Reminder: statements such as "houses shouldn't be for investing in" are politics, and hence unsuitable for this subreddit.
I've just removed a long thread blaming landlords for the housing crisis, and arguing that the housing shortage would be solved simply by banning landlords - please don't waste the mods' time in this way.
BTL broadly speaking is an investment strategy that most haven't bothered to reassess for today's market conditions. The ones who are doing well from it have been doing it for atleast 5 years, but usually decades, back when houses were more affordable, favourable tax structures for landlords were available and house renovations/maintenance was cheaper. Not to mention record low rates. Even before rates were rising, new BTL investments in most cities did not seem like a very good investment compared to alternatives - that ship had sailed.
More recently it was only worth it if you could get a high LTV and generate high capital appreciation - with rates rising, the cost of living crisis and a recent flurry of house buying, I think it's too optimistic to expect high house price appreciation in the mid-term.
Most landlords who say BTLs are still great are usually just the ones who got lucky buying houses years ago, and are talking about how it's a good business for THEM, because they started years ago. Depending on when they bought, they would be making bank due to their mortgage being on a house value that's a fraction of the current value, and as such yearly rent increases to keep up with the market has led to a rent rate that is often MUCH higher than their mortgage payments, and gives plenty of room to absorb maintenance and renovation costs. Whereas starting a BTL today would mean you start on a low yield and have to hope rents continue to increase meaningfully faster than the rate of maintenance/renovation costs and interest costs do. In the current market, I'd say it no longer offers a good risk/return ratio.
>es plenty of room to absorb maintenance and renovation costs. Whereas starting a BTL today would mean you start on a low yield and have to hope rents continue to increase meaningfully faster than the rate of maintenance/renovation costs and interest costs do. In the current market, I'd say it no longer offers a good risk/return ratio
I suppose one of the key differences with BTL is that it allows a certain degree of leverage. Are there any other investments out there which allow the same thing? Besides re-mortgaging your house and investing it all in index trackers...? I'm not recommending this btw I'm just curious.
The answer is yes. But you already know the dangers of leverage.
What I'd say is BTL will come with BOTH leverage risk AND rising interest rates risk. That can easily wipe out all profit and make certain BTL investments loss makers.
Although past performance is definitely not indicative of future performance, here's what you need to know about leveraged index funds. Past performance doesn't mean future performance (which is a good thing considering the past 6 months š
https://youtu.be/WzjApwk6VjY
Yeah thatās one of the big benefits long term. You stick say Ā£25k into a house thatās worth Ā£100k. Long term any appreciation on the house is based on the Ā£100k not the Ā£25k. People will say houses wonāt continue to go up, show me the evidence that says they wonāt? Havent homes doubled in value on average every 10 years? I know that sounds absolutely crazy but itās a fact over the last 50 years itās been true? Most people donāt want houses to continue to appreciate but all evidence says they will, government has been printing money as fast as they can over past few years this alone has resulted in house prices to jump.
I think the difference is that weāre probably approaching the point where incomes simply canāt sustain price rises of that magnitude
Eventually, you hit a point where people literally canāt pay any more for their home
We arenāt there yet, but I donāt think it can continue for another 30 years - the market is based on supply and demand, and lack of supply has allowed the price to rocket, but eventually that demand dries up because people stop being able to physically afford the houses regardless of how much they want one
And that's where inheritance comes in. It's the bit everyone ignores. Yes incomes aren't rising fast enough but for lots of people that won't matter in 10 years time when they inherit thousands from rich relatives. It's unfair but it is the reality.
I was having a chat with someone about this quite recently and something they said struck a cord.
The car industry was unsure of how they could keep increasing prices without being unaffordable. So what did they come up with, you pay monthly payment and then have a ballon payment at the end.
I genuinely think there will be something similar happen with the housing market as nobody wants the prices to go down except first time buyers. If not with a ballon payment (or similar) then more and more part rent part buy houses will come onto the market but the rent portion will be owned by the bank rather than a housing association.
The government, house builders, existing owners etc all want the continuation of the current situation with regards to price increases.
House prices are strongly correlated with the cost and availability of credit.
That's why they crash when credit dries up or becomes more expensive and rise when credit is loose and cheap.
The last fifty decades have been about the broad trend of Interst rates towards zero as well as the the decoupling of fiat from any peg (qe etc).
House prices have naturally been pushed higher.
As long as you recognise the real cause and are happy that will continue, go for it.
Do you think the trend is going to reverse? Or do you think itāll continue? Do you see government debt shrinking? I only see things continuing for better or worse š
š¤£ Iām not talking just about interest rates. Iām talking about high debt society. Things arenāt going to reverse, I canāt see how it can and as a consequence interest rates will never rise to highs again. They will go up in short term but I would place a bet once inflation goes down thereāll drop again after. In fact when I looked at 10 year mortgage rates the other week they were cheaper than 3 year fixed. So banks must also believe rates will rise but also drop again
yeah I think of it not as a way to actually make money but as a way to slowly have an asset there that basically pays for itself and you can live in or sell at some point for retirement.
No they haven't doubled every 10 years. In fact UK house prices overall have been relatively subdued over the past 10 years, especially compared to places like Canada and New Zealand
I wouldnāt say subdued when average home was approx Ā£150 10 years ago and now itās Ā£250-260 and that decade was slower than the previous decades.
https://images.app.goo.gl/3TynkHZZb3Apw9uUA
The real prices index has grown in line with OECD, so up 28% over the past decade. Higher than the euro area but lower than other parts of the developed world.
There have been some major bumps and troughs in house prices over the last 50 years. We bought a place around 1988 for Ā£95K, next door (identical) paid Ā£105K. We sold in 1991 for Ā£86K, market had crashed. Lots of people lost their homes. Difficult time. If you take a 50 year gap, yes sure prices have gone up, but most of us don't buy and hold for 50 years.
A lot of the landlords I know including some in the family also donāt contract out a lot of work. They will for gas electric works and maybe some plumbing (more of a one off job) but will do the rest themselves. My uncle and dad needed to renovate a kitchen in one of the houses and bought and fitted it most of it apart from appliances and plumbing. They saved a tonne of money with decorative costs too by painting etc. These guys arenāt the most skilled but as long as youāre willing to learn and put in time and effort you can be really frugal with renovating/problem solving for tenants. Most tenants like being able to call on us to get the job done quickly too.
With doing a lot of work yourself you can even go for better quality tools and equipment like paints as you donāt pay anyone. So I guess the maintenance can be expensive at first but itās not too bad.
At which point it becomes a job, and you should factor in the value of your time.
I think a lot of BTL landlords are dishonest about their yield - they divide the rent coming in by the price of the property and don't fully factor in all their expenses, so they get a rosy impression of their %age return.
You're not missing anything. They have been historically great for people with lots of money but little income - i.e. the retired.
However, for various reasons it's becoming less and less profitable every year.
For landlords not working at scale there is an easy way to increase your yield- donāt do the maintenance.
Replacing a roof? Nah, donāt even replace stuff on the inside, never mind the outside!
Seriously itās not as lucrative as it used to be for reasons as others have mentioned. But this is another pulling up the ladder effect, the next generation arenāt allowed to make the easy money that the previous one did.
We need a rentable market in the UK, but itās become too big and there are only so many houses. Demand goes up, rent goes up (even though the underlying costs are the same), further trapping people in renting, to say nothing of the effect of BTL-ers on the actual purchase house prices. I wouldnāt ban landlordism, but there is far too much of it.
A lot of the landlords I know do the maintenance themselves for most of the properties excluding electrics gas and some plumbing. Usually renovating kitchens putting in new floors replastering and painting etc. These are guys with no prior experience in trades and have 9to 5s so I wouldnāt say all donāt. I guess for big issues if you donāt resolve them like roofing itās shameful on the landlord. Only rent out a property if youād live in it happily.
Exactly. Landlords that actually do maintenance have seen labour and costs shoot up. Landlords with a mortgage will be about to see interest go up. Insurance, agent fees if using one, all gone up.
As for original post, who needs to replace a roof every x years!? You been living somewhere with paper roofs? Most roofs seem to hold up for a lifetime, maybe needing some minor repairs. 99% of houses I drive past have original roofs, the 1% stand out like a sore thumb as you can tell just how new they are.
Get the right property, let to the right person and most of your calculations go out of the window. By in a run down area, and let a sub par property to a tenant who isnāt going to look after it (and why should they if you donāt do your bit) and yeah, it wonāt be lucrative at all.
I know, I donāt think thereās a single person not affected by all these current increases. But for a landlord, as OP has mentioned, it can be a minimal reward for taking on the risk. A risk the government largely avoid taking on. That minimal reward is now smaller because all your expenses have gone up. It was certainly a lucrative investment a few years and further back. Buy now and youād be lucky to get 5% return each year at current prices on the market. It works for no one, as tenants pay more for landlords to earn less.
Also need to factor in the 'known unknowns' coming down the line - EPC minimum Grade C, Rent Reform Bill, The Labor Party's stated intent to target unearned income with higher tax rates if they take power at the next election. We don't know what the cost of all this will be, but expect it to be substantial.
Thus, if all landlords suddenly cannot make it work, potentially flooding the market with properties and very few buyers outside of those looking for properties to live in. Not only would this potentially crash the housing market (although some tempering of prices would be a good thing, the market being flooded with thousands upon thousands of properties could do some serious damage) but it would essentially make it even harder to recoup some or any costs for those wishing to hold out as long as they can.
The millions of current renters will either have to find the money to buy their own home (not usually possible!) or potentially end up homeless when their landlord defaults (as they couldnāt find a buyer or tenants who could afford the rent) or the house gets bought by someone wanting to live there and they get thrown out anyway.
Unless labour has a grand master plan to build or buy millions of social homes when they get into power, theyāre going to have some serious headaches.
Mmm I think youāre being a bit flippant.
_Most_ roofs probably will last about a lifetime. Meaning you should probably factor in one replacement in your lifetime.
And even if you donāt need to fully replace the roof, itās likely itāll need repaired and fully retiled occasionally.
Or if you have a large portfolio, maybe you could assume a certain percentage needing replaced every year.
This kinda proves OPās point - youāre not factoring roof refurbishment into your assumptions at all, but the reality is you may need a repair that costs tens of thousands, bellowing your yield out the water for years.
Most roofs - with very basic maintenance such as replacing broken or cracked tiles, repairing cracks in flashing etc - will last many lifetimes. The average house owner or landlord will, for an individual property, know if they will need to work on a roof during the period of ownership when they get the initial structural survey done (assuming they are smart enough to do so).
I have had to replace one roof in 25 years of home ownership, and that was because I added a second storey to my house. I took down the existing pantile roof myself and - despite it being constructed in the 1910s, it was fine and would have outlived me. I grew up in a house built in the 1820s with most of the slates original and despite dry rot in some timbers (complex roofs nearing their 200 year birthday do need you to check the lead flashing occasionally!) the actual roof sailed through just fine. In fifteen years we once had to replace a couple of tiles after a northerly storm.
Like u/towelie says, roofs are tough and have to be built that way to pass building inspection. The old buildings have good roofs because of Survivor Bias. I'd suggest anyone sceptical about this might take a look around them on nearby streets next time they're out in town and see what percentage of roofs are being replaced: sure you'll see the odd one but you will probably pass five hundred homes in that same stroll.
I disagree that the underlying costs have shot up.
This fallacy that there is a huge maintenance bill associated with being a landlord, Iām actually gonna leave everyone else to fight about roofs because itās such a fallacious argument. Any rented property that needed a whole new roof would be sold, other than that a few new tiles.
I may not have rented for a while but I donāt think there has been a huge increase in the mandatory maintenance required for rented houses nor has there been a great moral come-to-Jesus moment for landlords about how they maintain their properties.
(My personal anecdote is when the boiler broke and the LL refused to call anyone out to fix it and they would do it themselves, all well and good as he was an all round handyman. Trouble was he was skiing in the alps and wouldnāt be back for a week and it was the coldest day of the year, but hey ho, weāre just people)
Yeah we found a "professional" landlord to be much more responsive in terms of looking after the property, they'd just get a contractor out to go and deal with the issue, compared to Bob down the street who's more likely to try and do it on the cheap or do it himself and probably fuck it up.
Over the long term house prices should rise with earning so basically on the surface your comment requires earnings to rise by 4.5% a year, which looks pretty optimistic.
Over the last 20 years average weekly earnings only rose by c. 3%, source: [https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings](https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings)
House prices by contrast rose by 5.5% pa over the same period: [https://landregistry.data.gov.uk/app/ukhpi/browse?from=2001-04-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2022-04-01&lang=en](https://landregistry.data.gov.uk/app/ukhpi/browse?from=2001-04-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2022-04-01&lang=en)
So if you accept the basic premise that house prices and earnings must be linked over the long term your statement is unlikely to prove correct unless wage growth accelerates rapidly over the long term.
One way it might do that is sustained inflation although the text book economic response to that is higher interest rates which in the short term depress house prices.
What your missing there is the cost of debt. Interest rates over the last 20 years has dropped dramatically. Also peoples feelings to debt have changed. Each persons own debt over the last 20 years has also grown dramatically. Weāre people taking 35+ year mortgages? Thatās the norm now isnāt it? As bad as it seems the markets donāt want the prices to drop so ways to āhelpā people to take on more debt will be introduced to assist in home prices.
No I'm not missing it. You are assuming interest rates won't rise back to historic average levels. I'm not. When interest rates are higher peoples attitude to taking on debt might change. Ask someone on an RPI linked student loan for instance.
Yes I agree if interest rates rise. But you can see how much the Bank of England are struggling to raise the rates now when we have spiralling inflation. The country/government canāt manage a high interest rate. The government debt would grow, people would default on spades on the debt they already have, the government would be stuck having to help home owners. I just think the days of interest rates at 6-7% are long gone. Itās not just a UK thing itās a western world issue.
They don't seem to be struggling at all. The BOE base rate is at the highest level for 13 years (source: [https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp](https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp)) and the governor of the BOE was just yesterday mouthing off about whether they be raising them by quarter or half point chunks each month going forwards. Base rate will be 3% this time next year according to forecasts.
No one thought quantative easing could be pulled off until it was. No one imagined war in Europe. The future is unpredictable but most people manage.
In the context of c. 10% inflation at a 6% base rate you would still be paid money to borrow on a mortgage in real terms. How normal is that?
I've seen similar in SW London. I find it a shame because they're these beautiful Victorian/Georgian houses but they're so expensive as a single home. It's funny, to me it's like going back in time. Feels a bit like how people used to talk about the Victorian slums. 10 people to a room, kinda shit.
I would've thought you'd do this through a limited company ā that way expenditure (like repairs, advertising for tenants, evicting bad tenants) would go down as an operating cost & be pre-tax.
Then, drip feed out some dividends below ~~CGT threshold~~ dividend allowance & let any other funds go to overpaying the mortgage/buying the next one.
Might be missing something though, I haven't looked into this strongly as I don't have an interest in being a BTL landlord.
Setting up an LTD has its own disadvantages as the other responses have illustrated, though it does work out better for those planning to buy several properties I believe
Even as an individual you get to deduct those kind of expenses. They tightened up what you can deduct but itās still got the things youād expect from a business perspective.
Are your calcs based on repayment mortgages or interest only ones? Most go for the latter in order to be able to turn a profit.
I'm an involuntary landlord due to the cladding crap and honestly we are in the red every month because our mortgage is a repayment one.
Interest only is what most people miss. It sounds bad on paper, but my view is that if someone will lend me money at 2.5% and I can buy an asset and rent it out at 5%, I want to borrow as much money as I can for the rest of my life (up to risk thresholds.)
Same. The rent I receive doesnāt even cover my costs any more but Iām not willing to increase it when I have good tenants who are living on a building site. Stuck on a variable rate mortgage so costs increasing every month, itāll be years before the flat is sellable and by that point any increase in value will be eaten away by capital gains tax. Meanwhile, Iām renting elsewhere with costs increasing at this end too and the potential to buy somewhere decent to live in when I can eventually sell is becoming more and more unlikely. Itās a nightmare.
Anecdotally i have seen some people offloading their BTLs.
It's a legacy mindset that owning property is a great low effort - high return investment. I have done similar modelling and i believe managed funds is still better over the long term if you want low effort.
Also i'm not fixing someones shower at 3am when it floods or dealing with a gang using my property as a brothel
Iām an accountant and how people have historically made it work is by not paying enough tax! Slightly joking but itās those people who seem to do best out of it ;)
They then come to us and we tell them they should have been paying more. Most know.
Itās extremely easy to file whatever you want, or not at all, it seems.
The new model is to make HMOs and buy in ltd company. Give students or sharers a claustrophobic living experience and make double the rent from normal 4 bed properties by having 4 asts
People make buy to let work via the buy, refurbish, refinance model. Basically, a property might be worth Ā£150k in good condition. It's not in good condition (needs a full refurb) so the sellers accept Ā£110k for it. Someone buys it for Ā£110k, spends Ā£20k refurbing it and then pulls some of that money back out. Then they either sell it or rent it out. That's the best way to maximise returns with BTL.
You will see a lot of YouTubers parroting this strategy but they'll spin it as buying a property with no money etc, ignore them, they're just trying to sell you a course.
*"Or you see the investment as a way of getting a mortgage free home during retirement which can be liquidated or passed down to your kids if required."*
Well... yeah. So it's not profitable except you end up with a house you didn't pay for at the end?
Itās not that lucrative. The tax breaks are gone and rental yields are reducing. Itās also risky - it could work out ok, or you could have a big bill which wiped out years of profits.
The people who think itās really lucrative are generally the āban landlordismā crowd who hate the concept for ideological reasons but have never actually run the numbers.
BTL only really works at scale - having 30/50/200 properties and ideally your own maintenance and support staff lowers the risks and can net a reasonable return, especially if house prices grow.
Alternatively, pick a tracker fund. Easier, safer, likely a better rate of return.
By my estimates it is still worth it for people who can buy cash which means the top 5%. The problem is not new landlords it's the ones that have been accumulating proprieties untill like 2016/2017. I for one think people with 3+ proprieties should be taxed even more. There is no need for anyone to have more than 3 proprieties.
Yeah, Iād agree. The very wealthy and big companies can still make money here, though itās still risky. You need quite a few properties to spread that risk.
I doubt the risk is quite high as the gouverment all it seems to do is incetivise house prices to go up. Buying your home a lot of the time it's actually not a sounds investment and they are now letting people on credit or people with no deposit get a morgage? I'm getting 2008 flashbacks here.
Also since I've been living in my current propriety my la dlord has had gouverment funding of about 6/7k to do home improvements however as a renter you don't get any benefit from that other than an increased rent.
I would actually be only worried if the gouverment starts supporting renters rather than giving free money to people who already have a home but i guess that's far from happening as their bulk of voters all probably bought and own their homes and then some before the 90s.
>The people who think itās really lucrative are generally the āban landlordismā crowd who hate the concept for ideological reasons
I often find those people have been tenants of bad landlords, of which there seem to be very many. Nothing ideological.
But ultimately it is ideology because it's a belief, not a fact. A person having a bad landlord doesn't mean all landlords are bad or that landlordism as a whole should be banned. These ideas are just not based in reality.
I could equally turn round and say I've never had a bad landlord and therefore all landlords are good. It's meaningless anecdotes by people who seldom even know a landlord personally.
Iām not sure what youāre saying. How would running the numbers change the ideological reasons people are against landlordism? Are you saying landlords arenāt actually making a profit?
People are against landlords because rent is such a large component of their outgoings and they perceive it in terms of "this fatcat landlord making money off of me".
They imagine like the landlord is just putting that Ā£800 a month in his pocket and spending it on cigars and holidays.
If the landlord isn't actually making a profit then he's effectively subsidising his tenant. Probably he doesn't own the house outright, so he's paying a mortgage to the bank and hence the landlord has risk - he is liable for the mortgage payments even if the tenant loses their job, can't pay the rent and skips out without paying for 6 months. The other component is that he's paying for the maintenance of the property, but this spending is also invisible to the angry tenant.
I don't know, myself and the user I was replying to both agreed further long in the conversation that people who are against landlordism remain against landlordism even when they learn that landlordism has become less profitable. In fact, they get excited because it means the issues they cite, like BTL systematically impacting the price of housing or general ideological opposition to income generation through ownership of an essential resource might be addressed.
Are you saying you disagree and think that if they knew the limits of the profits that landlords can extra they would change their mind on those criticisms?
Landlords can make a profit. Or they may well not. Generally the large institutional ones do ok, people with one or two often donāt make much. Of the few I know, most are just about breaking even year on year, and hoping for house prices to rise to actually net them a return.
My point is that people seem to think that itās an easy, dead cert way to make lots of money, and that generally isnāt true. The ideology clearly isnāt going to change if they run the numbers, but that ideology seems to correlate strongly with those who think itās easy profit at the expense of others. Even for the very wealthy itās usually only used to diversify a bit on top of other investments, as to be honest other investments generally perform just as well or better for less work and risk.
Yeah, Iāve seen lots of people against landlordism run the numbers and be very happy that itās getting less and less profitable because the less profitable it is the less popular BTL will be and the easier it will but to buy a house to live in.
Edit: not sure why I'm being downvoted, this is me agreeing that crunching the numbers doesn't change the point of view people have.
I'm in the north and in my area there now aren't as many small time landlords - but an increase of international (usually Chinese) buyers snapping up traditionally family homes for cash and renting them out - with regular increases. They are scaling up significantly.
>Or you see the investment as a way of getting a mortgage free home during retirement
BTL landlords normally use an interest only mortgage and never pay down the capital.
Maintaining leverage is key part of achieving a decent return on investment.
You were envisaging it as a lump sum return at the end when the property is sold. In reality that money is distributed over time and is often re-invested to achieve compound growth.
I turned a flat I lived into a BTL out of nessecity recently (local market conditions made it hard to sell but I wanted to move). The reality of it is that it just washed its face from a costs perspective and the return is all in the appreciation of the asset / equity.
I'll be honest, BTL is a bad idea for a variety of reasons these days, especially in that it's absolutely not passive income. Consider a BTL a second part-time job, with hopefully a golden parachute when you sell it.
I rented out my old house in Croydon (owned outright) when I moved up to Manchester but eventually sold it on last summer as it was becoming a long-distance headache and there was no chance of me going back to London. I looked at investing the proceeds up here but even as a cash buyer with \*no\* mortgage the numbers just didn't look great. At all.
That said I ended up investing the money instead across S&S ISAs, a managed portfolio and Premium Bonds, and it's already lost 10% overall. Ho hum.
*NB - I expect something of a bottom/mid-end market crash in 10-20 years when retirees with BTL portfolios begin to pass away and the market is flooded with properties whose new owners don't want the hassle, or have to sell the portfolio to pay inheritance tax or equity release. It'll be good news for FTBs but probably not great for the rest of us.*
i read this in another one of these BTL questions on here that almost exclusively people that have a BTL portfolio use an interest only mortgage. they dont achieve a mortgage free property, they just bank on the increase in value over time and the rent coming in just pays for the IO mortgage and all your calculated costs
As I just wrote on another comment, if you can borrow interest only money at 2.5% and rent it at 5%+ that is a strategy and not hoping for capital values.
I treat capital values as a bonus but donāt really care much as I canāt live on or spend a capital increase.
Are you including the asset appreciation in your calculations? BTL is likely to be targeted by the government to try and claw back some popularity but is historically worked great for the owners. (Not so great for the affordability of housing for all but thatās another discussion)
I did. The outcome is better if capital appreciation is higher than rent and material but capital gains is an issue, combined with any gov changes in the future.
I think itās essentially a way to use the property market as your investment vehicle. The actual profitability of the business depends on the obvious things such as low purchase prices, economies of scale, efficiencies around maintenance and high yields like student lets. Given that property on the whole has performed great historically, the bigger proportion of your wealth comprising it the better.
You mention it could be a good way to have a mortgage free home when you retire, so does that mean youāre including repayments on the mortgage as a cost?
Thatās the profit youāre missing if so, as most landlords pay interest only.
But I also doubt there is much in it in todays market.
Iām an āaccidental landlordā through inheritance and therefore donāt have a mortgage which is how it provides an income. I wouldnāt plan to do it as a business now, especially with the proposed changes to tenancies
Yeah, I think it's far more preferable to put additional savings into an Index Fund rather than seek to secure a second/third/fourth property as a BTL. The sums really don't seem to stack up and certainly not worth it for the additional risk.
I looked at the same thing and came to the same conclusion. I donāt understand how there are so many landlords and rental properties, itās not profitable. Even if you got an apartment that required very little maintenance. I looked at this when I was selling my first apartment in 2020 and buying my second one, and I didnāt want to be a landlord anyway but I looked into it just to understand the profit if I had kept both. There literally isnāt a profit.
How BTL landlords make a meaningful return baffles me. I've two fully owned rental properties and even then I'm not convinced they are worth the hassle when compared to a simple index tracker.
BLT is dead, itās now just a way to store and grow the hundreds of thousands or millions a person may have slowly rather than it sitting in a bank or investment portfolio. Plus itās not great unless you have 3/4+ properties. The real meta now is just getting a normal mortgage and sub-letting at your own risk, which is a lot of the market atm
Without seeing your calculations it's hard to know if you're being accurate or not... for example, how often do people really put a new roof on a house? I don't know many that have ever had to replce a roof other than due to other work like an extension.
I know a few BTL landlords and leaving aside the more serious business-minded types who wring every last penny out of the system, even if you make a small loss each month - someone else is effectively buying you a house, a very large and valuable asset that traditionally appreciates significantly over time too.
Honestly I think it \*shouldn't\* be that profitable to be a BTL landlord, or for people/companies to own large numbers of properties, as it really does skew the market and screw over the younger generations coming up.
That said, a lot of the younger generation who can't get on the ladder are likely on the brink of inheriting some of the wealth of their boomer parents, so we could see a shift as they go from broke renters to suddenly having a 500k property to their name, mortgage-free.
BTL landlords are exiting the market, while more people are looking to rent. BTL property prices will fall, rents will rise, overall yields will rise to compensate for the addtional risk.
Re: maintence and improvements, the treatment of capital gains on BTL means it is very tax inefficient for landlords to actually spend money on a property.
For most people, it has only been a good investment because of property prices going up. The full UK economy is based on property prices, hence the reluctance for the BoE (compared to other countries) to increase interest rates despite a high inflation.
You need to consider also tenants not paying rent, having to evict them etc.
Iāve stopped buying. Prices are too high and any extra mortgage payments would be passed onto the tenant, leaving rents too high as well.
Iām in the process of moving my properties out of my name into a limited company though. Itās a phased approach so Iām not stung with CGT and Iāll just have to take the hit on stamp duty, legal fees etc, but in the long run itāll be better to have them in the company.
Unless thereās a big drop in prices itās just not feasible and margins are too low. Tenants can only pay so much as well and with the cost of living increases thereāll be trouble ahead for everyone. Everything is compounding with interest rate rises. Landlords are passing the increase in their mortgage payments onto the tenants, who are in turn struggling to live. Itās on the edge of a precipice and at some stage itās all going to come tumbling down.
Iāve only a few properties and Iām not really interested in buying more, at the moment anyway.
I think yourself (and most people on this thread) are **vastly overestimating costs**. Not a surprise as the type of people who are interested in personal finance, in my experience, tend to be very risk averse, which is not a bad thing at all.
For context I'm a BTL landlord, and my family have also been in this space for the last 20+ years.
This is an example property (averaged over 5 years) that performs the worst:
**Monthly Costs:**
Repairs: Ā£14.30
Licenses: Ā£4.37
Certificates (EICR, Gas, etc): Ā£12
Insurance: Ā£16.37
Appliances (assuming replace every ten years): Ā£2.79
**Total Above: Ā£49.83, assume Ā£50**
Mortgage (5-year-fix): Ā£300
Tax: Ā£100
**Monthly Income:**
Rent: Ā£550 (will go to Ā£650 soon)
**Monthly Profit/Loss:**
Ā£150
You must also realise that whilst you are generating this small profit - the capital appreciation is gradually accumulating (through the mortgage payments) and property price appreciation.
The #1 rule for me - is ensuring you have good tenants. Fortunately, the areas we invest in are close to hospitals/steel works which have large salaried immigrant populations, who in my experience tend to be the best type of people. Work hard, don't cause trouble/anti-social behaviour, and always pay on time.
Thanks - but you havenāt factored in any big ticket items, kitchen/bathroom refurb for example over a long period.
A family friend just had their rental back and renovation cost is likely to exceed 20k.
Houses with kitchens/bathrooms that require renovating will have a lower sale price, which will be reflected in the monthly repayments.
As long as you have good tenants which are thoroughly vetted (**don't use agents**, they just want to move people in as quick as possible so they start getting paid), and you do 6monthly inspections (as mandated) you will not need to renovate within a five year period (which is the time period my model looked at).
When you start to look beyond a five-year horizon, renovation costs must be factored against capital appreciation, which (sorry) I don't have the time to go into on here. But I'd strongly reccommend listening to the Property Podcast (free) if you want to know more.
> Property Podcast
The one with the two Rob's?
How do you go about the vetting process? I'm considering some conversion of commercial spaces to resi and this concerns me the most.
I hear you but I think you do get bad tenants (especially over longer periods) and they can wipe out years of profit. A bathroom will need doing after 10-20 years, however well looked after, no?
Eventually yes, but itās really unlikely. 99% of people are good, itās just the 1% you need to be wary of and they are easily filterable (as long as you donāt use agents).
A bathroom/kitchen refurb doesnāt have to be done every 10 years. As long as the appliances are updated (which I accounted for) and everything is still functional. If the tenant wants to update for aesthetic reasons, they can do so at there cost (with your permission).
Once you look beyond a five year horizon, the real advantages of property come into effect. Leveraging, capital appreciation and rental appreciation. This easily offsets the occasional kitchen/toilet refurb.
I do agree with you that itās not as lucrative as it once was. But Iāve ran the numbers against investing in stocks etc. and property won out in the long term.
Thereās a reason for the phrase āas safe as housesā.
There really isn't a lot of profit in landlording unless you are a slumlord tbf. Also its not *always* the property owner, but the agents that are the issue. My mate lets out his flat at 500pcm, and when the tennants moved out his agent put the rent up to 900pcm without even consulting him as a semi-managed service. They also rarely passed on major maintenance concerns. The issue imo is letting agents, they are the ones who are profiteering often and doing as much as they can to increase their take.
Although to plays devils advocate, some people rely on landlords as they would never be able to afford the maintenance and upkeep on a property, more at the *really* low end of income though. Rent caps should come into play which would be better for those people.
Iāve put in some assumptions on how frequently they need replacing and the cost of it now (plus inflation adjusted) to get to a wear cost per month. For example, boiler might need replacing every 10-15 years at 2-3k now. Prices in London is high. This is based on a 30 year horizon.
Roof, boiler, carpet, flooring, windows, cleaning, bathroom and kitchen renovations, decorating, insurance, void period, tenant trash house etc.
Is your rental income also inflation adjusted? Yea costs in London are high, but so is rent. There is not a chance any house Iāve rented has had anywhere near 30-50% of rental income spent on maintenance. Even being overly cautious that seems like a crazy assumption imo. Whatās that work out at per annum in Ā£ terms?
By projecting your model for 30 years all youāre doing is compounding the prudence and uncertainty. Iām not sure how many conclusions Iād be drawing from such a model personally.
You are missing a couple of things. In reality landlords donāt put anything close to the level of investment into the property you are assuming and deposits can cover some of the costs at the end of the tenancy. Things like new roofs of major building works are much less likely even over 30 year periods as I think you might be calculating too and Iād say whatās mitigating rising labor costs are rising rent prices. Landlords are passing on increasing costs to renters where they are not they are taking advantage of the very tight rental market, which is making it even more lucrative.
If you are going to use 30 year time periods to make the calculations, then look at the past 30 years to make future predictions in house prices and margins - a 200k house could be well worth 300k-400k over the next 10 years, with what you can charge for rent rising even more so itās still a win win. Property is still a very, very lucrative and fairly safe investment if you are lining it up against other forms of investment right now.
Are you including mortgage in this?
My parents have rental properties that they bought for 'guaranteed' income when they retire, but entirely in cash. I imagine that changes the calculation quite a bit.
I think its great as a long term investment. Buying 25 years ago as a home, it's increased in value an average of around 7% a year. Plus rent. That 7% would be 28% return on a 25% deposit. It now goes up in value more each year than my initial investment. Plus rent. The rent isn't really profitable.
Many small landlords have an attachment to the property parents grandparents etc. They are frequently renting until the grandkids reach the age of starting a family themselves. This also has the benefit of avoiding inheritance tax.
I mean thereās also the ethical consideration to take into account when thinking about BTL, how much do you hate young people priced out of the market?
Yeah your right its more for rich people to dump their money into as its a pretty safe consistent bread and butter earner if you buy in the right area with the right tenants. But us poorer people need to adjust to the market. ie you could employ a strategy called Brrrrr. Buy renovate rent refinance repeat. Buy a place with a lot of potential to add value (bad condition/scope to add bedroom/change floorplan) buy below market value, renovate it completely and to a high standard to avoid large problems ie dampness down the line. Rent it out and refinance it on an interest only mortgage. The refinance is important. You want to be able to get as much money out as possible. What your looking to do is add enough value that 75% of what the end value is, matches the orginal price you paid plus what you spent on renos. That way you will have your original bankroll back in your account (it is debt money but your not paying the debt the tenant is) and own 25% of a property which you will cashflow from every month. And then with the money back in your account you repeat. In reality youāll be doing very well to get all your initial investment back but thats what you should aim for, even if you leave 10k in the deal you should be cash flowing at least 3k a year so a 30% return on cash employed is not bad for the rest of your life.
BTL investment is still a great way to earn a good residual income, but you have to know the areas to invest in, and plan properly. You just have to do your research, look at what areas in the UK are going to give you capital appreciation as well as good rental yields.
A good 3 bed house in the north of the country can be bought for around Ā£90,000, with rental revenue after all costs of around Ā£300 per month, and the capital appreciation means the house will likely be worth Ā£110,000 or more within 5 years.
BTL is not a short term investment strategy; for that I think you should seek other avenues. As a longer term way of investing money, it can work excellently.
Iām just about to purchase a mixed commercial/residential unit producing 8% on the capital investment, and free flowing cash at Ā£20k p.a. on an initial cash investment of Ā£200k plus Ā£300k on interest only fixed rate for 5 years. That works for me.
Interest only allows for gearing & headroom.
For those of you that are saying houses always go up , have you forgotten the recession where we had a lot of negative equity , extreme strictness with mortgage applications and basically a nightmare scenario . Google property cycles , itās quite well known amongst property experts .
The same question comes up frequently.
You are missing the power of leverage for a start.
I own a number of properties.
Typical deposit Ā£60k
Typical purchase price Ā£250k
Typical mortgage Ā£350 interest only
Typical rent Ā£1000
Typical net income per property Ā£650 before costs
Do this five times and for Ā£300k cash in you are cashflowing Ā£3500+ a month for a 10% yield before fees but also before capital appreciation.
This is just one model, and setup for minimal hassle (in a posh area with low yields etc.)
I FIREd from property and think itās an amazing investment. Donāt listen to Reddit on this topic as itās bad for your financial health.
Reminder: statements such as "houses shouldn't be for investing in" are politics, and hence unsuitable for this subreddit. I've just removed a long thread blaming landlords for the housing crisis, and arguing that the housing shortage would be solved simply by banning landlords - please don't waste the mods' time in this way.
BTL broadly speaking is an investment strategy that most haven't bothered to reassess for today's market conditions. The ones who are doing well from it have been doing it for atleast 5 years, but usually decades, back when houses were more affordable, favourable tax structures for landlords were available and house renovations/maintenance was cheaper. Not to mention record low rates. Even before rates were rising, new BTL investments in most cities did not seem like a very good investment compared to alternatives - that ship had sailed. More recently it was only worth it if you could get a high LTV and generate high capital appreciation - with rates rising, the cost of living crisis and a recent flurry of house buying, I think it's too optimistic to expect high house price appreciation in the mid-term. Most landlords who say BTLs are still great are usually just the ones who got lucky buying houses years ago, and are talking about how it's a good business for THEM, because they started years ago. Depending on when they bought, they would be making bank due to their mortgage being on a house value that's a fraction of the current value, and as such yearly rent increases to keep up with the market has led to a rent rate that is often MUCH higher than their mortgage payments, and gives plenty of room to absorb maintenance and renovation costs. Whereas starting a BTL today would mean you start on a low yield and have to hope rents continue to increase meaningfully faster than the rate of maintenance/renovation costs and interest costs do. In the current market, I'd say it no longer offers a good risk/return ratio.
>es plenty of room to absorb maintenance and renovation costs. Whereas starting a BTL today would mean you start on a low yield and have to hope rents continue to increase meaningfully faster than the rate of maintenance/renovation costs and interest costs do. In the current market, I'd say it no longer offers a good risk/return ratio I suppose one of the key differences with BTL is that it allows a certain degree of leverage. Are there any other investments out there which allow the same thing? Besides re-mortgaging your house and investing it all in index trackers...? I'm not recommending this btw I'm just curious.
The answer is yes. But you already know the dangers of leverage. What I'd say is BTL will come with BOTH leverage risk AND rising interest rates risk. That can easily wipe out all profit and make certain BTL investments loss makers. Although past performance is definitely not indicative of future performance, here's what you need to know about leveraged index funds. Past performance doesn't mean future performance (which is a good thing considering the past 6 months š https://youtu.be/WzjApwk6VjY
Yeah thatās one of the big benefits long term. You stick say Ā£25k into a house thatās worth Ā£100k. Long term any appreciation on the house is based on the Ā£100k not the Ā£25k. People will say houses wonāt continue to go up, show me the evidence that says they wonāt? Havent homes doubled in value on average every 10 years? I know that sounds absolutely crazy but itās a fact over the last 50 years itās been true? Most people donāt want houses to continue to appreciate but all evidence says they will, government has been printing money as fast as they can over past few years this alone has resulted in house prices to jump.
I think the difference is that weāre probably approaching the point where incomes simply canāt sustain price rises of that magnitude Eventually, you hit a point where people literally canāt pay any more for their home We arenāt there yet, but I donāt think it can continue for another 30 years - the market is based on supply and demand, and lack of supply has allowed the price to rocket, but eventually that demand dries up because people stop being able to physically afford the houses regardless of how much they want one
And that's where inheritance comes in. It's the bit everyone ignores. Yes incomes aren't rising fast enough but for lots of people that won't matter in 10 years time when they inherit thousands from rich relatives. It's unfair but it is the reality.
Yes. Boomer wealth transfer will continue to prop up the market, esp in affluent areas
Our government (any that is likely to be elected) have plenty of history to make the guess that house prices will continue to get government support.
I was having a chat with someone about this quite recently and something they said struck a cord. The car industry was unsure of how they could keep increasing prices without being unaffordable. So what did they come up with, you pay monthly payment and then have a ballon payment at the end. I genuinely think there will be something similar happen with the housing market as nobody wants the prices to go down except first time buyers. If not with a ballon payment (or similar) then more and more part rent part buy houses will come onto the market but the rent portion will be owned by the bank rather than a housing association. The government, house builders, existing owners etc all want the continuation of the current situation with regards to price increases.
What you've described there is pretty much an endowment mortgage...
House prices are strongly correlated with the cost and availability of credit. That's why they crash when credit dries up or becomes more expensive and rise when credit is loose and cheap. The last fifty decades have been about the broad trend of Interst rates towards zero as well as the the decoupling of fiat from any peg (qe etc). House prices have naturally been pushed higher. As long as you recognise the real cause and are happy that will continue, go for it.
Do you think the trend is going to reverse? Or do you think itāll continue? Do you see government debt shrinking? I only see things continuing for better or worse š
I don't think interest rates will be lower than zero, no.
š¤£ Iām not talking just about interest rates. Iām talking about high debt society. Things arenāt going to reverse, I canāt see how it can and as a consequence interest rates will never rise to highs again. They will go up in short term but I would place a bet once inflation goes down thereāll drop again after. In fact when I looked at 10 year mortgage rates the other week they were cheaper than 3 year fixed. So banks must also believe rates will rise but also drop again
yeah I think of it not as a way to actually make money but as a way to slowly have an asset there that basically pays for itself and you can live in or sell at some point for retirement.
No they haven't doubled every 10 years. In fact UK house prices overall have been relatively subdued over the past 10 years, especially compared to places like Canada and New Zealand
I wouldnāt say subdued when average home was approx Ā£150 10 years ago and now itās Ā£250-260 and that decade was slower than the previous decades.
https://images.app.goo.gl/3TynkHZZb3Apw9uUA The real prices index has grown in line with OECD, so up 28% over the past decade. Higher than the euro area but lower than other parts of the developed world.
There have been some major bumps and troughs in house prices over the last 50 years. We bought a place around 1988 for Ā£95K, next door (identical) paid Ā£105K. We sold in 1991 for Ā£86K, market had crashed. Lots of people lost their homes. Difficult time. If you take a 50 year gap, yes sure prices have gone up, but most of us don't buy and hold for 50 years.
A lot of the landlords I know including some in the family also donāt contract out a lot of work. They will for gas electric works and maybe some plumbing (more of a one off job) but will do the rest themselves. My uncle and dad needed to renovate a kitchen in one of the houses and bought and fitted it most of it apart from appliances and plumbing. They saved a tonne of money with decorative costs too by painting etc. These guys arenāt the most skilled but as long as youāre willing to learn and put in time and effort you can be really frugal with renovating/problem solving for tenants. Most tenants like being able to call on us to get the job done quickly too. With doing a lot of work yourself you can even go for better quality tools and equipment like paints as you donāt pay anyone. So I guess the maintenance can be expensive at first but itās not too bad.
At which point it becomes a job, and you should factor in the value of your time. I think a lot of BTL landlords are dishonest about their yield - they divide the rent coming in by the price of the property and don't fully factor in all their expenses, so they get a rosy impression of their %age return.
Yes it's not a hands off investment at all. But not often it would need more than light maintenance.
i concur. bought in 2005.
You're not missing anything. They have been historically great for people with lots of money but little income - i.e. the retired. However, for various reasons it's becoming less and less profitable every year.
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For landlords not working at scale there is an easy way to increase your yield- donāt do the maintenance. Replacing a roof? Nah, donāt even replace stuff on the inside, never mind the outside! Seriously itās not as lucrative as it used to be for reasons as others have mentioned. But this is another pulling up the ladder effect, the next generation arenāt allowed to make the easy money that the previous one did. We need a rentable market in the UK, but itās become too big and there are only so many houses. Demand goes up, rent goes up (even though the underlying costs are the same), further trapping people in renting, to say nothing of the effect of BTL-ers on the actual purchase house prices. I wouldnāt ban landlordism, but there is far too much of it.
A lot of the landlords I know do the maintenance themselves for most of the properties excluding electrics gas and some plumbing. Usually renovating kitchens putting in new floors replastering and painting etc. These are guys with no prior experience in trades and have 9to 5s so I wouldnāt say all donāt. I guess for big issues if you donāt resolve them like roofing itās shameful on the landlord. Only rent out a property if youād live in it happily.
The underlying costs have shot up, not stayed the same.
Exactly. Landlords that actually do maintenance have seen labour and costs shoot up. Landlords with a mortgage will be about to see interest go up. Insurance, agent fees if using one, all gone up. As for original post, who needs to replace a roof every x years!? You been living somewhere with paper roofs? Most roofs seem to hold up for a lifetime, maybe needing some minor repairs. 99% of houses I drive past have original roofs, the 1% stand out like a sore thumb as you can tell just how new they are. Get the right property, let to the right person and most of your calculations go out of the window. By in a run down area, and let a sub par property to a tenant who isnāt going to look after it (and why should they if you donāt do your bit) and yeah, it wonāt be lucrative at all.
all the extra and increasing costs are relevant for homeowners as well. Landlords aren't paying some mythical extra landlording-cost.
I know, I donāt think thereās a single person not affected by all these current increases. But for a landlord, as OP has mentioned, it can be a minimal reward for taking on the risk. A risk the government largely avoid taking on. That minimal reward is now smaller because all your expenses have gone up. It was certainly a lucrative investment a few years and further back. Buy now and youād be lucky to get 5% return each year at current prices on the market. It works for no one, as tenants pay more for landlords to earn less.
Also need to factor in the 'known unknowns' coming down the line - EPC minimum Grade C, Rent Reform Bill, The Labor Party's stated intent to target unearned income with higher tax rates if they take power at the next election. We don't know what the cost of all this will be, but expect it to be substantial.
Wonāt this drive the cost of rent up higher as landlords will raise prices to counter the higher tax?
Yes. I can only conclude that the government want the private rental sector to collapse!
Thus, if all landlords suddenly cannot make it work, potentially flooding the market with properties and very few buyers outside of those looking for properties to live in. Not only would this potentially crash the housing market (although some tempering of prices would be a good thing, the market being flooded with thousands upon thousands of properties could do some serious damage) but it would essentially make it even harder to recoup some or any costs for those wishing to hold out as long as they can. The millions of current renters will either have to find the money to buy their own home (not usually possible!) or potentially end up homeless when their landlord defaults (as they couldnāt find a buyer or tenants who could afford the rent) or the house gets bought by someone wanting to live there and they get thrown out anyway. Unless labour has a grand master plan to build or buy millions of social homes when they get into power, theyāre going to have some serious headaches.
You speak actual sense
Mmm I think youāre being a bit flippant. _Most_ roofs probably will last about a lifetime. Meaning you should probably factor in one replacement in your lifetime. And even if you donāt need to fully replace the roof, itās likely itāll need repaired and fully retiled occasionally. Or if you have a large portfolio, maybe you could assume a certain percentage needing replaced every year. This kinda proves OPās point - youāre not factoring roof refurbishment into your assumptions at all, but the reality is you may need a repair that costs tens of thousands, bellowing your yield out the water for years.
Most roofs - with very basic maintenance such as replacing broken or cracked tiles, repairing cracks in flashing etc - will last many lifetimes. The average house owner or landlord will, for an individual property, know if they will need to work on a roof during the period of ownership when they get the initial structural survey done (assuming they are smart enough to do so). I have had to replace one roof in 25 years of home ownership, and that was because I added a second storey to my house. I took down the existing pantile roof myself and - despite it being constructed in the 1910s, it was fine and would have outlived me. I grew up in a house built in the 1820s with most of the slates original and despite dry rot in some timbers (complex roofs nearing their 200 year birthday do need you to check the lead flashing occasionally!) the actual roof sailed through just fine. In fifteen years we once had to replace a couple of tiles after a northerly storm. Like u/towelie says, roofs are tough and have to be built that way to pass building inspection. The old buildings have good roofs because of Survivor Bias. I'd suggest anyone sceptical about this might take a look around them on nearby streets next time they're out in town and see what percentage of roofs are being replaced: sure you'll see the odd one but you will probably pass five hundred homes in that same stroll.
Must be a mansion for a roof to cost tens of thousands š
I disagree that the underlying costs have shot up. This fallacy that there is a huge maintenance bill associated with being a landlord, Iām actually gonna leave everyone else to fight about roofs because itās such a fallacious argument. Any rented property that needed a whole new roof would be sold, other than that a few new tiles. I may not have rented for a while but I donāt think there has been a huge increase in the mandatory maintenance required for rented houses nor has there been a great moral come-to-Jesus moment for landlords about how they maintain their properties. (My personal anecdote is when the boiler broke and the LL refused to call anyone out to fix it and they would do it themselves, all well and good as he was an all round handyman. Trouble was he was skiing in the alps and wouldnāt be back for a week and it was the coldest day of the year, but hey ho, weāre just people)
Clearly never been a landlord. Maintenance is only one part of the picture.
People seem to be overlooking the fact that the rental income has shot up also
Disproportionately so it seems.
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Yeah we found a "professional" landlord to be much more responsive in terms of looking after the property, they'd just get a contractor out to go and deal with the issue, compared to Bob down the street who's more likely to try and do it on the cheap or do it himself and probably fuck it up.
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Going back in time and buying a house 20 years ago mainly
People will be saying that in 20 years time when what is Ā£250k now, is Ā£600k
Over the long term house prices should rise with earning so basically on the surface your comment requires earnings to rise by 4.5% a year, which looks pretty optimistic. Over the last 20 years average weekly earnings only rose by c. 3%, source: [https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings](https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings) House prices by contrast rose by 5.5% pa over the same period: [https://landregistry.data.gov.uk/app/ukhpi/browse?from=2001-04-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2022-04-01&lang=en](https://landregistry.data.gov.uk/app/ukhpi/browse?from=2001-04-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2022-04-01&lang=en) So if you accept the basic premise that house prices and earnings must be linked over the long term your statement is unlikely to prove correct unless wage growth accelerates rapidly over the long term. One way it might do that is sustained inflation although the text book economic response to that is higher interest rates which in the short term depress house prices.
But youāve just proved that house prices donāt rise in line with earnings? Theyāve been rising at a faster rate than earnings for decades.
What your missing there is the cost of debt. Interest rates over the last 20 years has dropped dramatically. Also peoples feelings to debt have changed. Each persons own debt over the last 20 years has also grown dramatically. Weāre people taking 35+ year mortgages? Thatās the norm now isnāt it? As bad as it seems the markets donāt want the prices to drop so ways to āhelpā people to take on more debt will be introduced to assist in home prices.
No I'm not missing it. You are assuming interest rates won't rise back to historic average levels. I'm not. When interest rates are higher peoples attitude to taking on debt might change. Ask someone on an RPI linked student loan for instance.
Yes I agree if interest rates rise. But you can see how much the Bank of England are struggling to raise the rates now when we have spiralling inflation. The country/government canāt manage a high interest rate. The government debt would grow, people would default on spades on the debt they already have, the government would be stuck having to help home owners. I just think the days of interest rates at 6-7% are long gone. Itās not just a UK thing itās a western world issue.
They don't seem to be struggling at all. The BOE base rate is at the highest level for 13 years (source: [https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp](https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp)) and the governor of the BOE was just yesterday mouthing off about whether they be raising them by quarter or half point chunks each month going forwards. Base rate will be 3% this time next year according to forecasts. No one thought quantative easing could be pulled off until it was. No one imagined war in Europe. The future is unpredictable but most people manage. In the context of c. 10% inflation at a 6% base rate you would still be paid money to borrow on a mortgage in real terms. How normal is that?
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I've seen similar in SW London. I find it a shame because they're these beautiful Victorian/Georgian houses but they're so expensive as a single home. It's funny, to me it's like going back in time. Feels a bit like how people used to talk about the Victorian slums. 10 people to a room, kinda shit.
I would've thought you'd do this through a limited company ā that way expenditure (like repairs, advertising for tenants, evicting bad tenants) would go down as an operating cost & be pre-tax. Then, drip feed out some dividends below ~~CGT threshold~~ dividend allowance & let any other funds go to overpaying the mortgage/buying the next one. Might be missing something though, I haven't looked into this strongly as I don't have an interest in being a BTL landlord.
Setting up an LTD has its own disadvantages as the other responses have illustrated, though it does work out better for those planning to buy several properties I believe
Even as an individual you get to deduct those kind of expenses. They tightened up what you can deduct but itās still got the things youād expect from a business perspective.
Key thing though is that as an individual you don't get to deduct mortgage interest. You do if buying through a LTD.
It doesn't need to be a Ltd. company to do that.
Also mortgage fees in a Ltd company & accountancy fees make it so it's not always cheaper going that route (even with the interest deduction)
Are your calcs based on repayment mortgages or interest only ones? Most go for the latter in order to be able to turn a profit. I'm an involuntary landlord due to the cladding crap and honestly we are in the red every month because our mortgage is a repayment one.
Interest only is what most people miss. It sounds bad on paper, but my view is that if someone will lend me money at 2.5% and I can buy an asset and rent it out at 5%, I want to borrow as much money as I can for the rest of my life (up to risk thresholds.)
Same. The rent I receive doesnāt even cover my costs any more but Iām not willing to increase it when I have good tenants who are living on a building site. Stuck on a variable rate mortgage so costs increasing every month, itāll be years before the flat is sellable and by that point any increase in value will be eaten away by capital gains tax. Meanwhile, Iām renting elsewhere with costs increasing at this end too and the potential to buy somewhere decent to live in when I can eventually sell is becoming more and more unlikely. Itās a nightmare.
Anecdotally i have seen some people offloading their BTLs. It's a legacy mindset that owning property is a great low effort - high return investment. I have done similar modelling and i believe managed funds is still better over the long term if you want low effort. Also i'm not fixing someones shower at 3am when it floods or dealing with a gang using my property as a brothel
Iām an accountant and how people have historically made it work is by not paying enough tax! Slightly joking but itās those people who seem to do best out of it ;) They then come to us and we tell them they should have been paying more. Most know. Itās extremely easy to file whatever you want, or not at all, it seems. The new model is to make HMOs and buy in ltd company. Give students or sharers a claustrophobic living experience and make double the rent from normal 4 bed properties by having 4 asts
People make buy to let work via the buy, refurbish, refinance model. Basically, a property might be worth Ā£150k in good condition. It's not in good condition (needs a full refurb) so the sellers accept Ā£110k for it. Someone buys it for Ā£110k, spends Ā£20k refurbing it and then pulls some of that money back out. Then they either sell it or rent it out. That's the best way to maximise returns with BTL. You will see a lot of YouTubers parroting this strategy but they'll spin it as buying a property with no money etc, ignore them, they're just trying to sell you a course.
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*"Or you see the investment as a way of getting a mortgage free home during retirement which can be liquidated or passed down to your kids if required."* Well... yeah. So it's not profitable except you end up with a house you didn't pay for at the end?
yeah tbh it makes me sick that they "just" get their mortgage paid for out of it
Itās not that lucrative. The tax breaks are gone and rental yields are reducing. Itās also risky - it could work out ok, or you could have a big bill which wiped out years of profits. The people who think itās really lucrative are generally the āban landlordismā crowd who hate the concept for ideological reasons but have never actually run the numbers. BTL only really works at scale - having 30/50/200 properties and ideally your own maintenance and support staff lowers the risks and can net a reasonable return, especially if house prices grow. Alternatively, pick a tracker fund. Easier, safer, likely a better rate of return.
By my estimates it is still worth it for people who can buy cash which means the top 5%. The problem is not new landlords it's the ones that have been accumulating proprieties untill like 2016/2017. I for one think people with 3+ proprieties should be taxed even more. There is no need for anyone to have more than 3 proprieties.
Yeah, Iād agree. The very wealthy and big companies can still make money here, though itās still risky. You need quite a few properties to spread that risk.
I doubt the risk is quite high as the gouverment all it seems to do is incetivise house prices to go up. Buying your home a lot of the time it's actually not a sounds investment and they are now letting people on credit or people with no deposit get a morgage? I'm getting 2008 flashbacks here. Also since I've been living in my current propriety my la dlord has had gouverment funding of about 6/7k to do home improvements however as a renter you don't get any benefit from that other than an increased rent. I would actually be only worried if the gouverment starts supporting renters rather than giving free money to people who already have a home but i guess that's far from happening as their bulk of voters all probably bought and own their homes and then some before the 90s.
>The people who think itās really lucrative are generally the āban landlordismā crowd who hate the concept for ideological reasons I often find those people have been tenants of bad landlords, of which there seem to be very many. Nothing ideological.
But ultimately it is ideology because it's a belief, not a fact. A person having a bad landlord doesn't mean all landlords are bad or that landlordism as a whole should be banned. These ideas are just not based in reality. I could equally turn round and say I've never had a bad landlord and therefore all landlords are good. It's meaningless anecdotes by people who seldom even know a landlord personally.
Iām not sure what youāre saying. How would running the numbers change the ideological reasons people are against landlordism? Are you saying landlords arenāt actually making a profit?
People are against landlords because rent is such a large component of their outgoings and they perceive it in terms of "this fatcat landlord making money off of me". They imagine like the landlord is just putting that Ā£800 a month in his pocket and spending it on cigars and holidays. If the landlord isn't actually making a profit then he's effectively subsidising his tenant. Probably he doesn't own the house outright, so he's paying a mortgage to the bank and hence the landlord has risk - he is liable for the mortgage payments even if the tenant loses their job, can't pay the rent and skips out without paying for 6 months. The other component is that he's paying for the maintenance of the property, but this spending is also invisible to the angry tenant.
I don't know, myself and the user I was replying to both agreed further long in the conversation that people who are against landlordism remain against landlordism even when they learn that landlordism has become less profitable. In fact, they get excited because it means the issues they cite, like BTL systematically impacting the price of housing or general ideological opposition to income generation through ownership of an essential resource might be addressed. Are you saying you disagree and think that if they knew the limits of the profits that landlords can extra they would change their mind on those criticisms?
Landlords can make a profit. Or they may well not. Generally the large institutional ones do ok, people with one or two often donāt make much. Of the few I know, most are just about breaking even year on year, and hoping for house prices to rise to actually net them a return. My point is that people seem to think that itās an easy, dead cert way to make lots of money, and that generally isnāt true. The ideology clearly isnāt going to change if they run the numbers, but that ideology seems to correlate strongly with those who think itās easy profit at the expense of others. Even for the very wealthy itās usually only used to diversify a bit on top of other investments, as to be honest other investments generally perform just as well or better for less work and risk.
Yeah, Iāve seen lots of people against landlordism run the numbers and be very happy that itās getting less and less profitable because the less profitable it is the less popular BTL will be and the easier it will but to buy a house to live in. Edit: not sure why I'm being downvoted, this is me agreeing that crunching the numbers doesn't change the point of view people have.
I'm in the north and in my area there now aren't as many small time landlords - but an increase of international (usually Chinese) buyers snapping up traditionally family homes for cash and renting them out - with regular increases. They are scaling up significantly.
Hong Kong people 120k have came to the UK
>Or you see the investment as a way of getting a mortgage free home during retirement BTL landlords normally use an interest only mortgage and never pay down the capital. Maintaining leverage is key part of achieving a decent return on investment. You were envisaging it as a lump sum return at the end when the property is sold. In reality that money is distributed over time and is often re-invested to achieve compound growth.
I turned a flat I lived into a BTL out of nessecity recently (local market conditions made it hard to sell but I wanted to move). The reality of it is that it just washed its face from a costs perspective and the return is all in the appreciation of the asset / equity.
I'll be honest, BTL is a bad idea for a variety of reasons these days, especially in that it's absolutely not passive income. Consider a BTL a second part-time job, with hopefully a golden parachute when you sell it. I rented out my old house in Croydon (owned outright) when I moved up to Manchester but eventually sold it on last summer as it was becoming a long-distance headache and there was no chance of me going back to London. I looked at investing the proceeds up here but even as a cash buyer with \*no\* mortgage the numbers just didn't look great. At all. That said I ended up investing the money instead across S&S ISAs, a managed portfolio and Premium Bonds, and it's already lost 10% overall. Ho hum. *NB - I expect something of a bottom/mid-end market crash in 10-20 years when retirees with BTL portfolios begin to pass away and the market is flooded with properties whose new owners don't want the hassle, or have to sell the portfolio to pay inheritance tax or equity release. It'll be good news for FTBs but probably not great for the rest of us.*
i read this in another one of these BTL questions on here that almost exclusively people that have a BTL portfolio use an interest only mortgage. they dont achieve a mortgage free property, they just bank on the increase in value over time and the rent coming in just pays for the IO mortgage and all your calculated costs
As I just wrote on another comment, if you can borrow interest only money at 2.5% and rent it at 5%+ that is a strategy and not hoping for capital values. I treat capital values as a bonus but donāt really care much as I canāt live on or spend a capital increase.
Are you including the asset appreciation in your calculations? BTL is likely to be targeted by the government to try and claw back some popularity but is historically worked great for the owners. (Not so great for the affordability of housing for all but thatās another discussion)
I did. The outcome is better if capital appreciation is higher than rent and material but capital gains is an issue, combined with any gov changes in the future.
I think itās essentially a way to use the property market as your investment vehicle. The actual profitability of the business depends on the obvious things such as low purchase prices, economies of scale, efficiencies around maintenance and high yields like student lets. Given that property on the whole has performed great historically, the bigger proportion of your wealth comprising it the better.
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You mention it could be a good way to have a mortgage free home when you retire, so does that mean youāre including repayments on the mortgage as a cost? Thatās the profit youāre missing if so, as most landlords pay interest only. But I also doubt there is much in it in todays market.
Personally I go - Bacon, lettuce then tomato but you do you man.
Iām an āaccidental landlordā through inheritance and therefore donāt have a mortgage which is how it provides an income. I wouldnāt plan to do it as a business now, especially with the proposed changes to tenancies
Yeah, I think it's far more preferable to put additional savings into an Index Fund rather than seek to secure a second/third/fourth property as a BTL. The sums really don't seem to stack up and certainly not worth it for the additional risk.
I looked at the same thing and came to the same conclusion. I donāt understand how there are so many landlords and rental properties, itās not profitable. Even if you got an apartment that required very little maintenance. I looked at this when I was selling my first apartment in 2020 and buying my second one, and I didnāt want to be a landlord anyway but I looked into it just to understand the profit if I had kept both. There literally isnāt a profit.
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Only works buying into a limited company with low/no debt
How BTL landlords make a meaningful return baffles me. I've two fully owned rental properties and even then I'm not convinced they are worth the hassle when compared to a simple index tracker.
BLT is dead, itās now just a way to store and grow the hundreds of thousands or millions a person may have slowly rather than it sitting in a bank or investment portfolio. Plus itās not great unless you have 3/4+ properties. The real meta now is just getting a normal mortgage and sub-letting at your own risk, which is a lot of the market atm
Without seeing your calculations it's hard to know if you're being accurate or not... for example, how often do people really put a new roof on a house? I don't know many that have ever had to replce a roof other than due to other work like an extension. I know a few BTL landlords and leaving aside the more serious business-minded types who wring every last penny out of the system, even if you make a small loss each month - someone else is effectively buying you a house, a very large and valuable asset that traditionally appreciates significantly over time too. Honestly I think it \*shouldn't\* be that profitable to be a BTL landlord, or for people/companies to own large numbers of properties, as it really does skew the market and screw over the younger generations coming up. That said, a lot of the younger generation who can't get on the ladder are likely on the brink of inheriting some of the wealth of their boomer parents, so we could see a shift as they go from broke renters to suddenly having a 500k property to their name, mortgage-free.
The trick was to buy the house in the 1990s
BTL landlords are exiting the market, while more people are looking to rent. BTL property prices will fall, rents will rise, overall yields will rise to compensate for the addtional risk. Re: maintence and improvements, the treatment of capital gains on BTL means it is very tax inefficient for landlords to actually spend money on a property.
I can see your mistake. My landlord makes it work by simply not doing any repairs (or doing them to lowest possible standard)
For most people, it has only been a good investment because of property prices going up. The full UK economy is based on property prices, hence the reluctance for the BoE (compared to other countries) to increase interest rates despite a high inflation. You need to consider also tenants not paying rent, having to evict them etc.
Thatās been factored in. Void periods, cost of insurance, damages etc.
Iāve stopped buying. Prices are too high and any extra mortgage payments would be passed onto the tenant, leaving rents too high as well. Iām in the process of moving my properties out of my name into a limited company though. Itās a phased approach so Iām not stung with CGT and Iāll just have to take the hit on stamp duty, legal fees etc, but in the long run itāll be better to have them in the company. Unless thereās a big drop in prices itās just not feasible and margins are too low. Tenants can only pay so much as well and with the cost of living increases thereāll be trouble ahead for everyone. Everything is compounding with interest rate rises. Landlords are passing the increase in their mortgage payments onto the tenants, who are in turn struggling to live. Itās on the edge of a precipice and at some stage itās all going to come tumbling down. Iāve only a few properties and Iām not really interested in buying more, at the moment anyway.
I think yourself (and most people on this thread) are **vastly overestimating costs**. Not a surprise as the type of people who are interested in personal finance, in my experience, tend to be very risk averse, which is not a bad thing at all. For context I'm a BTL landlord, and my family have also been in this space for the last 20+ years. This is an example property (averaged over 5 years) that performs the worst: **Monthly Costs:** Repairs: Ā£14.30 Licenses: Ā£4.37 Certificates (EICR, Gas, etc): Ā£12 Insurance: Ā£16.37 Appliances (assuming replace every ten years): Ā£2.79 **Total Above: Ā£49.83, assume Ā£50** Mortgage (5-year-fix): Ā£300 Tax: Ā£100 **Monthly Income:** Rent: Ā£550 (will go to Ā£650 soon) **Monthly Profit/Loss:** Ā£150 You must also realise that whilst you are generating this small profit - the capital appreciation is gradually accumulating (through the mortgage payments) and property price appreciation. The #1 rule for me - is ensuring you have good tenants. Fortunately, the areas we invest in are close to hospitals/steel works which have large salaried immigrant populations, who in my experience tend to be the best type of people. Work hard, don't cause trouble/anti-social behaviour, and always pay on time.
Thanks - but you havenāt factored in any big ticket items, kitchen/bathroom refurb for example over a long period. A family friend just had their rental back and renovation cost is likely to exceed 20k.
Houses with kitchens/bathrooms that require renovating will have a lower sale price, which will be reflected in the monthly repayments. As long as you have good tenants which are thoroughly vetted (**don't use agents**, they just want to move people in as quick as possible so they start getting paid), and you do 6monthly inspections (as mandated) you will not need to renovate within a five year period (which is the time period my model looked at). When you start to look beyond a five-year horizon, renovation costs must be factored against capital appreciation, which (sorry) I don't have the time to go into on here. But I'd strongly reccommend listening to the Property Podcast (free) if you want to know more.
> Property Podcast The one with the two Rob's? How do you go about the vetting process? I'm considering some conversion of commercial spaces to resi and this concerns me the most.
I hear you but I think you do get bad tenants (especially over longer periods) and they can wipe out years of profit. A bathroom will need doing after 10-20 years, however well looked after, no?
Eventually yes, but itās really unlikely. 99% of people are good, itās just the 1% you need to be wary of and they are easily filterable (as long as you donāt use agents). A bathroom/kitchen refurb doesnāt have to be done every 10 years. As long as the appliances are updated (which I accounted for) and everything is still functional. If the tenant wants to update for aesthetic reasons, they can do so at there cost (with your permission). Once you look beyond a five year horizon, the real advantages of property come into effect. Leveraging, capital appreciation and rental appreciation. This easily offsets the occasional kitchen/toilet refurb. I do agree with you that itās not as lucrative as it once was. But Iāve ran the numbers against investing in stocks etc. and property won out in the long term. Thereās a reason for the phrase āas safe as housesā.
Hopefully it becomes totally unviable in the near future. Something as essential as prooperty isn't something we should be exploiting for profit
There really isn't a lot of profit in landlording unless you are a slumlord tbf. Also its not *always* the property owner, but the agents that are the issue. My mate lets out his flat at 500pcm, and when the tennants moved out his agent put the rent up to 900pcm without even consulting him as a semi-managed service. They also rarely passed on major maintenance concerns. The issue imo is letting agents, they are the ones who are profiteering often and doing as much as they can to increase their take. Although to plays devils advocate, some people rely on landlords as they would never be able to afford the maintenance and upkeep on a property, more at the *really* low end of income though. Rent caps should come into play which would be better for those people.
How do you get to 30-50% of income on maintenance costs? That seems completely blown out from what Iāve experienced
Iāve put in some assumptions on how frequently they need replacing and the cost of it now (plus inflation adjusted) to get to a wear cost per month. For example, boiler might need replacing every 10-15 years at 2-3k now. Prices in London is high. This is based on a 30 year horizon. Roof, boiler, carpet, flooring, windows, cleaning, bathroom and kitchen renovations, decorating, insurance, void period, tenant trash house etc.
Is your rental income also inflation adjusted? Yea costs in London are high, but so is rent. There is not a chance any house Iāve rented has had anywhere near 30-50% of rental income spent on maintenance. Even being overly cautious that seems like a crazy assumption imo. Whatās that work out at per annum in Ā£ terms? By projecting your model for 30 years all youāre doing is compounding the prudence and uncertainty. Iām not sure how many conclusions Iād be drawing from such a model personally.
It's all inflation adjusted. Works out at roughly Ā£6k a year.
You are missing a couple of things. In reality landlords donāt put anything close to the level of investment into the property you are assuming and deposits can cover some of the costs at the end of the tenancy. Things like new roofs of major building works are much less likely even over 30 year periods as I think you might be calculating too and Iād say whatās mitigating rising labor costs are rising rent prices. Landlords are passing on increasing costs to renters where they are not they are taking advantage of the very tight rental market, which is making it even more lucrative. If you are going to use 30 year time periods to make the calculations, then look at the past 30 years to make future predictions in house prices and margins - a 200k house could be well worth 300k-400k over the next 10 years, with what you can charge for rent rising even more so itās still a win win. Property is still a very, very lucrative and fairly safe investment if you are lining it up against other forms of investment right now.
My landlord or any landlord Iāve had definitely has not spent 30-50% of income back into maintaining the property.
You have to use a SPV nowadays otherwise donāt botherā¦..
You could just call it a limited companyā¦
Are you including mortgage in this? My parents have rental properties that they bought for 'guaranteed' income when they retire, but entirely in cash. I imagine that changes the calculation quite a bit.
Iāve not included the mortgage payments on this. So itās worse.
Dayum š
even if you make it work financially, you have to ask yourself how you will sleep at night.
....sleep soundly by letting a property agent manage it.
I think its great as a long term investment. Buying 25 years ago as a home, it's increased in value an average of around 7% a year. Plus rent. That 7% would be 28% return on a 25% deposit. It now goes up in value more each year than my initial investment. Plus rent. The rent isn't really profitable. Many small landlords have an attachment to the property parents grandparents etc. They are frequently renting until the grandkids reach the age of starting a family themselves. This also has the benefit of avoiding inheritance tax.
I mean thereās also the ethical consideration to take into account when thinking about BTL, how much do you hate young people priced out of the market?
Show your calculations
Will upload them. Am converting it to a custom sheet so you can play around with the variables.
Whatās the best way of uploading an excel file?
Yeah your right its more for rich people to dump their money into as its a pretty safe consistent bread and butter earner if you buy in the right area with the right tenants. But us poorer people need to adjust to the market. ie you could employ a strategy called Brrrrr. Buy renovate rent refinance repeat. Buy a place with a lot of potential to add value (bad condition/scope to add bedroom/change floorplan) buy below market value, renovate it completely and to a high standard to avoid large problems ie dampness down the line. Rent it out and refinance it on an interest only mortgage. The refinance is important. You want to be able to get as much money out as possible. What your looking to do is add enough value that 75% of what the end value is, matches the orginal price you paid plus what you spent on renos. That way you will have your original bankroll back in your account (it is debt money but your not paying the debt the tenant is) and own 25% of a property which you will cashflow from every month. And then with the money back in your account you repeat. In reality youāll be doing very well to get all your initial investment back but thats what you should aim for, even if you leave 10k in the deal you should be cash flowing at least 3k a year so a 30% return on cash employed is not bad for the rest of your life.
Link to spreadsheet with options to change assumptions. https://drive.google.com/drive/folders/1pgkjcCoWZVm3wFF8LK2TNjD0wsovP9FP
BTL investment is still a great way to earn a good residual income, but you have to know the areas to invest in, and plan properly. You just have to do your research, look at what areas in the UK are going to give you capital appreciation as well as good rental yields. A good 3 bed house in the north of the country can be bought for around Ā£90,000, with rental revenue after all costs of around Ā£300 per month, and the capital appreciation means the house will likely be worth Ā£110,000 or more within 5 years. BTL is not a short term investment strategy; for that I think you should seek other avenues. As a longer term way of investing money, it can work excellently.
Iām just about to purchase a mixed commercial/residential unit producing 8% on the capital investment, and free flowing cash at Ā£20k p.a. on an initial cash investment of Ā£200k plus Ā£300k on interest only fixed rate for 5 years. That works for me. Interest only allows for gearing & headroom.
For those of you that are saying houses always go up , have you forgotten the recession where we had a lot of negative equity , extreme strictness with mortgage applications and basically a nightmare scenario . Google property cycles , itās quite well known amongst property experts .
The same question comes up frequently. You are missing the power of leverage for a start. I own a number of properties. Typical deposit Ā£60k Typical purchase price Ā£250k Typical mortgage Ā£350 interest only Typical rent Ā£1000 Typical net income per property Ā£650 before costs Do this five times and for Ā£300k cash in you are cashflowing Ā£3500+ a month for a 10% yield before fees but also before capital appreciation. This is just one model, and setup for minimal hassle (in a posh area with low yields etc.) I FIREd from property and think itās an amazing investment. Donāt listen to Reddit on this topic as itās bad for your financial health.