for it.
ETA: Everyone's experiences are different, our property has been difficult, most tenants have only stayed a year, finding new tenants has been hard every time. We've had tenants that don't pay rent, tenants that caused noise problems that involved the police, one tenant left a load of broken furniture outside on the footpath which we had to clear. Also we seem to have maintenance issues most months (albeit usually minor). But this property is my wife's flat, so it wasn't bought for investment purposes, but it just goes to show that it's not always plain sailing.
The tax changes, interest rate increases. the changes to tenants expectations (post covid) and the seemingly never ending increases to maintenance costs mean that you have to be very careful when choosing a property.
Most people still believe that property values will go up forever, but don't overlook the fact that earnings to house price ratios are at an all-time high, so if house prices continue to go up, I'm not sure who's paying for it.
ETA: Everyone's experiences are different, our property has been difficult, most tenants have only stayed a year, finding new tenants has been hard every time. We've had tenants that don't pay rent, tenants that caused noise problems that involved the police, one tenant left a load of broken furniture outside on the footpath which we had to clear. Also we seem to have maintenance issues most months (albeit usually minor). But this property is my wife's flat, so it wasn't bought for investment purposes, but it just goes to show that it's not always plain sailing.
Edited by XJ75 on Tuesday 17th May 09:38
I have a 2 bedroom flat on a BTL (first timer LL purchase back in 2018) and it's offered stable rental since purchase.....but I am noticing maintenance charges rising steadily (and that is on a late 90's block without a lift, concierge, cladding or anything fancy).....and now I am in a position to imminently find my second property, I am very mindful of not putting myself in the same position again. I shall be going 2 or 3 bedroom freehold property.....ideally with an EPC rating of C or above to try and future proof myself.
there is still money in BTL but not like it was in the golden era, you would be better off finding a property that needs 10k + of renovation this will allow you to get a few years of good profit in it while adding value to the property through the renovation work
look for 2-3 bed semi houses in good areas with good schools and good travel links. If you buy right you often get long term tenants, if they eventually move on to buy their own house it'll be picked up pretty quickly by the next punter, i've never really struggled finding tenants in mine.
look for 2-3 bed semi houses in good areas with good schools and good travel links. If you buy right you often get long term tenants, if they eventually move on to buy their own house it'll be picked up pretty quickly by the next punter, i've never really struggled finding tenants in mine.
SarlechS said:
look for 2-3 bed semi houses in good areas with good schools and good travel links. If you buy right you often get long term tenants, if they eventually move on to buy their own house it'll be picked up pretty quickly by the next punter, i've never really struggled finding tenants in mine.
I would go with that, I have a 3 bedroom house and the current tenants have been there nearly 5 years. When I bought it my options were a 1 bedroom flat in zone 6 where I live, or a 3 bedroom house with garage and drive in Hampshire. Forgetting about the rent, in those five years the house has increased in value by around £125K, the flat would have barely increased at all in that time. The flat would have also had all the hassle with service charges, lease etc.
The issue I currently have is that due to the massive increases in rent during Covid, my tenants are paying under market rate for the property. Although I have not had an issue with them during the whole time they have lived there, part of me wouldn't be upset if they moved out and I could get new tenants at market rate.
I would say it has been the best investment I have ever made.
mrmarcus said:
All i hear at the moment in the BTL chats is doom i.e. imminent crash, inflation, interest rates up, landlords leaving the sector, tax changes, tighter environmental controls coming etc.
Is now a terrible time to get into it as a first timer landlord?
Never had the financial clout to do it before but feels like I’ve missed the boat on btl from what I hear but is it really that bad out there?
With or without:Is now a terrible time to get into it as a first timer landlord?
Never had the financial clout to do it before but feels like I’ve missed the boat on btl from what I hear but is it really that bad out there?
1) a mortgage?
2) the ability to ride out an extended period of tenant default?
3) the ability to fund a refurb if necessary?
4) a potential need to use the money elsewhere?
Personally I expect house prices to cool, possibly fall a bit, and some tenants to struggle financially as a result of rising costs of living so wouldn’t do it if either of these things would present a problem to you.
With a flat the other big one is, of course, the extent to which inflation will drive up management charges and whether the overall cost burden on tenants means you have a problem if you can’t pass some/all of these increases on.
ETA: fwiw, I have one house going through at present but am then waiting a little while to see how the market fares over the next couple of months.
I got into BTL in early 2020 through apartments and it’s been a breeze. Lots of demand, no hassle, healthy numbers in terms of yield and capital gains. No regrets whatsoever yet.
The more modern properties have been easier and probably a better return even though there is a service charge associated.
The more modern properties have been easier and probably a better return even though there is a service charge associated.
LooneyTunes said:
With or without:
1) a mortgage?
2) the ability to ride out an extended period of tenant default?
3) the ability to fund a refurb if necessary?
4) a potential need to use the money elsewhere?
Personally I expect house prices to cool, possibly fall a bit, and some tenants to struggle financially as a result of rising costs of living so wouldn’t do it if either of these things would present a problem to you.
With a flat the other big one is, of course, the extent to which inflation will drive up management charges and whether the overall cost burden on tenants means you have a problem if you can’t pass some/all of these increases on.
ETA: fwiw, I have one house going through at present but am then waiting a little while to see how the market fares over the next couple of months.
My circumstances mean that this is the kind of situation I would be getting into with a btl zone 4-5 london. Im guessing this may be typical of alot of ppl thinking about getting in btl in outer london home counties;1) a mortgage?
2) the ability to ride out an extended period of tenant default?
3) the ability to fund a refurb if necessary?
4) a potential need to use the money elsewhere?
Personally I expect house prices to cool, possibly fall a bit, and some tenants to struggle financially as a result of rising costs of living so wouldn’t do it if either of these things would present a problem to you.
With a flat the other big one is, of course, the extent to which inflation will drive up management charges and whether the overall cost burden on tenants means you have a problem if you can’t pass some/all of these increases on.
ETA: fwiw, I have one house going through at present but am then waiting a little while to see how the market fares over the next couple of months.
1. A financial outlay of around £300k (say property 285k and sdlt and fees 15k) which around my area is 1 bed flat territory maybe 2 bed and not really anything beyond. Say leasehold so service charge 1500 per year and ground rent 100. Also assume fully managed at 9%.
2. Mortgaged so probably a repayment of approx £1000 say fixed for 5 years.
3. 1 bed flats rent for around £1000-1200 in my area.
So my back of fag pack calcs would be per year income income and minimal repairs : around 12000, less 1500 ser ch, less 1200 mang fee + insurance etc….
So say approx £9000 income before tax and say after income taxes £7000 in my pocket per year.
But a mortgage of 12000 so less 7000 leaving me £5000 short per year.
Now, ive seen these kind of flats increase in value by 5000-10000 per year over the last decade or so and i know alot of landlords have made alot of money this way but- in future years in current climate? Who knows?
And with tax regs changing and tightening environmental standards by 2025, Im not so confident btl is a good move for me now. This is why i think I've missed the boat.
Maybe as a long term 10+ years scenario it stacks up but shorter term with borrowed money, it doesn't seem worth the risk now. This is just how it seems to me as a potential newbie to btl looking into it.
monkfish1 said:
The goverments latest proposal is to do away with section 21. Clearly got to get to be actual legislation, but if that happens, id suggest that for most its all over. Will be for me. Not that i ever wanted to do it in the first place.
why? you can still get the property back to sell or live in and if you have a bad tenant then you can still get the property back - the proposals are that it will be a dedicated housing court to fast track this.mrmarcus said:
LooneyTunes said:
With or without:
1) a mortgage?
2) the ability to ride out an extended period of tenant default?
3) the ability to fund a refurb if necessary?
4) a potential need to use the money elsewhere?
Personally I expect house prices to cool, possibly fall a bit, and some tenants to struggle financially as a result of rising costs of living so wouldn’t do it if either of these things would present a problem to you.
With a flat the other big one is, of course, the extent to which inflation will drive up management charges and whether the overall cost burden on tenants means you have a problem if you can’t pass some/all of these increases on.
ETA: fwiw, I have one house going through at present but am then waiting a little while to see how the market fares over the next couple of months.
My circumstances mean that this is the kind of situation I would be getting into with a btl zone 4-5 london. Im guessing this may be typical of alot of ppl thinking about getting in btl in outer london home counties;
1. A financial outlay of around 300k (say property 285k and sdlt and fees 15k) which around my area is 1 bed flat territory maybe 2 bed and not really anything beyond. Say leasehold so service charge 1500 per year and ground rent 100. Also assume fully managed at 9%.
2. Mortgaged so probably a repayment of approx 1000 say fixed for 5 years.
3. 1 bed flats rent for around 1000-1200 in my area.
So my back of fag pack calcs would be per year income income and minimal repairs : around 12000, less 1500 ser ch, less 1200 mang fee + insurance etc….
So say approx 9000 income before tax and say after income taxes 7000 in my pocket per year.
But a mortgage of 12000 so less 7000 leaving me 5000 short per year.
Now, ive seen these kind of flats increase in value by 5000-10000 per year over the last decade or so and i know alot of landlords have made alot of money this way but- in future years in current climate? Who knows?
And with tax regs changing and tightening environmental standards by 2025, Im not so confident btl is a good move for me now. This is why i think I've missed the boat.
Maybe as a long term 10+ years scenario it stacks up but shorter term with borrowed money, it doesn't seem worth the risk now. This is just how it seems to me as a potential newbie to btl looking into it.
Last year I paid £155k for a holiday let, and it now owes me 210k after refurb and fees. now comfortably worth over £300k
started renting it in April and it has netted after agency fees and turnaround costs £4k April and 4.5k for May.
Expecting it to average out to 35k net at the end of the year (even December is fully booked)
Taxed as a business, not as a BTL...i.e runs a proper P&L
could you not do an airbnb flat in London and gross more? and still get the capital appreciation
av185 said:
Although less attractive than it was BTL is ok your biggest problem could well be buying a flat which could be subject to all kind of future issues relating to leasehold property and post Grenfell fire problems as the goalposts continually shift.
Exactly. My sister is selling her BTL as she can't be bothered with the new regs. Ours has the in laws in it, but someone else in their block just had a mortgage refused by one company because of the cladding. Approx cost to fix is looking like £6k per flat.mrmarcus said:
LooneyTunes said:
With or without:
1) a mortgage?
2) the ability to ride out an extended period of tenant default?
3) the ability to fund a refurb if necessary?
4) a potential need to use the money elsewhere?
Personally I expect house prices to cool, possibly fall a bit, and some tenants to struggle financially as a result of rising costs of living so wouldn’t do it if either of these things would present a problem to you.
With a flat the other big one is, of course, the extent to which inflation will drive up management charges and whether the overall cost burden on tenants means you have a problem if you can’t pass some/all of these increases on.
ETA: fwiw, I have one house going through at present but am then waiting a little while to see how the market fares over the next couple of months.
My circumstances mean that this is the kind of situation I would be getting into with a btl zone 4-5 london. Im guessing this may be typical of alot of ppl thinking about getting in btl in outer london home counties;
1. A financial outlay of around 300k (say property 285k and sdlt and fees 15k) which around my area is 1 bed flat territory maybe 2 bed and not really anything beyond. Say leasehold so service charge 1500 per year and ground rent 100. Also assume fully managed at 9%.
2. Mortgaged so probably a repayment of approx 1000 say fixed for 5 years.
3. 1 bed flats rent for around 1000-1200 in my area.
So my back of fag pack calcs would be per year income income and minimal repairs : around 12000, less 1500 ser ch, less 1200 mang fee + insurance etc….
So say approx 9000 income before tax and say after income taxes 7000 in my pocket per year.
But a mortgage of 12000 so less 7000 leaving me 5000 short per year.
Now, ive seen these kind of flats increase in value by 5000-10000 per year over the last decade or so and i know alot of landlords have made alot of money this way but- in future years in current climate? Who knows?
And with tax regs changing and tightening environmental standards by 2025, Im not so confident btl is a good move for me now. This is why i think I've missed the boat.
Maybe as a long term 10+ years scenario it stacks up but shorter term with borrowed money, it doesn't seem worth the risk now. This is just how it seems to me as a potential newbie to btl looking into it.
If you "lose" £200 to £400 pm per property in cash flow ask yourself how many you can afford to own...sure in 15 -20 yrs you will be sitting pretty IF you can afford to keep your head above water.
Insurancejon said:
Curve ball.
Last year I paid 155k for a holiday let, and it now owes me 210k after refurb and fees. now comfortably worth over 300k
started renting it in April and it has netted after agency fees and turnaround costs 4k April and 4.5k for May.
Expecting it to average out to 35k net at the end of the year (even December is fully booked)
Taxed as a business, not as a BTL...i.e runs a proper P&L
could you not do an airbnb flat in London and gross more? and still get the capital appreciation
I may of course be wrong and good luck to anyone doing this - you can make good money if you find the right property in the right place at the right price
mrmarcus said:
Maybe as a long term 10+ years scenario it stacks up but shorter term with borrowed money, it doesn't seem worth the risk now. This is just how it seems to me as a potential newbie to btl looking into it.
Borrowed money is the thing that makes BTL work. You are totally misunderstanding the model then ruling it out.
An interest only mortgage would put hundreds of pounds in your pocket per month. If I can borrow money at 2.5% and rent out at 5% I would take that deal all day long for as long as I can.
A repayment mortgage would put hundreds of pounds of equity into your net worth per month. (I would personally take the interest only option then repay capital at my convenience, but some people might prefer to see the number coming down.)
Even with *no* leverage, I bought 2 bed flats approx £300k commutable to London and my family live well on the proceeds, so your numbers are going off piste somewhere.
BTL is still an exceptional investment with good yields if you are prepared to accept the work and risk. These risks are multiple and growing, but as of today the numbers work.
Edited by dmahon on Wednesday 18th May 18:23
Edited by dmahon on Wednesday 18th May 18:23
My old street had no holiday lets 6 years ago. Now it’s got about 4, on a street of maybe 40 houses.
Some new builds all holiday lets right away.
Another old mill developed, all holiday lets.
An old mill owners house (had been an old people home), developed into posh flats, didn’t sell, permission went in for change to allow holiday lets (assume original permission was to stop this).
All in a small tourist town.
The holiday let phenomenon is going to be seen as a big tax avoidance loophole any time now… I’d say buyer beware.
Some new builds all holiday lets right away.
Another old mill developed, all holiday lets.
An old mill owners house (had been an old people home), developed into posh flats, didn’t sell, permission went in for change to allow holiday lets (assume original permission was to stop this).
All in a small tourist town.
The holiday let phenomenon is going to be seen as a big tax avoidance loophole any time now… I’d say buyer beware.
superlightr said:
monkfish1 said:
The goverments latest proposal is to do away with section 21. Clearly got to get to be actual legislation, but if that happens, id suggest that for most its all over. Will be for me. Not that i ever wanted to do it in the first place.
why? you can still get the property back to sell or live in and if you have a bad tenant then you can still get the property back - the proposals are that it will be a dedicated housing court to fast track this.
The devil will be in the detail. But given this governments track trecord so far, actually passing sensible, well thought out legislation, seems unlikely.
All im saying is, its another "risk" which is not yet knowable.
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