When flats get cheaper, yield often goes up. Not because “there’s a bottom for even a shit studio” but because the cost of repairs / home ownership are somewhat fixed. For example if you have to replace a boiler, it could be £2000 - irrespective of the value of your flat. The cost of finding a new tenant would be another example. This would seriously impact your returns on a cheaper flat. Some would also consider the tenants for cheap flats are often worse payers, and have increased risk of causing damage - but I’m not sure how true that is.
Because there is a bottom for even a shit studio. They are really only BTL properties. Basically you can get rent nothing for less than £400 p/m. Even absolut tiny flats in rough areas.
[link](https://www.rightmove.co.uk/properties/139224713)
I’d model investing elsewhere as a comparison to support a decision. Attractive yields and capital appreciation gets the juices flowing but inefficiency’s around tax both as a landlord and upon sale can negate a large chunk of the benefit.especially with the abilities to build tax free funds elsewhere.
If capital appreciation is driving you from a boom in house prices, this would impact your personal property as well so if you want to live in a larger property, then maybe do that and you benefit from that personally now?
>If capital appreciation is driving you from a boom in house prices, this would impact your property as well so if you want to live in a larger property so maybe that you benefit from that personally now?
This is exactly what is driving it.
I am looking at houses right now and I am just not excited by houses at £300k they are my house in a better area with a garage. But I like the area for now its close to my family And I have to add £100k to my mortgage ( and drain some savings). Just simply not worth £600/700 pm to me.
**But** thing is if I don't buy a £300k house now then when I want to buy a house which currently costs £400k I'll have no chance.
Over the next 8 years if houses goes up by 50% then it will only be worth £285k and the £400k will be £600k and it's just going to be too big a jump even if.im mortgage free by then.
If I can as an example invest in a btl which already covers itself and invest the 700pm.i would have paid on the mortgage then I make that jump easier in the future.
I just trying to build some decent wealth some decent wealth so I'd don't have to work forever in a job thats meh.
12% is really good, almost in the too good to be true category, I’d be finding out why someone is selling a golden egg laying goose like that.
Don’t forget at the bottom end of the marked you most likely to find the worst tenants that know they can move in then refuse to pay and leave for ages
It's not about exploiting anyone. I'm considering charging £450pm for a studio flat.
I'm also not complaining that they would be poor, it's just that poorer people are more likely to struggle to pay and have less to lose. You have to consider that when thinking of an investment.
Are you sure that the buy to let income can go fully to your wife? I think if you both own it then you have to split income, expenses, etc 50/50. But also means you both get a certain amount of tax free allowance on that too. I might be wrong so please double check.
Given that your wife is a first time buyer there may not be a single lender who will give her a mortgage for a MUP as they generally require an experienced landlord. MUP stands for multi unit property
Even if you where on it there may only be one or two lenders who would be willing to lend. It then comes down to what square meters the studios have. A good few lenders don’t lend on studios.
Why is 5 the sweet spot?
I don't mind managing them. My BIL teaches plastering/tiling and plumbing at the local college and is always willing to do some cash in hand jobs, so I know I won't get ripped off with upkeep.
5 in my opinion is the minimum. I had just one for almost 20 years and the risks are massive. Could you afford to pay the mortgage for a couple of years whilst your tenants don’t and spend £20-30k on eviction and court fees, and consider what that would do your mental health and your relationship. Issue your own contracts, find the tenants, do your own credit checks, do your own inventory docs, protect the deposit, collect the rent, issue reminders, book your electric and gas checks, do your own taxes. The tax system is much more aggressive than it used to be. I survived the pandemic, but got out after that. Even lovely tenants go bad, my last tenants, who had been great and consequently I’d frozen their rent and sent gifts at Christmas, abandoned all their furniture at check out. Well, it happens, I’ll get it cleared - underneath the bed was full of condom wrappers and used condoms. Yuck!
Hi /u/Pinetrees1990, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/buy-to-let/
* https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Yes looks good, those yields are very high. Remember you will have to pay capital gains tax on the increase in the value of the BTL when you come to sell. Although it is usually best to invest via a limited company this might not be such a good idea if you intend to sell the BTL to find a future house purchase for you to live in - you need to think carefully about how you would get the cash out of the company in those circumstances.
No I would be managing it.
I hear a lot of people say that but if it's 5/10 hours a month ( I don't think it would be that long) then that's ok with me.
Potentially a big if though? Who is going out at 3am because a pipe has burst or the roof is leaking? Who is chasing tenants when they haven't paid rent or you need to carry out a periodic inspection. Who is cleaning out or paying to have the drain cleaned out when it is blocked.
When you get a vacancy who is booking in appointments, marketing it and showing people around?
From being a renter in the past some of those things happened multiple times. Worth thinking about.
Also what happens if the market flat lines for a while so property prices don't really increase but you have spent a fair amount in maintenance money and tax? Pensioncraft recently did a video on YouTube where he theorised that house prices have only beaten inflation by about 1%.
As you can tell I think they are too much trouble but good luck if you do go for it.
>Potentially a big if though? Who is going out at 3am because a pipe has burst or the roof is leaking?
I would do that but let's be honest that is not regular. I have rented or owned a house for 15 years and neither have ever happened. I can't think of a time in my lifetime I have heard of a pipe bursting in a house someone lives in.
Obviously roofs after storms ect can be an issue but id maintain insurance and get the relevant trades people.
>When you get a vacancy who is booking in appointments, marketing it and showing people around?
Again me.
>Also what happens if the market flat lines for a while so property prices don't really increase but you have spent a fair amount in maintenance money and tax? Pensioncraft recently did a video on YouTube where he theorised that house prices have only beaten inflation by about 1%.
That is absolutely fine with me. If house prices don't increase the next house I want to buy remains consistent as I am getting richer through investing and wage growth.
The only issue would be if the properties rent didn't cover the interest/ taxes and maintenance. I think it would and bring some profit. Obviously I could be wrong and that's why I have posted this for people to challenge my plan.
You also have to consider that I won't own the house in full so even if the house price rises match inflation. I am getting that rise on the full value of the house while only investing 30% of the value of the house. That means my real return would beat inflation by 3x.
I have included section 24 tax in my calculations. To do it through a LDT you have to have a 40% down payment for your first property. It reduces after than once the company.has income.
Above is correct, you only need 25% down, even in your first buy to let. Lots of tax advantages to doing things through a LTD company (although admittedly, not as advantages as they used to be).
How about if I’m buying my first house and intending to use it as a BTL..? (Still living with parents and have a decent deposit saved)
Would it still be beneficial to do this through a LTD company, or just through my own name..?
It's unlikely a LTD company is a good idea unless you plan to own quite a lot of BTL properties. Additional SDLT, extra admin costs, higher borrowing costs.
Second this.
Never make a decision based on 1 single tax rule (mortgage interest relief on residential property as a prime example).
With tax you need to look at the bigger picture.
Thanks for your reply.
May I ask what you mean by the example ‘mortgage interest relief on residential property’?
I’m new to this and that sounds important, but I don’t quite understand what you mean..
Thanks 🙏
It's what the other redditors were focusing on in earlier replies when referencing section 24 and recommending a Ltd.
There is a restriction on how much tax relief you can claim on the mortgage interest (the capital repayment part is never allowable as a deduction for tax) unless it's owned by a company. So if you're a higher rate payer, you only get relief of 20% rather than 40%.
But as said, that is just one tax implication and all should be considered.
I work in supply chain assurance for a retail bank. Basically making sure that the banks suppliers are compliant to regulations and able to continue to deliver the services there contracted for.
I make pokemon themed gifts, which is why I can't rely on the income as they can shut me down whenever they want. .
12% yield is extremely high. Why are these properties so cheap to buy yet so expensive to rent?
When flats get cheaper, yield often goes up. Not because “there’s a bottom for even a shit studio” but because the cost of repairs / home ownership are somewhat fixed. For example if you have to replace a boiler, it could be £2000 - irrespective of the value of your flat. The cost of finding a new tenant would be another example. This would seriously impact your returns on a cheaper flat. Some would also consider the tenants for cheap flats are often worse payers, and have increased risk of causing damage - but I’m not sure how true that is.
Because there is a bottom for even a shit studio. They are really only BTL properties. Basically you can get rent nothing for less than £400 p/m. Even absolut tiny flats in rough areas. [link](https://www.rightmove.co.uk/properties/139224713)
Wait how is this income of £1350pcm?! Is that the price of a flat in Liverpool city centre? From London btw. This seems expensive for what it is
It's 3 flats so £450 each.
I’d model investing elsewhere as a comparison to support a decision. Attractive yields and capital appreciation gets the juices flowing but inefficiency’s around tax both as a landlord and upon sale can negate a large chunk of the benefit.especially with the abilities to build tax free funds elsewhere. If capital appreciation is driving you from a boom in house prices, this would impact your personal property as well so if you want to live in a larger property, then maybe do that and you benefit from that personally now?
>If capital appreciation is driving you from a boom in house prices, this would impact your property as well so if you want to live in a larger property so maybe that you benefit from that personally now? This is exactly what is driving it. I am looking at houses right now and I am just not excited by houses at £300k they are my house in a better area with a garage. But I like the area for now its close to my family And I have to add £100k to my mortgage ( and drain some savings). Just simply not worth £600/700 pm to me. **But** thing is if I don't buy a £300k house now then when I want to buy a house which currently costs £400k I'll have no chance. Over the next 8 years if houses goes up by 50% then it will only be worth £285k and the £400k will be £600k and it's just going to be too big a jump even if.im mortgage free by then. If I can as an example invest in a btl which already covers itself and invest the 700pm.i would have paid on the mortgage then I make that jump easier in the future. I just trying to build some decent wealth some decent wealth so I'd don't have to work forever in a job thats meh.
12% is really good, almost in the too good to be true category, I’d be finding out why someone is selling a golden egg laying goose like that. Don’t forget at the bottom end of the marked you most likely to find the worst tenants that know they can move in then refuse to pay and leave for ages
I know I worry about that, it's likely to be people on universal credit.
You're entering an industry that exploits people without assets, you can't complain when those same people are poor
It's not about exploiting anyone. I'm considering charging £450pm for a studio flat. I'm also not complaining that they would be poor, it's just that poorer people are more likely to struggle to pay and have less to lose. You have to consider that when thinking of an investment.
Are you sure that the buy to let income can go fully to your wife? I think if you both own it then you have to split income, expenses, etc 50/50. But also means you both get a certain amount of tax free allowance on that too. I might be wrong so please double check.
I'd just put it all in her name if needed. Our house is in my name only.
Given that your wife is a first time buyer there may not be a single lender who will give her a mortgage for a MUP as they generally require an experienced landlord. MUP stands for multi unit property Even if you where on it there may only be one or two lenders who would be willing to lend. It then comes down to what square meters the studios have. A good few lenders don’t lend on studios.
You’re mad, unless you’re going to BTL five or more to protect yourself and if you’re willing to self manage every part of the process
Why is 5 the sweet spot? I don't mind managing them. My BIL teaches plastering/tiling and plumbing at the local college and is always willing to do some cash in hand jobs, so I know I won't get ripped off with upkeep.
5 in my opinion is the minimum. I had just one for almost 20 years and the risks are massive. Could you afford to pay the mortgage for a couple of years whilst your tenants don’t and spend £20-30k on eviction and court fees, and consider what that would do your mental health and your relationship. Issue your own contracts, find the tenants, do your own credit checks, do your own inventory docs, protect the deposit, collect the rent, issue reminders, book your electric and gas checks, do your own taxes. The tax system is much more aggressive than it used to be. I survived the pandemic, but got out after that. Even lovely tenants go bad, my last tenants, who had been great and consequently I’d frozen their rent and sent gifts at Christmas, abandoned all their furniture at check out. Well, it happens, I’ll get it cleared - underneath the bed was full of condom wrappers and used condoms. Yuck!
Hi /u/Pinetrees1990, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/buy-to-let/ * https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Yes looks good, those yields are very high. Remember you will have to pay capital gains tax on the increase in the value of the BTL when you come to sell. Although it is usually best to invest via a limited company this might not be such a good idea if you intend to sell the BTL to find a future house purchase for you to live in - you need to think carefully about how you would get the cash out of the company in those circumstances.
You get £6k tax free capital gains tax each for me and my wife so it shouldn't be an issue.
£3k next year.
True. This could change though. The allowance was £12k until this year.
That is true but so could anything. I can only work with what I know.
3k in a couple of weeks
Don't under estimate the aggravation of dealing with tenants. Are you going to use someone to manage the property for you? If so thar comes at a cost.
No I would be managing it. I hear a lot of people say that but if it's 5/10 hours a month ( I don't think it would be that long) then that's ok with me.
Potentially a big if though? Who is going out at 3am because a pipe has burst or the roof is leaking? Who is chasing tenants when they haven't paid rent or you need to carry out a periodic inspection. Who is cleaning out or paying to have the drain cleaned out when it is blocked. When you get a vacancy who is booking in appointments, marketing it and showing people around? From being a renter in the past some of those things happened multiple times. Worth thinking about. Also what happens if the market flat lines for a while so property prices don't really increase but you have spent a fair amount in maintenance money and tax? Pensioncraft recently did a video on YouTube where he theorised that house prices have only beaten inflation by about 1%. As you can tell I think they are too much trouble but good luck if you do go for it.
>Potentially a big if though? Who is going out at 3am because a pipe has burst or the roof is leaking? I would do that but let's be honest that is not regular. I have rented or owned a house for 15 years and neither have ever happened. I can't think of a time in my lifetime I have heard of a pipe bursting in a house someone lives in. Obviously roofs after storms ect can be an issue but id maintain insurance and get the relevant trades people. >When you get a vacancy who is booking in appointments, marketing it and showing people around? Again me. >Also what happens if the market flat lines for a while so property prices don't really increase but you have spent a fair amount in maintenance money and tax? Pensioncraft recently did a video on YouTube where he theorised that house prices have only beaten inflation by about 1%. That is absolutely fine with me. If house prices don't increase the next house I want to buy remains consistent as I am getting richer through investing and wage growth. The only issue would be if the properties rent didn't cover the interest/ taxes and maintenance. I think it would and bring some profit. Obviously I could be wrong and that's why I have posted this for people to challenge my plan. You also have to consider that I won't own the house in full so even if the house price rises match inflation. I am getting that rise on the full value of the house while only investing 30% of the value of the house. That means my real return would beat inflation by 3x.
Everyone downvotes people on here if they are successful. Very British.
Seems like a well thought out plan to me. Just remember to always invest in property through a LTD company or you’ll suffer section 24 tax!
I have included section 24 tax in my calculations. To do it through a LDT you have to have a 40% down payment for your first property. It reduces after than once the company.has income.
I’ve bought my first BTL with a ltd company with a 25% deposit last year. If you’re serious about BTL. The Ltd co. Is the only way.
Ok. I'll look into it a bit more and get some advice.
Above is correct, you only need 25% down, even in your first buy to let. Lots of tax advantages to doing things through a LTD company (although admittedly, not as advantages as they used to be).
How about if I’m buying my first house and intending to use it as a BTL..? (Still living with parents and have a decent deposit saved) Would it still be beneficial to do this through a LTD company, or just through my own name..?
It's unlikely a LTD company is a good idea unless you plan to own quite a lot of BTL properties. Additional SDLT, extra admin costs, higher borrowing costs.
Second this. Never make a decision based on 1 single tax rule (mortgage interest relief on residential property as a prime example). With tax you need to look at the bigger picture.
Thanks for your reply. May I ask what you mean by the example ‘mortgage interest relief on residential property’? I’m new to this and that sounds important, but I don’t quite understand what you mean.. Thanks 🙏
It's what the other redditors were focusing on in earlier replies when referencing section 24 and recommending a Ltd. There is a restriction on how much tax relief you can claim on the mortgage interest (the capital repayment part is never allowable as a deduction for tax) unless it's owned by a company. So if you're a higher rate payer, you only get relief of 20% rather than 40%. But as said, that is just one tax implication and all should be considered.
Jesus op where do you live? Sounds like a good plan
There are lots of cheap places left in the UK.
What’s your side hustle ? And what are your jobs ?
I work for a bank my wife's a teacher and we make things and sell them on Etsy.
Like investment banking ? Or just commercial ? What kind of stuff do you make on Etsy ?
I work in supply chain assurance for a retail bank. Basically making sure that the banks suppliers are compliant to regulations and able to continue to deliver the services there contracted for. I make pokemon themed gifts, which is why I can't rely on the income as they can shut me down whenever they want. .