Nobody likes you, you fat-cat scumbag buy-to-let bourgeois capitalist pig-dog ...etc. Your tenants don't like you, and don't appreciate the lovely home you've provided for them. Society doesn't like you, because you're exploiting Generation Rent. The Government doesn't like you, because the voters don't like you, so they don't have to - which means they can squeeze you for cash and nobody will care.
I think you have to ask yourself whether you actually want to be a landlord or if you just want to park your money somewhere for a while (how long?) so that it'll hopefully keep pace with residential property prices until you're in a position to buy your own home.Some advantages of buy-to-let:You can gear your investment with a mortgage: nobody's going to lend you a hundred grand to buy shares but they'd be more-or-less queuing up to lend you that on a BTL, if you've got a big enough deposit (which you evidently have).The performance of your investment should track the residential property market quite closely - because it's residential property.It can be enjoyable.You sort-of understand residential property already.Some disadvantages of buy-to-let:It's riskier than you probably think.It's not suitable for a short-term investment: you've got to find a suitable property, go through all the conveyancing, pay the stamp duty (possibly not in your case), prep it for renting, market it, find good tenants (do you know what good tenants look like?) and then, when you want to get your money back out, you have to evict your lovely tenants with whatever notice period we're onto by then, hope they go quietly, market it for sale, find a buyer, do more conveyancing, and eventually you'll get your money back - more or less.It's a responsibility. You can delegate some of that responsibility (for a not-so-small fee) so that it's not actually you that has to unblock the lavvy on Christmas Eve but, ultimately, you're responsible in law for your property.Things can and do go wrong. You might end up with bad tenants, or just good tenants and bad luck. Have a scroll through the Landlord Advice section of this forum for a taster.Nobody likes you, you fat-cat scumbag buy-to-let bourgeois capitalist pig-dog ...etc. Your tenants don't like you, and don't appreciate the lovely home you've provided for them. Society doesn't like you, because you're exploiting Generation Rent. The Government doesn't like you, because the voters don't like you, so they don't have to - which means they can squeeze you for cash and nobody will care....and, of course, the value of your investment may go down as well as up. It seems to me there are more opportunities for down then there are for up in the next few years, but I've been consistently getting that wrong for the past few years so what do I know?If I were you I'd pay for a session with an Independent Financial Adviser and see if he can recommend something with a suitable risk/return profile for your situation.
Is it entirely philosophy or does a higher value property inevitably lead to higher returns despite lender involvement and sunk cost mortgage interest?
What are the specific areas of caution with HMO tenancies? Is it the number of people involved correspondingly multiplying potential for problems or is there something else?
Quote from: caligula on April 14, 2021, 08:28:49 PMIs it entirely philosophy or does a higher value property inevitably lead to higher returns despite lender involvement and sunk cost mortgage interest?Time for Pambin's back-of-a-fag packet extravaganza:Let's assume gross yields in your area are uniformly 5% and we'll ignore various tedious costs for the purpose of this exercise. It's not that big a fag packet...You buy some property for £200,000 with no mortgage.Your tenants pay you £10,000 for the year. Yay!The tax man takes 40% of it - £4,000. Boo! (I'm assuming that's your marginal rate. If it's higher than that, you can buy your own fags)You're left with £6,000. Buy yourself a new lavvy plunger. Go on: you've earned it.Or...You buy some property for £400,000 with a £200,000 interest-only mortgage at 3%. (I don't often recommend interest-only in real life but it makes the calculations easier)Your tenants pay you £20,000 for the year. Double yay!You have to pay the mortgage man 3% of £200,000 - £6,000. MehThe tax man takes 40% of the £20,000 - £8,000. What? FFS!! (See, I told you the Government doesn't like you)The tax man gives you back 20% of the £6,000 - £1,200. This is as nice as they're going to get. Send Rishi a thank-you letter.You're left with £7,200. That's more than £23 extra a week. Whoop-de-frickety-doo.Bear in mind those are all made up numbers, round and rough, like a coconut. Try plugging them into Excel (The fag-packet of the bourgeoisie) and having a play around. See what happens if the yield is lower, or the interest is higher, or the basic rate tax relief disappears.Of course, the annual income is only part of the story. Consider what happens if property prices rise 10%. On your £200,000 property you'd gain £20,000. On your £400,000 property you'd gain £40,000 (all before tax - minimizing your CGT liability is a story for another day). Of course, what goes up can also go down, and if the market takes a 10% dive, then it's bath time: your £400,000 property loses twice as much as your £200,000 property and the mortgage man ain't gonna share your bathwater. He gets his £200k back either way. In your case, this wouldn't be such a bad outcome because a) you've got plenty of equity and b) you want this money to buy a home anyway so, if prices take a dive across the board, the house you're buying should be accordingly cheaper. (This assumes that the area where you want to buy isn't still climbing while the area where you want to sell is plummeting...)Quote from: caligula on April 14, 2021, 08:28:49 PMWhat are the specific areas of caution with HMO tenancies? Is it the number of people involved correspondingly multiplying potential for problems or is there something else?More turnover of tenants, more regulatory requirements, on balance a less affluent clientele, more likely to be furnished accommodation, which is a ballache, and the student market brings its own unique challenges. There's a lot to be said for a nice, basic, unfurnished, freehold three-bed semi.
At the end of the day it's not about profit margins for some of is - it's about what you feel comfortable with. Hence, for me, it's mortgage-free residential freehold houses with no ground rent or Service Charge. If I have to have a mortgage then I have always ensured it's repayment and I've saved enough to go for the best deals - usually the 40% deposit. I then ensure the rent I'll receive is at least £200 over the mortgage payment each month. If I can overpay on the mortgage, I try to.
My boyfriend is currently a lower tax rate payer. Leaving aside whether the relationship is reliable enough to effectively sign over 200k, presumably I could in theory let him buy the property outright in his name, meaning a reduced tax burden on the rental earnings. It's only a few K difference so likely not worth it, just musing.
The capital value of properties increasing in general is a big concern. I may be wrong, as I haven't paid complete attention to the detail over the last few years, but from what i've seen recently it seems that if i'd bought something in say 2014 or 2015, i'd now be sitting on quite a big capital gain. I'd ideally like to grow my deposit but my big concern is progressively being able to afford less as time passes, despite hoping to save another c.60-70k over the next two years from employment income. Buying something now was partly an insurance against that - to have a stake and keep step. It always seems that house price falls are temporary and ultimately the only way is up - is that completely wrong?
Is it worth looking at auctions and trying to find something a bit under value, to insure a bit against house prices falling?
Is your own investment situation laid out in any of the threads? Have you also dabbled in property development?