I'm in the same position as you - in fact I'm off to look at a couple of properties this afternoon - but I'm increasingly less certain about it being a good way to go. In my case, it's a matter of trying to get a better return on cash investments.
If I were you, I wouldn't assume that £500 pcm adds up to £6000 pa. Unless you are in an area where demand outstrips supply and where people stay put in one place for years at a time I would either subtract an amount for void periods or subtract an amount for using an agent or subtract an amount for using an agent yet still suffering from voids.
Part of the arithmetic of buy to let used to be the increase in capital value of the property. Unless you live in one of the few areas where property prices are still increasing, you live in one of the many areas where they are not - and there are people I trust who say that we are many years away from bottoming out. I'm doing my calculations on the basis that £Xooo investment will produce £Yoo return year after year and even if the value of the asset falls, that's what I've committed to produce the income. It could be many years before I see an increase in value of my capital so I'm not counting it and if £Yoo expressed as a percentage return on investment is less than I could get somewhere safe then it's not worth the hassle to me. Round my way there are 50-60 grand properties that will rent out for 350-400 per month so the arithmetic looks a little better to start with.
Other costs? Insurance Gas inspection and repairs Energy Performance Certificate or whatever they call it nowadays Running repairs - which will depend a lot on the property and your tenant You might also like to take a look at this:
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ask how long before all councils are doing it.
Personally, I'm also looking into the advantages or otherwise of buying a bigger house for myself and taking in a lodger. And I'm looking very seriously at peer-to-peer lending as a way of getting a decent return.
That's my opinion: YMMV. And naturally, being in the position I am right now, I'm very interested in other replies!
My own experience of doing this when returns on a "normal" property were 12% is that, without the capital gain, it was more hassle than it was worth. Tenants not paying their rent, moving out before the end of term [1], leaving the place as a tip [1], making request for "unreasonable" improvements. Yes, you can employ an agent, but that will cost you 15% and they can't insulate you from every problem and sometimes create problems of their own.
At 4% return, I wouldn't touch it again with someone else's barge pole.
Though, even in the current market, there are properties/locations that return 12%.
Are you expecting a capital gain here? If you are, would you consider investing in a property and keeping it empty was a good investment?
YMMV
tim
[1] Having "spent" the deposit on the final month's rent that they didn't pay.
I don't know exactly what the overheads would be - but presumably there'll be property insurance and maintenance, plus agent's fees if letting through an agency. And you'll need to pay for certificates of gas and electricity safety, etc. etc.
If you've already got £150k with which to buy it, the £6k of income represents a return of only 4% even if you keep the lot (which you won't). You should be able to get at least that by investing it in a 3 or 5 year bond.
If you need to borrow the money, you'll be paying more in mortgage interest than you're getting in rental - and will have to rely on the property appreciating in value over time to get any return at all.
How long will you keep the property. You probably wont see a capital gain for many years. If prices fall then there is a potential loss, even if you can sit out any drop in prices it may affect the rental value.
My son lets his house in Richmond North Yorks. He has had no problems, even when the first tenant left another was found within a couple of weeks. No maintenance issues other than a bit of damp which turned out to be tenant induced through lack of ventilation.
He would now like to sell the house with sitting tenant, around £120,000 with £500 pcm rent if anyone is interested.
In a good year, you'd pay 20 - 30% for maintenance and other admin costs, in a bad year, you might only make £1000 in net rental income due to voids and "unusual" problems. There's a good chance that a few tenants will leave owing you rent or cost you money to have evicted, while trashing the place before they leave out of resentment. Avoid DSS tenants like the plague.
According to a friend of mine who owns a dozen or so flats, students are good renters who normally move out every July and back in every September, giving you a month to decorate in between. Check with your local Students' Union, who will vet the tenants for you, and will administer the place for not a lot if you ask them. They can also get bad tenants into trouble with the college as an incentive for good behaviour. Then budget for a complete repaint and minor renovations every year when you work out the rent you need to make it pay. The place
IME as a tenant, Agents do absolutely f*ck all beyond handing the money and running a credit check. cf when the boiler dies, middle of winter, baby in the house and landlord on holiday:
Agent: "Nothing we can do..."
Me: "Hires local CORGI firm to fix it"
Landlord, later on return: "Thanks for finding a reasonable company to fix it - here's your money back".
Luckily for me, the landlord was a decent bloke - but it taught me that teh Agent was basicallya bottom feeding parasite.
That is also true from the landlords point of view as well. But if you are not in the same country then there isn't a lot of choice.
Sat on the other side of the fence whilst on secondment to Brussels we rented our house out apparently without problems through an agent (save for breakages and the odd boiler fault fuel line airlock - which we were royally ripped off for mostly due to tenants forgetting to order heating oil). Oil lifters can be tetchy with air in the line.
We had the house professionally cleaned before our return and still found a spectacular mess. The master bedroom had been painted dark camouflage khaki green and another bedroom shocking pink & purple. Hardly in keeping with the tenancy agreement for pastel shades.
Our friends in the village said they had never seen the agent or his representative visit even once. The agent was pretty good at keeping the money flowing so he wasn't all bad but expect to take a big hit on redecorating and kitchen replacement periodically.
It is truly amazing what hardware tenants can break!
I entirely agree with this. One of the biggest 'costs' is void periods between tenancies. According to ARLA, the average is about 5 weeks a year, which is another 10% of your rent whittled away.
I bet he would! One of the bigger issues for landlords is an exit route. It's often hard to sell with a tenant in situ, as tenants understandably are not keen to allow viewings, may not keep the place pristine, etc.
on the other hand, selling without tenants in place means losing several months' rent, paying rates, heating an empty house, risking vandals/squatters.
Done it and couldnt sell quick enough, ok not the best area but the hassle was draining, on the rental aspect I doubt if I made a profit over 2 years between one thing and another. Sold house at profit and invest abroad at 10% plus can make a bit more by playing the sterling market. Personally I wouldnt touch property at the moment.
As a business proposition, it's totally reliant on house prices going up. Aren't there house price futures/bets you could utilise for a lot less hassle? I think Betfair may have something.
That's a poor buy. The one I know a lot about was £75k a few moths ago and gets £500 pcm. There are plenty at that sort of price in Tipton. It was a repossession and need a new kitchen and bathroom but even then it was under £85k. It was sold lease hold but the freehold was included when the deal was completed. The bank didn't want the freehold for some reason a nice surprise for a change.
If you are buying to make income you are obviously looking in the wrong area.
In Scotland have landlord licencing which is basically just another fee to pay except when getting into Houses in Multiple Occupancy, HMO, where 3 or more unrelated people are living in same property, suddenly you will require installed fire alarm system, fire extiguishers, fire doors and before next year, sprinklers.Along with deposits held in escrow.
This in addition to Energy Performance Certificates, EPC, never seen or been asked for one, gas safety sign off and PAT testing on portable appliances like kettles and toasters if the property is going to be let furnished.
As a landlord you are providing someones home and have responsibilties for that, this includes calls in the middle of the night for failed heating , leaks , noisy neighbours and lonely tenants just wanting someone to talk to.
As a landlord have had 3 difficult evictions, 2 fires and a murder in last 20 years, in addition to redecorating at least once a year, void periods, inventory walking or being trashed, companies trying to trace previous tenants who have defaulted on credit.
Tenants regard landlords as rich beyond the dreams of avarice and fair game for anything... `they can afford it` The better job they have the worse tenants they make in my experience.
If you would like all of the above but 15% more expensive, employ a letting agent.
There is always capaital gains tax waiting to swallow any ,er, capital gain you might have hoped to make over time as well.
We've got a small rental portfolio but in a thriving Uni city where three bed ex council house is now around 240 K odd;!..
Vet your tenants first, go on your own instincts. Do check references they should have them unless there're coming from abroad when perhaps they won't but we've never had problems with overseas renters except the little Japanese lady who insisted I wear slippers to go into the bathroom. I said I would if she could find any size 14's;!..
If no references from their pervious landlord then be very very wary. Try to find out why there leaving and if it seems a bit odd ask if you can have the existing landlords number..
Get a proper Shorthold Tenancy agreement these run for 6 months and can be extended if they want to stay and you want them there.
Take at last One months deposit and thats lodged with the Deposit protection service. This is for damages and them not paying the rent etc and cleaning if they do mess it up.
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it all in a written agreement and make -sure- they understand it..
Have a look at some sites such as,
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Take pictures of ALL the rooms and give them copies on a CD ROM then any disputes should be easier to solve.
Check the property often if you have any suspicions of them. Check they pay the rental on time and chase them if its a few days late. Its to keep them good;).. Sometimes we have had them late but if there is a good reason then its usually OK..
As to the agreement make sure it has clauses of what there supposed to do like the garden etc and if they want to decorate it differently make sure they ask first and its to be done to a "workmanlike" standard.
Pets?, mostly no but if they look like good tenets otherwise then a cat or small dog if it can be accommodated and its not likely to cause you a problem then allow it as most all others won't so you might be in a better position. We've allowed a cat and a small jack Russell type dog and they've been no problem.
No do bear in mind that this is LONG TERM stuff you don't make a killing overnight its a long haul process and its best for you in a generally rising market so your .. location as usual, is important.
Can you do better elsewhere with your money?. Difficult that some say you can clear 4 or 5 % I'd like to know where and how safe and what building society that is;!..
And if your renting a BS will usually charge you a higher rate so if you need to raise a few quid do it on your existing house you'll get a better rate..
Check with an accountant if you have one if not get an hours advice on what's allowable and what's not against Tax etc..
And finally don't bother with an agent unless its a very long way away. You can do just as well yourself and sometimes people prefer dealing direct with the landlord.
You'll be on call 24/7 for any problems so if your not around make sure theres a friendly handyman, Gasman you'll need one for boiler inspections, electrician etc otherwise its all DIY if possible..
And best of luck, its been good for us but as others will say its all long term .......
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