Buying to let - still viable?

VimFuego · September 2023

I'm thinking of buying a flat nearish to work with a view to renting it out to folks there. We have a fair number of young people working for us from far flung places like Oz, NZ etc who look to rent a place for about 3 years or so. I've been sounding a few of them out and I reckon I could offer better terms than they are on (e.g. long term contracts and so on). They're all good earners, reliable people and all that, so a very low risk of being tenants from hell. Was just wondering if buying to let is still a good option. I'll be debt free to do it, so I reckon I could easily gross a return of about 5% plus capital growth, but been reading things about how it's changing out there for landlords.

TTony · September 2023

Depends on various things, including your current income/tax situation

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-aHQIA2d4bjXj

I looked at it a few months ago, and decided that the main benefit was from the potential capital appreciation on the property. If you're in it for the long-term (ie 10+ yrs) then that's a reasonable bet. But in the shorter-term, property prices can go up *and down* by 10%+ pa, so you could find yourself out of the money if you needed to sell quickly.

Having reliable long-term tenants is a positive in your case though, if that means no tenant-free period and you're also not exposed to repair costs for damage caused by unreliables.

Kittyfrisk · September 2023

TTony said:

Depends on various things, including your current income/tax situation

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-aHQIA2d4bjXj

I looked at it a few months ago, and decided that the main benefit was from the potential capital appreciation on the property. If you're in it for the long-term (ie 10+ yrs) then that's a reasonable bet. But in the shorter-term, property prices can go up *and down* by 10%+ pa, so you could find yourself out of the money if you needed to sell quickly.

Having reliable long-term tenants is a positive in your case though, if that means no tenant-free period and you're also not exposed to repair costs for damage caused by unreliables.

All good points.
Regarding the repairs & reliability point, don't ever get exposed to liability by being influenced by emotion.
When I was married, I had a flat let in Newcastle, through a reputable agency to a single male doctor who had great references.
When he vacated, we went to check the place before releasing his deposit & re-letting.
There was black hair dye all over the carpets from the bathroom (plus up the walls), through the kitchen & into the rear room.
The washing machine that was less than a year old had the metal door hinge snapped off & the kitchen pans had all been burnt & scraped to destruction.
Not saying it will be the same, but don't assume that people are likely to treat your property as if it was their own, as some people don't care about anything but their own backsides.

Funkfingers · September 2023

My neighbour is leaseholder of several flats on the estate where we live. Over the years, he has had numerous negative experiences with lousy and/or belligerent tenants, sometimes resorting to court eviction proceedings.

Dominic · September 2023

Short answer No
not at the moment
Tax, compliance, interest rates,further potential capital value drop in the market all weighted against it .
However,if you found an astonishingly good buy pricewise there is never a bad time to buy property if you intend to hold the investment for a long term.

Snap · September 2023

Speaking as a landlord

What are you doing it for? Assuming it is to get a good return on your cash outlay? Or is to earn an income?
Your start point on that is a fixed interest savings bond - you might get a 5 or 6% interest for three years, maybe 5.
The next thing to think about is how much can you comfortably spend - and what can you get for that money, and what is the rent likely to be?

Lets say the property is 180k. In three years at 5% interest you will have made 28375 less tax.

Say the same property rents for 750pcm, and you put rent up 5% a year, for three years: the money nets out the same, assuming no capital growth though (on the house). That also assumes full occupancy.
But, if you can rent the same place for 900, then you gain by 6k over the three years, but that's a big hike in rent.

It all comes down to how much you pay and what you can rent it out for tbh, and how much it is likely to sell for. Just need to work it out mate.

The only costs you will have are buildings insurance and I'd advise having something like a British Gas emergency cover - probably about 600 quid per year for both.

The key to it is to buy in an area where both house prices and rent are going to go up, if you can do that, it's a simple decision. If not, I'd put it in fixed interest savings.

spark240 · September 2023

Having held and (still hold some) BTL for the last 20 years, we are slowly off loading.

All are on I/O loans, and for a long time now we have enjoyed good income and long term lets, but with current rates and tenants in debt, its looking much more challenging, and as pointed out above, with your cash in a 5% bond you can get it out fairly quickly, I cant see much of a house price rise in the next couple of years so its def a long term plan if you get into it.

There are a few other factors to consider... personally Id be very cautious right now.

Axe_meister · September 2023

Given the current changes in Pensions, i.e. up to 60k per year can be invested with no more upper limit you might be better off, paying cash into that, as long as you don't want to get hold of the money until you retire.
Put it this way if you stick an extra 40k into the pension you will get 40% back assuming you are a higher rate tax payer. Or keep the cash and do a larger salary Sacrifice into the pension.

GuyR · September 2023

Dominic said:

Short answer No
not at the moment
Tax, compliance, interest rates,further potential capital value drop in the market all weighted against it .
However,if you found an astonishingly good buy pricewise there is never a bad time to buy property if you intend to hold the investment for a long term.

All good points. If the govt further manages to end section 21 no-fault evictions, all current AST tenancies could effectively become regulated tenancies, making the other recent landlord-unfriendly policy/legal changes seem minor by comparison. As ever, the devil will be in the detail.

A decent small freehold is still potentially a canny buy. Particularly to rent to students who will inevitably leave, rendering the section 21 issue irrelevant. In at least one area of London I am familiar with, over 50% of property sales in 2023 are landlords selling up. When a glut appears, it’s generally a good time to buy. When there’s no stock, a good time to sell.

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Buying to let - still viable?

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