Are you a landlord?

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  • Are you a landlord?
  • edward2000
    Member

    My brother and I are due some inheritance as my gran passed away a couple of months ago. My brother has suggested we purchase a house to rent out and use the income to pay off the mortgage. I assume we can set this up as a business and offset the cost of the mortgage repayments against our rental income, this being more tax efficient. My brother seems to think this will help supplement our pension. We are both in our 30s

    Do you think owning a second house is a good investment? What are the things to consider? I have a mortgage at the moment, but I have never thought about buying a second home.

    Thank you

    Premier Icon mikewsmith
    Subscriber

    Landlord – Yes
    Good Investment – Currently No
    You can only claim costs and mortgage interest against tax, repayments are not deductible and rent is considered as income
    So you can claim rent as income, with interest, costs such as fees and maintenance etc as deductions.

    Be aware you are liable for things like replacing central heating boilers etc. and periods without rent too.

    Not a good or bad idea just do some proper research.

    PS STW handwringing lefties will hate you

    samuri
    Member

    Landlord – Yes.
    Good investment – Well we make more money than it costs us, so yes. So far, touch wood, we’ve not had any problems.

    Good tenants are wonderful things. Make sure you get good ones. Put effort in selecting the right people.
    Keep receipts for everything you do on the house. EVERYTHING.
    Use an agent to proxy all the crap.
    Register the lowest paid one as the landlord. (This is actually just part of the nominee’s tax declaration)

    Personally, if I thought we could sell the house I’d do so to be honest. It’s a lot of worry for me. I’d rather invest in something with perhaps less profit but less concern. I worry about maintenance costs unexpectedly biting us all the time. Something like roof repairs or pipe burst.

    Premier Icon stilltortoise
    Subscriber

    It’s not a guaranteed good investment. There are many things to consider such as the cost of the mortgage versus any increase in house value which will then be subject to capital gains tax when you sell. However for some – like me – it is nice to have a tangible asset in the investment portfolio. Moreover it is also an additional income.

    You used to be able to include property in your pension but I’m not clear on whether you can still do it and how it works, so best seek some advice on that.

    The other consideration is getting good tenants. After a pretty poor tenant last year we got a lovely family in who are looking for long term rental and even want to look after the garden. It’s a lovely feeling being able to provide a home for someone and have a good tenant-landlord relationship. The downside is if they are REALLY long term we’d have to turf them on the street to realise the asset in retirement. The street the house is on is full of long-term (i.e. lifetime) renters. I can think of worse problems to have as a landlord and thank my lucky stars for good tenants.

    DrP
    Member

    Register the lowest paid one as the landlord

    If you are both on the mortgage/deeds, you’re both landlords… As far as I’ve read up, you can’t twiddle the tax by saying the lowest income is the landlord..

    DrP

    Premier Icon mikeyp
    Subscriber

    My other half is a landlady and it pays the mortgage and not much else after deductions. Make sure you do your sums especially if interest rates go up.
    Just say no to any pets or smokers.

    Premier Icon mikewsmith
    Subscriber

    Just say no to any pets or smokers.

    Smokers and DSS and kids, pets are often easier

    Just buy some houses and let people live there for nothing, it’s only fair.

    That’s the opinion of some on here anyway.

    Premier Icon Stoner
    Subscriber

    Was a Landlord for 12yrs until next week when I complete on the sale of the flat in London.

    By my calculations the flat has delivered something like a 7-8% IRR (ungeared, before tax) over the 12yrs.

    i.e. the combination of net income and capital growth annualised over the 10 yr period is 7-8% p.a. based on the purchase price in 2001. However, for the most part we havent had the flat mortgaged, so we havent really been maximising the returns or tax savings. In fact Mrs S just paid our tax bill for last year yesterday – all of it on rental income without interest deductions. I may be a rentier but I’m not a tax-dodging rentier. Id make George O proud 🙂

    For the most part it has been a good thing. Occasionally it can be a bit frustrating, especially having moved 100 miles away. But other than being held empty for sale at the end of last year, it has never been vacant for more than a 10 days in total over 10yrs. It helps to have a good flat, in a good location, that is priced for good VFM. I also look after my tenants v well and I think Ive only had 4 or 5 in 10+yrs. I also pay a fair wodge to a management company to service my tenants if they have a problem and to collect rent for me.

    But I was there at the end of the last tenancy to give it a a 5yr overhaul and whilst its still in good nick I could see work coming up within the next 5yrs that I didnt want to have to sort out. Mainly because its all building work that I can do, but without a van and a helper would be impractically difficult to do in a 4th fl flat 100 miles from my workshop and so Id have to pay someone else to do work I could, and Id resent that.

    I also think the London market has got a bit frothy. It doesnt mean its going to crash, I just think Im going to take my money out now. we wont be reinvesting the proceeds into direct property investment again for a bit.

    jambourgie
    Member

    Smokers and DSS and kids, pets are often easier

    Is it so Black & White’ though?

    I know plenty of people who smoke, but not in the house because…well, it stinks. Would they even tell you that they smoke? DSS: A bit of a vague term. Doesn’t generally mean some Jeremy Kyle stereotype. Lots of people sometimes claim housing benefit on a low/unsteady income. You’d never even know if they were claiming anything anyway.

    Conversely, I’ve seen houses wrecked by kids and dogs. Including one that had all the downstairs skirting/bottoms of doors chewed out by a dog.

    Just sayin…

    Premier Icon mikewsmith
    Subscriber

    Conversely, I’ve seen houses wrecked by kids and dogs. Including one that had all the downstairs skirting/bottoms of doors chewed out by a dog.

    Just sayin…[quote]
    Which is why I’d added kids to the list.

    jambourgie
    Member

    🙂

    Yes, you did.

    Legoman
    Member

    Landlord – yes.

    A few bits of advice from my experience:
    – if you’re buying with a mortgage, check the small print. Our BTL mortgage prohibits us letting to DSS tenants. Might not be a problem for you, depends on the area/target market
    – Ideally buy somewhere close to home if you can, that way you can keep an eye on it and do any small jobs yourself, rather than always paying tradesmen. Newer properties are much less hassle from a maintainance point-of-view, but not always the best investments.
    – choose your agent very carefully (get recommendations). We’ve had more problems caused by poor agents than by problem tenants
    – do your own departure checks when tenants leave. Agents (even good ones) won’t necessarily have the same standards as you – what they find acceptible wera and tear, you might not.

    My most memorable experice as a landlord was when our first tenant left, the agent called me and said ‘she’s left the place immaculate, I recommend refunding the deposit in full’
    I asked for some photos before agreeing, which revealed the tenant had nicked the washing machine and painted the marble fireplace matt black – neither of which the agent had noticed!

    Premier Icon thepurist
    Subscriber

    Use an agent to proxy all the crap.

    WHAAAAAT? IME agents are almost entirely useless hair-gelled big-tied mouth breathing left handed shandy drinking oxygen thieves. I ditched mine years ago when they failed to tell me there had been a minor issue with the gas inspection resulting in the boiler being switched off. Fortunately the tenant had my phone number, I got someone round fixing it that afternoon then 3 days later the agent phoned me up to let me know and quote me double what I’d paid to get it fixed.

    Use an on-line agency to find tenants (iigloo worked for me, now part of rentify) – they stick the property on all the main websites and can do the same referencing checks as any other agent but only charge a modest flat fee. Then manage the place yourself – do your own check in/out as above & inspect the place once every 3-6 months. Find some decent local tradesmen too – find recommendations for those that will turn up on time and do the job that’s needed.

    jambourgie
    Member

    Our BTL mortgage prohibits us letting to DSS tenants

    How does this work in practice? Say you rent to a guy, works full time in a shop. He gets his hours reduced so claims a bit of housing benefit to top up. Are you then in breach of your mortgage contract?

    Mind you, housing benefit is paid by local councils. DSS presumably means Department Social Security. Is that like sickness benefits/Dole etc?

    What then happens if the guy loses his job at the shop, but then gets another job a month later but claims dole in-between. Would that invalidate your contract. Would he have to move out and in again a month later?

    Legoman
    Member

    How does this work in practice?

    That’s a good question & we’ve never tested it. We have challenged it with the mortgage company when we’ve needed to find a new tenant and they won’t compromise. DSS means housing benefit for the purposes of our situation.

    Our mortgage company don’t do BTL mortgages since the financial crisis and they are actively trying to get out of the one’s they have – twice they’ve called me asking if I’ve considered looking around for a better deal. I don’t want to give them any excuse to call in the loan by breaching any of the mortgage conditions, so we just live with it.

    Landlord (well my missus technically) for the last 4 years. We’ve made approx. 5% per annum after expenses but before tax. We have had the same great tenants for that time. We’ll be selling shortly as we’ve moved out of the area and our tenants are buying their own place. We may well buy something to rent out where we’ve moved to as the rental market is strong here.

    Find good long term tenants, live nearby and find reliable tradesmen so you don’t have to use an agent and its a great investment. Its great to be able to walk past and touch your investment rather than it being a number in a computer somewhere. However I would imagine with poor tenants or a series of 6 month tenancies it would be a pain in the ass.

    skiprat
    Member

    Landlord – yes

    Ours is about a mile away from home and we used an agent to find a tenant and to manage our first year of renting as neither me or mrs skip had ever rented a property out before. They gave cover for chasing rent payments and stuff. Just felt safer at first.

    Found us a family of 4 with kids at local school and mum and dad that both work for the council. They are long term renters and they would be happy in there for years. They have my number and i’ve had to sort out 2 broken toilet flushes and have a sparky sort out a bit of old wiring.

    Have a slush fund on hand should you need to repair anything big such as a boiler or roof, and you soon get to know tradesmen you can trust.

    Our rent covers the mortgage and bills so the house is paying itself off. We’ll not be rich but if its longterm you’re looking (pension time like us), theres no reason not to.

    Premier Icon jambalaya
    Subscriber

    This is a very good idea. In the medium/long term you are quite unlikely to find a better investment (better defined as a combination of risk and return).

    I’ve been a landlord with investment property at various times over the past 30 years and the only mistake I’ve made is to sell the properties, should have kept them. (quick edit: we had some flats in London at one time, over 25 years they’ve gone from £300k to £2m (we sold way too early unfortunately) – so you can make a lot of money, in the 1980’s 300k was a lot but it’s clearly less than the £2m now inflation adjusted etc)

    You don’t need to set up a separate company to do this. it is worth having a written agreement between you and your brother, what happens if one wants to sell, what happens if one cannot afford bills for repayments, what happens if one of you passes away etc.

    FWIW when we ran number of properties we paid a specific individual to look after them, on a single property we paid the agent to find the tenant but then no monthly payments as we managed property and we are capable of calling a plumber and don’t need tp pay an agent 15-20% (inc VAT) to do that for us.

    By reference my daughter has just started a job in Leeds, she’s in a house-share with 3 other professionals, we estimate the rental yield is over 10%. If you are doing calculations you need to look medium/long term IMO and look at capital gains/paying mortgage down rather than short term income, a buffer of rent over mortgage interest is essential as interest rates will probably go up faster than rents in the next few years.

    I strongly suspect a very large portion of investment properties don’t appear on a tax return.

    samuri
    Member

    WHAAAAAT? IME agents are almost entirely useless hair-gelled big-tied mouth breathing left handed shandy drinking oxygen thieves.

    First time landlords. They need help understanding what the processes are.

    Plus, do you really want to get called out at two in the morning when the roof starts leaking?
    How about when they stop paying the rent?

    Find a good agent through recommendations let them deal with the pain.

    Oh, and my wife and I are both on our rental mortgage but she is the landlady. Tax office is fine with this.

    Premier Icon matt_outandabout
    Subscriber

    Yes to being a landlord.
    It has been OK investment, but is a faff.
    As said earlier, good tenants are gold. We are currently £2k out of pocket to one dodgy one…
    We do it direct, no agent but may change this.
    Get good financial advice, get hold of other local landlords and take them out for a pint and pick their brains.
    Having said that, we likely need the money out of ours this year to buy a family home. Anyone want a big 2 bed flat in Perthshire, with riding in the doorstep? It has returned over 10%, not taking account of any capital growth or decrease, for 5years.

    natrix
    Member

    In our area you get a better return on your investment with flats rather than houses – although with a flat you are often buying the leasehold rather than the freehold and you often have to pay a monthly management fee.

    We’ve found our letting agent to be very helpful. Before buying a flat we sent her the estate agent details of the ones that we were interested in so that she could give us her (free) opinion. She knows a lot about properties in the area and which ones make a good rental property (and which ones don’t).

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