Another Buy to Let Thread

Discussion in 'Finance, Property, Law' started by Gunny Highway, Apr 25, 2006.

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  1. I'm after stories more then advice, or both. I'm thinking of purchasing two, three bedroomed houses in the Manchester area to rent to students. Hundred grand houses, ten grand deposit, ninety grand mortgage per house, rented out to three occupants per house.

    Rent is typically around the £55 per tenant per week, which equates to around £1300 a month, give or take.

    The area I want to buy in gets you a modernized three bedroomed house for 100k so I wouldn't have to do anything to bring the properties up to an acceptable standard.

    What I want to know is, is it worth the hassle? Has anyone rented to students before? Are they a safe bet, or is renting out to private/DSS tenants a safe, guaranteed income? And what extra do I pay on top? Insurance? Tax? Is there a 'safety net' with the mortgage provider if I go a few months without rent? Would I have to furnish the houses, and to what standard? And the deposit/mortgage/rent ratio, am I looking at a monthly/yearly profit, or just two mortgage paid houses for future sale for a possible profit?

    Any stories, info, welcomed.
  2. In answer to your question Gunny, yes its worth while and you can get a worthwhile return on yoru investment, or at worst watch other mugs pay into your highly visible and avisitable pension fund.

    Go in steep on the bonds, try and get parents to be gaurantors... they will damage the property, detatch yorurself from the fact that you own them, you can't cherish them, they will be abused.

    Budget for repairs, boilers, carpets etc... they are gonna get trashed.

    You will probably need 15% deposit unless you can find someone who is selling who can vedor fund.

    Birmingham Midshires are doing some good deals on buy to lets, and can go as high as 89.9% loan to value.

    Don't go for three per 3 bedroom house, they only need one lounge and one kitchen...... you can get another one in the other reception room down stairs.

    Any questions give me a shout.
  3. I rent a property in London.

    Learned on the path of letting the following:

    Get a good accountant. Furnishings and associated expanses are allowable. I saved some £1900 in the first two years as tax deductable expenses.

    As discussed get parents to guarantee bond on damage. I did and it was a good move.

    Get landlords safety certs for utilities. This is a must for the new regs imposed this month. Parents will sue!

    Have your solicitor draw up a boilerplate landlord and tenant lease. Agree to regular inspections of the property, with due notice.

    Be careful when you choose landlords contents insurance. The first year I was screwed.

    Gunny, if you need any more info please PM me.

  4. If you are going to buy properties to rent out I would insist you use a reputable agent (rather than doing it yourself) and make sure they are Association of Residential Letting Agents (ARLA) registered. This means the agency will hold any deposit as a stakeholder, they will obtain suitable references, including bank references, for your tenants AND their guarantors and if done correctly you can take out insurance against damages and non payment of rent. They will also draw up a good contract - although if you know the loop holes nothing is perfect :wink:

    Yes you need a very good accountant as the rules on income from rental and all tax deductible expenses are awful particularly regarding tax payable should you decide to sell the property at a later stage.

    I spent 12 years in residential lettings for my sins and would definately trust students through a reputable agency (plus if you have a good house at a good rent they will recommend replacement tenants so it should very rarely be empty)
  5. Thanks for the above. I'm dubious about leaving money in bank accounts earning feek all, so I'd rather invest in something that may give a monthly/year profit or at least provide two houses for sale on my retirement. I'm doing more investigating, but I'll PM you if I need more advice.

    Once question I have is, is it better to manage the property on my own, or ask a letting agency do it on my behalf. Would a letting agency eat into any profits?
  6. in_the_cheapseats

    in_the_cheapseats LE Moderator

    Basic answer is that if you use an agency, yes, you will lose profit. Normal score is 12-15% of your top line, dependant on area.

    If you are nearby to the property, there is no reason why you shouldn't run it yourself. I leave one place to an agency to run and run a Glasgow flat myself. Just remember, you are responsible for finding tenents, advertising, digging in to background references, setting up contracts, making sure there are builders, workmen on call if things go wrong etc etc.

    It is possible if you are well organised. Just make sure you get a decent lawyer to oversee contracts, an area where you really do need expert advice and expect a phonecall every now and again when things go wrong.
  7. Gunny,

    I used a letting agency for the first year and it took 12.5% off the top of any rents that I earned. Some of the charges they levied were really OTT. I got billed for a locksmith to replace a lock on a Sunday morning, total £245+VAT!! The tenant had locked herself out and tried to force the lock...result jammed lock. It took ages to recover the costs and in the end I did the job myself.

    Letting the property yourself is much more simple. You vet and control the prospective tenants yourself. Go with your gut feelings, if they look a problem, they probably will be.

    You save money on estate agents letting costs for the year. Also you can pick and choose the tradesmen that you want. Fees to be negotiated by you. Cost for the rent is reduced by as much as 25% in the first year.

    Remember that is in your pocket, not the letting agent.

    Best of luck Gunny

  8. I don't know that buy-to-let is the one way bet that it was. The yield has fallen quite dramatically and most of the professionals reckon they are making only 5-6% - and at that level why take the risk and put yourself to bother when you can earn 5% risk-free in a building society account, or 7% by buying LloydsTSB shares (moderately risky)? However, that basic rental yield takes no account of the possible capital gain or the fact that your money is geared. A couple of points:

    The bank still expects the mortgage to be paid even if you don't have any tenants and students take 3 holidays per annum!

    Gearing works both ways. If you have 10% of your money in a property and the market rises by 10%, you have doubled your money. If the market falls by 10%, you have lost all your money. Is the housing market going to crash? I don't know - and that's a whole new thread by itself! But I would point out that valuations are stretched and a lot of investors in the larger cities have had their fingers burned when the flats on which they speculated failed to reach the price at which they were initially sold.

    Is this your only house? Are you in the Services? If it is and you are, there will not be any Capital Gains Tax when you sell it. If it is not your only house then your gain on selling will be taxed at 40% after taper relief, improvements and allowances. Many of the investors I have met have been completely ignorant of this tax.

    I agree with the accountant; you can do it yourself (I do) but it can be a lot of work and I don't know whether I am claiming for everything I can. If you live near the house, you can run it yourself, but there are a lot of dodgy tenants out there and checking their backgrounds can take time and effort.

    Have you thought about Holiday Lets?

  9. in_the_cheapseats

    in_the_cheapseats LE Moderator

    If you have the property for some time the relief from CGT is significant. I agree with Litotes - you do have to be careful but if you are aiming at long term investment (and I wouldn't countenance investing for any less than 10 yrs), property is hard to beat for steady return.
  10. Litotes, thanks for the comparison. I’ve looked at a few websites and noticed some of the fees payable to agencies (and of course, those hidden fees for your example of a broken lock). I think I'm more looking towards 25-30 years time and having two mortgage paid houses to sell after an initial outlay of 20 grand. Again, 20 grand placed against shares, investments and that sort of thing over the same period maybe a better option.

    I’m moving away from the Manchester area so it’s not an option to manage the properties myself, and besides, I haven’t the temperament to deal with some spotty student who’s lost their front door key.

    I think I've been taken along on the ride of the property boom but as suggested above, it's seems to be peaks and troughs so would the moolah be better off elsewhere in case a property bust waddles along and ruins my retirement ideas?
  11. All agency charges are tax deductable so it's not all bad - plus your agency will also advise of other things you can claim tax on. Any reputable agency will ask what the financial limit is before they need to contact you to authorise repairs (unless they are dire emergencies i.e. flooding etc). You can insist that specific tradesmen are used and if you are overseas most agencies will ask for a fund of around £500 for emergencies.

    Had you been with the company I worked for your tenant would have had to call out and pay for the locksmith herself as it was her fault and responsibility. If she had lost her keys, instead of being locked out, she would have also been responsible for having all locks replaced and keys cut as well. Landlord's should not be billed for tenants expenses EVER and no reputable agency would ever do that.

    We used to charge 15% of the monthly rental for full management and 10% of the cost of any works carried out on behalf of the landlord. All properties at the end of the tenancy were professionally cleaned at the tenants cost (they were professionally cleaned when we took them on our books) and the tenants would pay for any breakages or damages. Trust me when I say the Inventory Companies we used would make a march in look like a walk in the park - they were beyond thorough and some would even say pedantic. You can imagine the fun I have when we march in and out from FQs - they hate me :lol: :lol:

    We were charged CGT on the last house we owned, it was our only house and hubby was serving :? We only had it two years and service commitments meant we were never able to live in it so it was rented out and then sold to the second tenants but this was back in 2001.

    For anyone interested in renting out a property they own I suggest you have a look at this help sheet from the Inland Revenue
  12. Gunny,

    I subscribe to the Motley Fool website which I find quite interesting with some no-nonsense articles. There is an article on buy-to-let here:

    Motley Fool

    Yes, all free markets are subject to boom and bust; fashions come and go. Ride the right wave and you can do well. Get it wrong and lose your shirt! The housing market is exactly the same, although it could be argued that it isn't a free market. The cost of money is now rising - the US 10 year T-bill yield rose above 5% yesterday for the first time in several years. Japan is tightening its monetary policy after holding interest rates at 0% for some years (it is worth noting that asset and property prices in Japan in the 1980s went berserk and then the music stopped and they are only just recovering from almost 15 years of hell). That will impact on the UK in due course and the cost of mortgages has already risen.

    The other thing that I haven't mentioned is asset allocation. If you own a house with a mortgage and then you buy another, you are really exposed to the property market - the gearing I mentioned earlier. Great if prices increase, bad news if they decrease. What the experts advise is that you spread your risk across different asset classes - property, shares, gilts, cash etc.

    My pretty average investment in shares and trusts has produced over 20% per annum compound growth over the last 20 years, but that figures has jumped dramatically in the last year - and I am now selling shares.

    Do your research and put everything onto a spreadsheet before jumping.

  13. I am astonished! AFAIK that should not have happened, and it must be worth talking to a chartered accountant and lodging a claim before the 6 years period expires. You could ask for a review by the Tax Tribunal. If it was your only house, and you bought it because you intended to live there on leaving the Services, and your circumstances changed so much that you decided to sell - because there was absolutely no chance that Glasgow would post you close enough for you to live in it.... etc!

  14. Iv'e got several properties: some thoughts:

    CGT: If it ain't your 'principal private residence' - is mitigated by taper relief, and is offsettable against some losses - use an accountant. Mine cost me £400 in my first year, and saved me about £1,500 - it's a no-brainer. (NB - As Litotes says, if it's the only property you own, you should get the taxman to confirm that it is your 'principal private residence for tax purposes'. You are allowed this as you are 'forced by virtue of your occupation' to live in rental accomodation.)

    Agents: Yes they do take some money: civvy average is about 12 to 15%, but bargain with them - I'm on 10% as a retired military customer - it's a competitive market. Accepting the points about paying them above, it is, IMHO, well worth it if you're in the forces. Why? Because it's a bit difficult to deal with the tenants' latest whinge when you're in the front left trench in Poohistan... They will vet the tenants, get references, do a march in/march out, etc etc etc. The other point is that good ones build up a working relationship with tradesmen who know that they're a source of regular income: When they ring up the plumber/chippie/locksmith, he'll be on the case in short order, and you'll get a reasonable price. (the example above would have me changing my agent). Remember that you're getting all this for, say, £15 a week... No brainer, in my opinion. They also provide an itemised bill/statement of account each month: stick it in a file, send it to the accountant each year, and the taxman will not try anything funny with you.

    Students: Parental bond is the key. They will, however, wear out fittings faster than a 'normal' tenant.

    It's worth it, but it's not a fast buck. Just like shares, take a minimum 7 year horizon, and if you can't afford to have the money locked up for that long, don't do it.

    Oh - and go to the environment agency website before you buy anything, and check the floodplain information (you can do it by postcode). If it's in an 'at risk' area, don't touch it - insurance woes... PM if you want any personal comments on anything.