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Should I be buying my first BTL now?

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Author Topic: Should I be buying my first BTL now?  (Read 97 times)
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« on: November 17, 2020, 01:05:35 AM »

Hi All,
I did scroll through the first couple pages to see if there was a similar post to avoid duplicating, but there wasn't anything which fit the bill so I'll post.

Background: I have approximately £140k, after CGT, from crypto currency investments from 2017.
I live in Cardiff, Wales, and recently got on the property ladder myself. I had rented for previous 8 years, originally went to Uni here. I know Cardiff rental market well as every year I moved. Plus I'd say I have a good grasp of property values through buying my own house at start of year plus looking now.

I have been looking at rental properties the last couple of months, been to a bunch of viewings and have been waiting for something to come up which makes financial sense. I have been looking either for a small 2 bed flat which I could buy outright or a larger HMO property I could get a mortgage. For the mortgage I would be setting up a LTD company for tax reasons as I still have my own job. I also would plan on doing the maintenance myself but use an online agent to find Tennant's/do paper work.

Done a lot of planning, working out all costs, including refurbishment and have a very comprehensive spreadsheet now which I admit has grown out of control, but more planning the better!

Problem: I have finally found a 6 bed HMO and had an offer accepted for £262.5k. It's about a 8 Min drive from me in a terraced area I know rents well (1min walk to highstreet/shops too). Conservative estimate, I think do up costs will be about 15-20k, plus stamp duty and legal fees, it's puts me about 100k all in (25 percent down payment on mortgage). Rent I am expecting 2100+ a month (once done up). It's already renting now at 1800 but If I'm going to be a landlord, I'd be aiming at young professionals and make it decent.
According to my spreadsheet (with a bunch of contingency built in), I will be getting about 7 percent ROI. Admittedly I will be using all profit to make house repayments so won't actually see the money, but I can live with that. Also after two years, I can remortgage and as I won't be a first time landlord, my broker assures me the rate will be better and I could be looking at more like 8/9 percent ROI. This also doesn't take into account Capital growth, so really that's extra benefit.

Question: Should I be diving into this now? The stock/share market is also in tatters so the only way that's going to be going is up. I could throw the entire £140k into a managed fund which typically average 7 percent ROI over a long period and call it quits. Is it worth all the hassle of refurbishing, managing the property and or dealing with Tennant's, when a managed investment fund requires zero effort? For info, I'm 28, live with girl friend, no kids (yet!) And have a full time job. I'm good with managing things but at the moment all my planning is theoretical. I really could do with some wise words from someone who has been doing this years! Also, is post COVID UK a good place to be delving into BTLs? I know chancellor is planning on increasing CGT, should that be raising red flags for me (can't see why should be a problem but welcome insight).

Long post so appreciate any and all responses. Thanks in advance.

Jack
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« Reply #1 on: November 17, 2020, 10:13:55 AM »

...my broker assures me the rate will be better...

How?  ???

Anyway, I wouldn't. There's plenty of wannabee Landlords who've asked similar questions recently... so maybe the Search doesn't work, or your research isn't quite as comprehensive as you claim? There are so many reasons to sit tight at this moment in time. However, whatever wise words you may receive... from us old lags... will probably fall on deaf ears if you've already got to the stage of having an offer accepted.

From no experience straight into HMO territory is... daring? Maybe daft.

I myself have only gone to sharers... I wouldn't touch HMO. Minister on TV this morning waffling on about making Landlords more "responsible"... I wondered what that meant... more forms to fill in, more loco parentis, more Border Force badges being sent out to us ("you're the Sheriff now!" - "but I don't wanna be a Sheriff!")... whatever is it, it won't be good.

One of my bigger regrets is not starting earlier... but, then, I mean both earlier in my life and earlier in terms of the Universe... the good times are gone, man... they're long gone. there's so many amateur Landlords out there (cocking things up, letting out slums for a million Pounds per month, abusing the downtrodden) that the Government had to step-in and start to control us... it took them years to cotton-on, but they're here now... and they're not going away. Walk away... go to your passive funds or what-have-you.
« Last Edit: November 17, 2020, 11:24:22 AM by Hippogriff »
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« Reply #2 on: November 17, 2020, 11:03:23 AM »

You are clearly a shrewd and well-organised person.You don't mind taking a punt (I still don't think bit coins are a real thing,but I am not clever enough to grasp it)
What I cannot understand is why you would want all the hassle and red tape,in order to get the same return as you'd get from a shares portfolio.I know there is the increase in property value as an incentive,but it could take many years for that to benefit you.I am regretful that I did not buy more when I had the chance,but by then I had some nasty experiences with tenants and the thought of even more dramas scared me off. You have time on your side,damn you,you can watch and wait.

Things that seemed unthinkable when they were mooted a couple of years ago (tenants right to buy at discount price etc) are now looking more possible.The very thought of a HMO brings me out in hives,though I can see the attraction in spreading the risk around.One psycho in a house of six is not as bad as one in a house alone.If you do go ahead,I would wait a while for prices to fall in the coming year or two.Just to add,doing your own repairs can seem less of a good idea when called by tenants at 8pm.Christmas Eve,toilet blocked, unreported for 6 weeks, and sewage in the garden.Just saying. 
 
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« Reply #3 on: November 17, 2020, 11:31:27 AM »

(I still don't think bit coins are a real thing,but I am not clever enough to grasp it)

Bitcoins are not a real thing, so you have grasped it... in times of uncertainty people flock back to the real... that is what Jack (I think) is looking at with his plan - he can't just want a life of hassle for the fun of it, right? I looked at gold over more housing. I didn't jump in any further, yet. A Bitcoin might be ephemeral and nebulous, but you're right that it won't tell you there's a leak in the bathroom and, even though you weren't told about it for many weeks, it needs fixing now, dammit! A Bitcoin won't lose its job and stop paying rent... but decide that it's morally OK to remain there, still using the service they used to be accepting of the fact they paid for... but now for free... and seemingly feel no regret or remorse about it... because... because Landlords are rich parasites.

I would not get into HMOs almost a decade in... never mind at the outset. Some people aren't fazed by this. This is not a spreadsheet area of business. It is about people. Aspiring to target yields with property is a nonsensical theoretical (my view).

Also... those young professionals... they're just the worst!
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« Reply #4 on: November 17, 2020, 01:09:28 PM »

Hi Both,
Appreciate the replies, not sure how to ref replies so ill comment on above.


HIPPOGRIFF - Mortgage Broker Fees - I was told that first time landlords are offered a higher fixed rate (due to lack of experience). Once 1 year experience, they are deemed experienced hence receive a better rate. This may or may not be true, just going off broker discussion.


HIPPOGRIFF - HMOs - From what I have looked at, the only reasonable return (in Cardiff where I am restricting my search) is for 5 or 6 bed HMOs. The other end of spectrum is flats, the best I have seen was a 2 bed for 120k which could rent out for ~800 a month. Nothing that good has come up since. Whereas a 5 bed HMO is around 250-265 and 6 bed HMO is 265-280. 4 bed HMOs are around 240-250 and 3 bed houses (non HMOs) are ~220-230. Hence I was looking at HMOs. Also I would be rented the HMO out to 6 tenants on a joint contract rather than to 6 individuals. I would hope this reduces the risk. Would aim for a group of students or young professional friends etc.


HIPPOGRIFF - Starting young - agreed, I have time on my side. Hence I would like to something with the money (stocks/shares or property) sooner rather than later.

HEAVYKARMA - Hassle - I completely agree, this is why I wanted to ask the question and get other people's opinion. Once taken into account all the time to manage/organise the BTL, even with the chance of higher return through capital growth (more return than I calculated), it may be better to just go with the managed fund and accept slightly less ROI but no time implications.

HEAVYKARMA - Watch and wait - I have been watching and waiting an thought the property I had found was a good opportunity (relative to what I had seen previously), hence I made the offer. But perhaps I did not wait long enough. Maybe I am rushing into this and should just wait a year or so more.

HEAVYKARMA - Own repairs - yes I completely appreciate the fact I could get a call at any point. Again, one more reason to not enter property and take the less invovled stocks/shares root.


HIPPOGRIFF - Crypto/Property - I was very lucky with crypto. Made some lucky decisions in 2017 which paid off. I still have some money left in crypto currency and since I have made back my initial investment, I am content to leave it where it is and see what happens in the future. You are correct, I wanted to put my crypto 'winnings' into something tangible (less risky).

HIPPOGRIFF  - HMO  - Again I am hoping to rent out the whole house under one contract with lead tenant. It still falls under HMO requirements but hopefully would be renting to a group who know each other which (hopefully) takes the edge off. I think I may have a skewed view of shared living. In the 8 years I have rented, I have always lived with around 5/6 people and we've always had a reasonable land lord and not absolutely fked the house. But yes I understand maybe the majority of shared living houses get wrecked.


Thanks both for your replies. You've significantly put me off the idea, or at least to hold off and wait for a potentially more manageable property to come up in the next year or so once the dust settles
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« Reply #5 on: November 17, 2020, 02:24:50 PM »

If I have left you just that bit more disillusioned and cynical,with your dream in tatters,then my work here is done.x
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« Reply #6 on: November 20, 2020, 02:18:52 PM »

Plenty more thing to invest in rather than property,  Iíve never had my eggs in one basket
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« Reply #7 on: November 21, 2020, 11:20:59 AM »

Agreed, I've withdrawn the offer for the house I had and put the funds into stocks and shares.
Precious metals don't appeal in the slightest.
Thanks
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