Updating post from Reddit.
As the title states guys really?
I have a decent amount of spare money left over at the end of the month (£1300 - £1500) and have been toying with the idea of starting the process of getting a buy to let or a few eventually
But I’m hearing a lot of stuff lately about long time landlords selling up as there’s been/will be big changes to rules etc and it just isn’t worth the hassle. What do the experienced guys think about it all?
The goal wouldn’t be to “get rich” I just thought I could get one or two and have someone else pay the mortgage for me and have an asset at the end of it
Cheers guys
In short, no. In the vast majority of cases your capital is best deployed elsewhere
Can you elaborate a bit? I’ve been looking into it too. What are the things making it a ‘no’ and where would you redeploy the money?
My S&S ISA IS up 33% in the last year.
I deal with no tenants.
House prices in real terms are no higher than they were twenty years ago. As an asset class that is dogshit.
Yes there are some other opportunities with property but trust me the govt does their best to erode them. I don't miss being a 'LL in the slightest
What sort of S&S do you have your money in?
100% QQQ one suspects
Is that a fund or an individual stock?
It's an ETF. It's a share that you buy, representing an underlying mix of shares
Mixture of US, Global small cap, and a few individual stocks, the jewel in the crown being Rolls Royce. I am overall up 700+% on RR since I invested during the height of covid when some people were saying people would never fly again.
As someone completely new who just wants something I can pay into each month, what sort of funds should I be looking at?
The UK personal finance subreddit recommends Vanguard, and I agree.
Vanguard do not attempt to "beat the market" - they only provide trackers. Fund managers that claim to be the next best thing are paid tens of millions, taken from your investments via annual fees, and often fail.
Passive investing (market trackers) don't attempt to do anything other than invest your money in the market as a whole, and the fees are much lower.
Do your own research, but something like this, if you'd invested 10k 10 years ago, you'd have almost 23k today.
What ETF is that?
It's not passive, highly regulated, high risk, minimal recourse in substance, high barrier to entry, long pay back period, difficult to get the money out.
If you're looking at actually paying off the mortgage (which you say you are, but also don't seem to think and extra 2 properties owned outright is rich...) then you're likely going to be running on negative cash flow for a while.
Passive index funds are likely better for you
If you like to underperform markets while having to deal with stuff like a broken washing machine or idiotic tenants calling you to change a light.
Not being able to deduct all mortgage interest when you are a high rate tax payer or having to pay income tax on the profits.
Then it’s the biz for ya lol.
It may be worth it if you have unmortgated properties or a very low mortgage vs. what you can reasonably charge in rent.
Otherwise it is in many ways like with all other investments. There are risks involved and you could lose money. You may have to wait a long time to start earning. Your earnings can fluctuate based on changes in the market and the political situation, which as we know changes frequently.
When you invest in rental properties, you do have to have a very good understanding of your obligations and the law. You can employ an agent which will be at cost (so less earnings for you) but ultimately you are still responsible.
Having people sleep under your roof is a big responsibility. A lot of things can go wrong. You may need legal representation at various stages, again at cost.
For most it is not an easy, hassle free way to make a quick buck.
But for many it becomes a good long-term investment once the property is paid off and can be either lived in or sold to help top up pensions/fund your later years.
Whether it will be good or bad for you depends on your specific circumstances and how much work you want to put into your investments.
Well said!
Been landlording successfully for over 20 years and am in the process of selling up. All you need to know.
Honestly, no. I’ve vowed never to invest in residential property ever again. It was shite before the interest rates went up, now it’s an absolute waste of time. The cost of the mortgage versus income in almost all places doesn’t weigh up very profitably, especially when you add in overheads around maintenance, repairs, insurance, etc. And even if you have a very good agency running it on your behalf (and taking a chunky fee), it’s never actually completely hands off. There’s always some shit to deal with. I absolutely hate owning my rentals and wish to God I’d stuck the money in an index fund instead TBH. Oh, and everyone who can’t afford a house thinks you’re the scourge of the earth and a leech on society, which is lovely.
The one saving grace is that I put 50% down on all my properties so I haven’t been caught out by the rate rises, but it can be risky too if you haven’t got quite a lot of capital for deposits.
So yeah, don’t do it is my advice!
As a lawyer whose worked for developers and landlords most of my career I can genuinely say the biggest issue I believe that’s ruined the rental market is the lack of interest in property owners being interested in providing/building quality homes; but also the cost of doing so is so prohibitive. The ones who treat the responsibility like a profession and are passionate about providing decent quality homes from my experience continue to do very well, they have a goal that’s beyond the bottom line.
If the interest in just only the bottom line and to continue to increase rents year on year irrespective of the value you add, you’re just adding to the problem which is what had led to the RRB and recent changes, notwithstanding how fractured the market is anyway.
To making a BTL business work well you’ll need to have a decent portfolio in the right markets/areas, understand how you will be taxed on your rental income and understand how to re-invest your rental profits properly.
It’s is extremely difficult to do well, and any mixture of very bad tenants or problems with the physical property can cost you massively. Go into it with your eyes wide open understanding that it’s genuine tough gig, and it is also a thankless job.
Problem is lots of these online 'gurus' made every dodgy tom dick and harry want to be a landlord so Joe we have hundred, thousands of dodgy landlords renting out horrible properties who refuse to fix them when they get a complaint because they just want to pass go and collect free money. It sounds like you'd be the same, you don't see it as a viable business, but as a way of earning free money hassle free. I'm sure there will be some landlords that have a hassle free portfolio, but others won't. The benefit is you use leverage to earn more cash flow compared to just investing that soare cash, downside is basically the same thing if the property market crashes
Ok chaps as predicted, not much cop anymore
Might just sort out S&S ISA with vanguard I’ve seen mentioned on here a lot
I’m getting 4.75% in a regular ISA from YBS currently so deffo missing a trick. Nice and safe but deffo could be doing more with it returns wise (obviously I know risks are involved with S&S but it’d be a long term thing I don’t need access to the money)
Yer an etf isa with vangard would be better. Less hassle and maybe if things change you will have the money to buy one outright in the future.
The government is explicitly targeting small private landlords and deliberately making it an unviable investment.
That's all you need to know.
Exactly this, nrla figures released in there magazine were slightly worrying to the point this gov still doesnt understand the mess they are pushing with rent reform and the numbers of landlords selling up is eye watering. 23 people looking per available property this is worst I think it has ever been and history shows they need more rentals to bring that down to make rents more competitive. They seem to want to do the opposite and grow that number to push rents north which I can't figure out how that is a good move unless they can magic up new properties to give to these 23+ people looking per rental.
Everyone is pretty doom and gloom in these comments but if you invest in the right areas and use the right strategies it’s still a fantastic investment, rents and rising rapidly property prices are steadily increasing and it’s pretty easy to secure a good discount on purchase. Gone of the days, I’ve just buying any old property and chucking in a tenant. You need to be adding value to the property, HMO’s, social housing, or SA and I would also say that it’s probably not worth it unless you plan on buying 5+ in a Ltd company
I’ve bought a few houses that were in very poor condition. Way beyond your average DIY’er. I’ve done the majority of the work myself other than obviously getting gas, electric certificates etc and my plastering is pretty crap, so I outsource that. I buy the houses with a deposit of 25% on interest only and that seems to workout pretty good. On all of them I’ve increased the equity in the house by effectively doing most of the work myself.
Which areas are good at the moment?
I believe yes because of leverage, which people never seem to talk about. As typically 75% of a house's value is debt, your returns will be magnified by 4x. Rental yield in London is typically around 5% and house prices are expected to rise by 4% annually as interest rates come down (according to Savills forecasts). Assuming interest rate of 3% on average over the next 5 years, that's 6%x4=24% annual return on your investment.
Of course there are extra costs to being a landlord, but if you do the research and can manage the property yourself, it shouldn't be extortionate.
These levels of leverage are not possible with stocks and shares or most other types of investment.
You pay 5% to borrow money so a 5% rental yield is breaking even.
London property has been pretty stagnant for years capital wise, especially flats.
BTLs in London are just above 4% at the moment. They’re expected to fall over the next 5 years.
And property prices have definitely not been stagnant in my experience. Even so, if interest rates decrease over the next few years, more buyers will enter the market and drive prices up.
Rightmove - “Overall, the historical sold prices in London over the last year were 5% down on the previous year and 2% up on the 2021 peak of £671,138.” this masks the fact that houses have done really well and flats have fallen. I’m sure better data is out there.
Arbitraging between a 5% yield and a 4% borrowing cost, stamp duty, taxes, operational cost doesn’t sound like that much fun.
I got rich from BTL and defended it for 20 years, but the numbers suck for new entrants today.
Yes house prices fell because interest rates went up. The consensus is that they won’t be going up much more in the future. For example, Savills predicts house prices will rise by 4% annually over the next 5 years.
Bear in mind also London yields are some of the lowest in the country. In some regions in the UK, it can reach 7-8%.
Of course it all comes down to your personal belief about where you see house prices go in the future. My point was that BTL is pretty much the only investment option where you can use leverage to magnify your returns 4x, which is why it works for me.
The US index returned 30pc this year....
And in 2022 it returned -20%. Extremes do happen
Hi, I am not following the numbers. Where did '6%x4=24' come from?
5% rental yield + 4% annual value increase - 3% mortgage cost = 6% total yield on the value of the entire house.
However, you are only contributing 25% of the house’s value (assuming 75% LTV mortgage). So your returns are magnified by 4x. So 4x6%=24%.
In other words, you are making 6% on the value of the entire home. However, you are actually only putting down a quarter of the house’s value.
If this doesn’t make sense, Google “leverage”. For some reason, no one seems to talk about it on this subreddit
I see, thank you for taking the time to clarify. Unfortunately, 3% average mortgage cost wouldn't apply to me here as it'll be a 5-year fixed mortgage of 5.8%. And 4% capital increase yoy is higher than what I've factored in. I based my calculations on 2% capital increase, with 9% rental ROI (10.5% yield). And yes, it is a 75% LTV interest-only mortgage.
I would put it in an ISA personally. Vanguard or similar.
I followed my Dad into it. Sadly my returns will never be as good as his were with his properties. We're not buying any more.
Hurray
Definitely not. Get a stocks and shares ISA. I've been a landlord. I'm selling up. Fees from agents and management companies erode the money you gain..the taxes are considered part of your personal income. Capital gains tax is another concern when you sell. Things will always go wrong and need huge repair bills and void periods do happen. The stress has not been worth it. I would not recommend.
The only time I would consider it would be if I maybe had my sights on living in the property at some point. Or I was a cash buyer..or maybe I wanted a refurbishment as a hobby. And then the benefits of buying property are for more than money. But even then I would strongly suggest looking into other things to do with your money by way of investing before property purchases.
Depends. A 60k house in the northwest returns circa £550 PCM. If you get good tenants I’d say that’s a pretty decent investment of around 20k.
I’m not clued up on other areas though and of course can only speak from my experience.
I never became a landlord to get rich. I actually only rented my first (main home) out as I work away and get deeply discounted housing. Decided to get another to help toward my retirement fund.
I’d like to buy more but 40% tax is making it not worth my time.
Edited to add: If your monthly rental income is double your mortgage payments you are in pretty good shape.
There will be repairs. I had two boilers break beyond repair in 6 months which is unlucky… especially since I only own 2.
The rates aren’t fantastic right now. I had my mortgage go up from £67 (not a typo!) to £200. Should have locked in for 5 but oh well..
After all is said and done. I’m still up more than if I had left it in my ISA, and that’s before you take into account the £50,000 increase on the valuation spread between the two properties over the last 5 years.
For leftover money, no absolutely not, invest it in an index fund if nothing else. Properties are expensive, the amount of repairs, major works and simple wear and tear will be much higher than you think in the end.
Overall it's worth it if you get nearly 2k rent on a 300k property like me but this is rare and ex council flats come with their own set of headaches and bills. I'd still suggest financial markets over this, in no small part because the taxes are way lower. Rental profit is taxed as normal income, investment gains as capital gains, and you get 20k a year stocks ane shares ISA on which ALL profit is tax free, even if you literally 10x the value of that ISA in a single year somehow.
An HMO is of course also potentially lucrative but making those work well for you and for the tenants is one of the biggest headaches in letting out homes.
It’s a common misconception that the rent goes towards paying off the mortgage.
No natm
Highly depends on the area, almost all the time you are relying on capital growth and rental increases.
I don't care what the influences say buying a property with a cash flow of 400 a month does not make sense unless you buy 50 atleast. When you factor in maintenance eg a new boiler every 15 years, new kitchen evey 15 years, new bathroom every 15, new flooring after each 5 year tenancy, decorationg after each tenancy etc etc etc, the list is endless. If you want to scale you loose atleast 10 percent to agents plus fees for finding tenants
Then you get a tenant which is a nightmare, messaging you every week about a bit of paint flaking or even worse a tenant that doesn't pay and trashes the place
The numbers just do not add up to me, and where they do you are buying in a completely shit area with no prospect of growth.
After all of that you will pay extortionate stamp duty and tax on investment properties
The only way I can see a positive is leverage eg you cant leverage stocka as a regualr joe and if you are capable of doing the work yourself you can't add value to a property through extending or refurbished but that takes so much time it's hardly worth it, I calculated the value added to my property÷by them put in Iwould have been better off just getting day work on weekends
No, I'm an accidental landlord. you're better, saving and using that for a buy to let mortgage, doing up and flipping houses these days than renting.
No. Risk not worth the reward. Definitely not worth it at the moment.
It's an absolute pain in the arse.
Unless you find somewhere where you can pay £200/mth mortgage and get £2000/mth rent then I'd not remotely consider it.
I became an accidental landlord in 2019. We've rented it out which covered the mortgage and most of the costs since then but most years we lose money on it (other than the fact the mortgage is still being paid off).
You pay income tax on all the rental income, stuff goes wrong and needs fixing regularly. Tenants can be nice, but can be a pain in the arse.
I'd definitely consider looking at commercial property investment, seems a lot more solid as a business model.
Honestly your ROI is minimal, the regulations against you are high, popular opinion is all landlords are shit(so I rarely say I’m a LL), the costs are high, you’re only allowed to claim 20% of any costs on your taxes
so frankly talk to a legit business investor/councillor and get financial advice on where to put your money anywhere but being a LL
I have been a landlord for 29 yrs with properties in London, Cambridgeshire, and the North east. It's a long term effort currently at 4O% ISH LTV concentrating now on cash buys and reducIng the LTV on the portfolio. The difficult part is getting your money out and not getting slaughtered by HMRC.
If you like an illiquid asset class, you can’t beat it.
Probably not:
The big issue here is a large part of your investment will be in the real (not inflation-adjusted) value gained by the house, on which you'll pay CGT at the rate that applies to second properties when you sell. It's hard to see that that will ever get more favourable and may well get less favourable - you'd have to imagine a 1980s situation of blighted properties in order for the government to specifically encourage this. Plus the rental income is charged at your marginal tax rate... I suppose this would make more sense if you had a non-working spouse or similar so their zero-rate allowance could be used.
Contrast S&SISA which is tax free and due to the structure pretty much immune to future tax changes, or pensions (which do get fiddled with around the edges in terms of lifetime limits and so on).
no don't be a leach