UK Landlord Forum / Life

Im looking to move house and looking at the different options. I think im in a fortunate position of house being worth 75k and a mortgage of under £25k so have a lot of equity in the house. I think the house could be a good earner as rent could be 500-525pcm for the property and my repayment mortgage is £128pm.

However, my own income is tight but has some flexibility (our household income is less than £25k pa). My father would give me money for a deposit of a new house for us to live in and my initial idea was too sell my current house and use monies from my father to move a few steps up the ladder. But now im thinking of renting current property and maybe moving 1 step in the ladder.

I am looking at costs with gas certs, elec certs, agency fees and then income tax on the rental income I would receive and wondering whether it is worth it. Im thinking for it to be worth it, i would need/want £200pm (over the course of the year to be net profit to me after all the annual/monthly costs are paid for), is this achieveable?

Electric certs not mandatory. GSC is (annual; get the boiler serviced at the same time). You'll also need an EPC (valid 10 years). Landlord insurance. Carbon monoxide detector. Keys cutting. Various little jobs to get it ready to let out. Possibly purchase an AST or craft your own. Maybe become a member of an Association. Then try to factor something in for repairs (just in case).

Agency fees are completely avoidable - unless you enjoy throwing your money away or the property will be very far away from you when you have moved. Ask yourself... what would they really do for me for their money? Please come back when you've considered what it is that they can do that you can't do, or what they can do better than you.

Income tax obviously depends on your personal situation, 20% sounds like, but there's plenty you can class as allowable expenses before calculating it out.

Consider not only what you get coming in, but what you avoid going out, at least for some / any time that you might end up having two properties (I did that for some months and it got quite painful).

Most likely achievable but the word of warning is - don't do it half-hearted and don't expect a Letting Agent to protect you from all of your responsibilities / obligations and don't expect them to be competent, or not to fleece you. Don't expect to get good Tenants and read up on some horror stories. Don't expect things to run smoothly... but they might! Do expect some added effort / stress on your part.

Given your age is under 40, and you will eventually want to take another step up the ladder, you need to factor in moving costs.

If you say its £5,000 (legals stamp etc etc) it's a two year payback if you get your £2400 pa profit ( less tax = 2.5 years)

You will have to inform your mortgage co as well, and they may hike your rate/ say you cant.

Plus its a pain in the arse when they don't pay, and you cant repay your own liabilities due to them dicking you around.

During my short time on this forum the people who tell the sorriest tales of woe are the "accidental" landlords, it breaks your heart what some tenants do to good people.

Given the current market, I would get as many steps up as you can now, and enjoy it!

Cheers for the advice.

I am quite fortunate that I have a year's worth of mortgage overpaid whilst I have been living in property, so would still be able to cover that if the property was vacant. And I would want to continue to overpay the mortgage.

Although this is quite morbid, my next step up the ladder if did rent and move one step up ladder would be from inheritance from the parents, so long term would want to keep this property as I feel the house value to monthly rental price would get is high

I would still be local to the property, but my thoughts on using letting agents is for the advertisement, contracts, credit checks etc. Also I do not know people in the trades to have on hand to do repairs. Also for 5% plus vat the letting agency would take I dont feel this would be a waste of £50 a month, though obviously greater profit if didn't, though I would need to research more into their added fees for simple tasks and properly weigh this up.

Need to look into mortgage costs of going buy to let on the property and how their fee is to change, but would be able to afford the increased monthly payments as the mortgage is so low.

The financial issue I would have would be if the boiler went and needed replacing, tenant wrecked the place, as I personally dont have lump sums of cash, though the latter landlord insurance would cover??? Should this be the red flag??

The red flag - for me - is your faith in a Letting Agent. Don't trust them. Whatever sounds too good to be true, will be. Don't let them act in your name. If they offer to do a full management for you, then ensure they do their job. If they protect the deposit for you, ensure it's done correctly and don't take their word for it - you, as Landlord, are ultimately responsible for anything that goes wrong - not the Letting Agent, who is just that - your Agent. If an Agent isn't doing nothing for your money, they won't be happy. Don't sign any Ts&Cs from them that tries to enforce you paying them perpetually, as long as the same Tenant remains, even if you no longer want their services.

If you must use an Agent, Tenant Find is the service you want...

It's not that £50 per month is a waste... it's that the Agent probably won't do anything for this £50 per month (for example, all the things you mentioned are one-time-charge services) and will likely try to screw you, and your Tenants, over with renewal fees and various other costs. If they're doing Rent Collection for you, they'll probably hold onto your money for days. If they say they're doing Inspections they probably won't. If they say they're doing an Inventory and Schedule of Condition for you... why would you trust them to do it? Repairs? Get some contacts quick... the Letting Agent will be taking kickbacks from tradespeople and marking your invoices up without a doubt.

Anyway, enough on Letting Agents... can you tell I pretty much despise them?

If your LTV is good on the current mortgage, you may not be asked to pay more by your Lender, I wasn't. Only an £85 fee to acquire CTL.

Writing your own AST is a worthwhile exercise (even for a single property). It can't take more than a day and it's a really good way of ensuring you're familiar with what it contains, what you are liable for, what the Tenants are liable for, all that stuff... generic ASTs really don't do it for me. There are plenty of samples on t'Internet so you can create your own very effective, suited to the property, AST.

For Landlord Insurance, I would recommend going via a Broker and tell them what cover you want. Then you can tailor it to your needs.

So, I think boboff and I are saying something along the same lines - collate some figures, do some sums, calculate some risks and decide in the cold light of day if it's for you... remember, it's a business, and you can't retain any emotional ties to your former home ...there's nothing worse than an overly-optimistic accidental Landlord coming on forums crying about how it all went wrong and their home(!) has been trashed - or their Tenant is about to sue them for 1x to 3x the deposit amount. I jest, of course.

P.S. - consider British Gas cover for things like the boiler... a lot of Landlords use this, gives the Tenants a British Gas number to call, instead of you. It's about £20 per month, can be tailored to be less. You can get the GSC included if you want.

http://www.britishgas.co.uk/products-and-services/landlords/landlord-packages.html

I don't actually use this. However, I might well in the future. Have been humming-and-hawing over it. GSC and a boiler service for me was just £65, so I was thinking this was probably pretty good value. British Gas have to come around and say your boiler is fine for them to take on, though, and - in future - the last thing you want is the British Gas man whispering in the Tenant's ear "I'd be having a word with your Landlord about replacing this boiler for you" - because they do do that and, guess what, British Gas will always have a good deal on the latest type of boiler ready and waiting. Performance-related-pay and all that.

Anyway, good luck.

I think I am saying don't do it.

You wouldn't put £100,000 into an investment with 2.5% return and this much risk, except you want the eventual property price increase as a payback.

£100,000 in two house is £200,000, if you buy your PPR for £200,000 you still make the same capital growth, less risk and any gain is always tax free.

Renting out one house as a business is just not worth it. Your first one, maybe, but only one no.

True, and the hypothetical £100,000 house and £200,000 might appreciate at the same %age rate, effectively giving you double the appreciation in absolute terms with the £200,000 house you're living in (comparing a single house). But, the main difference I get is that it doesn't feel like you're making money in that scenario, by that I mean having someone else passing money over to you, in terms of rent. I do take the point about tax, though... can never forget that once you've jumped across to being a Landlord.

I also take the following point - if this is the start of something bigger in Landlording terms, then good luck - but if it's an example of an accidental (sorry if that term offends) Landlord who will get into trouble through them not being professional or simply being naïve, and that's just with one property, then have a good old think about it.

The other thing to regard is time.

Most BTL will be a damn site better after 5,10,15 years. The market is such that yields should improve, profit versus the interest on a repayment mortgage will ease, and it become relatively easy.

I don't know, but I just think recently after seeing some stories told here, that to do it right in today's world, you need to be professional, and physically there is not the return on your "investment" of time to be professional if your turnover is only £6,000 a year.

Lets not forget that if it's just cash, then the £100k in an ISA over time will net his £200 a month. That takes no time at all, is risk free, but you dont get the capital growth, but if that is the only motivator to do it, then again you could invest this in your own house.

Lastly, I know one thing, he will do what ever he feels is right, and that is good. But those two weeks Holiday in August you took off from work hoping to get a cheap late deal in the sun? Well the tenant hasn't kept up the garden, the guttering needs repairing, and the dog you didn't know they had has chewed all the doors, so before you can let it out again, you need to spend that time in August, and the money you saved for the Holiday sorting out the house....and your wife has to work, so you have to take your kids into the squalid house all day whilst you work, and they complain, etc etc

Or you find someone who pays the rent on time, looks after the house like its theirs and stays for 10 years never giving you one minute of trouble, your only regret having to pay the Agent £3000 + for doing nothing.( that money could have been a second honeymoon!)

Quote from: boboff on April 20, 2014, 07:02:36 AM
Given your age is under 40, and you will eventually want to take another step up the ladder, you need to factor in moving costs.

If you say its £5,000 (legals stamp etc etc) it's a two year payback if you get your £2400 pa profit ( less tax = 2.5 years)

You will have to inform your mortgage co as well, and they may hike your rate/ say you cant.

Plus its a pain in the arse when they don't pay, and you cant repay your own liabilities due to them dicking you around.

During my short time on this forum the people who tell the sorriest tales of woe are the "accidental" landlords, it breaks your heart what some tenants do to good people.

Given the current market, I would get as many steps up as you can now, and enjoy it!

Take great care with vetting your Tenant and put it all in writing with duplicate signatures; in other words don't trust them one bit and in my experience of letting for 20 years; 60 percent of my tenants were OK; the other 40 percent I would not let a dog kennel to them. The best tenants are single women; usually professional; the worst tenants are men; Period don't touch them with a barge pole; been there done it won't do it again. Wishing you well.