Buy to let - second property

[Ricko]

Hi, I realise that with mortgage rates being high that this isnt necessarily a good time to consider this but I'm toying with the idea of buying a small second property to give an income. The idea being that it will provide me with an addition to my pension when I eventually retire.

Can anyone enlighten me to the possible pitfalls etc?

Cheers

[vmaxphil]

Bad non paying tenants to start with, who when eventually evicted trash the place 

[Jaymo]

Capital gains tax along with the increased rates/deposits required for a BTL mortgage. 
 

Landlord insurance plus on initial purchase, the additional stamp duty charge. 

[Rupert]

Main pitfall are tenants, they can make it a joy or break your will to live. With only 1 renter you would be exposed to all the costs of repairs with only one rent coming in. Some years you may end up making nowt. E.G  if boiler called it a day. Its not what it was. Good safe returns are coming back and can be found, 4 or 5 % is not unobtainable now adays with low or no risk.

Edited April 10, 2023 by Rupert

[Dave at kelton]

Don’t underestimate your running costs. These include insurances, repairs, service testing, decorating, management charges, void periods.

[Vince Green]

Tax laws changed a couple of years back causing hundreds of landlords to sell up.

There is a real shortage of rental property in Cornwall because so many landlords have given up.

[Mr.T]

I have a property that I rent out, my advice would be get a good agent that gets good tenants. Shortest tenancy I have had is three and a half years. Be a good landlord and hopefully you can keep good tenants. 

[eddoakley]

My advice would be don't bother.

This from the man that bought another last week.

Rent is crazy at the moment, I have people ask me for houses every day and there are never any empty and the amount of rent achieved blows my mind. But that's the market and its what people have to pay.

Had a nightmare tenant last year that cost me several thousand pounds to get out as they just decided to stop paying and refused to move out. But now I'm 6 or 8 months into a new tenancy agreement and the only thing I've heard from the new tenant is that they've dropped the rent off in cash to my office, every month. 2 others at the same time just refused to leave as that's what the council advised them.

I often say that the government would climb over 20 virgins to screw a landlord. 

Consider stamp duty, 25% deposit for BTL, landlord licence, gas and electrical certificates, general maintenance and repairs and things like carpets when tenants leave, tax, capital gains if you sell, paying to file that tax return....plus other costs.

If it goes well it can still be OK. I make a living at it. But be prepared for the costs and losses, if you can survive that occasionally then it can be a decent way to save for the future.

 

Edd

[JohnfromUK]

As above plus the rules are getting more onerous.  When I let a property for a few years some while ago,j the main annual safety check was for gas safety (annually).  Now I believe you need electrical safety and an energy certificate - and that the energy one has to meet certain limits.  https://www.gov.uk/guidance/domestic-private-rented-property-minimum-energy-efficiency-standard-landlord-guidance

I gave it up for various reasons;

1. I had one bad tenant - who had had their business fail, and had big debts.  I lost out because the 'big' creditors (in this case mainly the Inland Revenue I believe) got first go at any assets, but even they got little.  On the plus side, tenant was co operative with me and left as soon as possible and left my property 'tidy'.
2. Changing rules on gas appliances was going to cost me significant money to meet needs
3. Electrical wiring was in need of renewal based on age
4. Much plumbing was of an age where leaks/problems were getting more and more likely
5. Insulation was going to be an issue in the future

Overall, I just felt that the money I would need to invest wouldn't be justified if all went well - and one 'bad' tenant wiped out the gains from several 'good' tenants.

[scobydog]

Hi Ricko,

1 of the options you could look at is student lets,  now some people will say not with a barge pole, but times have changed, a good well managed property will always let and word often gets passed down to other students looking to let in future. I worked for a company that managed several 100 student properties in Manchester, they rarely if at all had a vacancy. If a place got any damage it was taken out of the the deposits at term end. A 3 bed terrace would be turned into a 4 bed using the front room as a bedroom, these would be let for £100 a week for doubles and £75 for the small single, a 50% fee to hold it over summer for the following year also applied if the students still required it. During holiday times the properties would be decorated, gas, electricity checks etc if needed and any other work as required. As i see your in Ormskirk Edge hill uni is nearby and could provide possible source of income for you.  We always had more trouble with so called professionals than any students.

 

Atb scobydog

[ShootingEgg]

2 hours ago, Dave at kelton said:

Don’t underestimate your running costs. These include insurances, repairs, service testing, decorating, management charges, void periods.

Self manage the property, that removes management fees which are just a way of the agents cashing in and doing very little( speaking from experience here). EPC cert each time you get a new tenant, gas and elec safety tests every year. Gas around £60-90 mark elec is more but can't remember off top of my head. Insurance, I pay monthly around £15 pcm.  Then if something breaks you fix unless the tenant is at fault they would have to pay. If you find a good tenant and it's a great little savings pot. But you will always get the unexpected bill. But then that's home ownership... 

[harrycatcat1]

14 minutes ago, ShootingEgg said:

Self manage the property, that removes management fees which are just a way of the agents cashing in and doing very little( speaking from experience here). EPC cert each time you get a new tenant, gas and elec safety tests every year. Gas around £60-90 mark elec is more but can't remember off top of my head. Insurance, I pay monthly around £15 pcm.  Then if something breaks you fix unless the tenant is at fault they would have to pay. If you find a good tenant and it's a great little savings pot. But you will always get the unexpected bill. But then that's home ownership... 

Electric test for tenant's house not every year but 5 years.

I've rented houses for 30+ years and I wouldn't advise anyone going into that market unless you have really thick skin. I've had every trick in the book pulled on me by tenants. I can't be bothered with the hassle nowadays and as they come empty I sell them. 

[ShootingEgg]

20 minutes ago, harrycatcat1 said:

Electric test for tenant's house not every year but 5 years.. 

Yeah sorry bad ... 

You are right thick skin is needed... 

[Jega]

We did this a few years ago ,never again . Unfortunately the bad /dodgy tenants out number the good ones by about 20-1 .

Just endless hassle, examples ,the outside light doesn't work ( bulb gone ), the heating doesn't come on with the timer ( It's on a 24hr clock they didn't realise this despite detailed instructions being left  ) . Along with numerous others .

That's beside the cost of non/ late payers ,those who left with fixtures and fittings ,would i do it again . Absolutely no chance .

Edited April 10, 2023 by Jega

[loriusgarrulus]

My company did a retirement training course prior to me retiring. One of the lectures was on money management and using lump sums to invest in property. The advice in 2012 when I retired was unless you could afford at least 4 properties it was very risky if you depended on the income. If the risk was spread between at least 4 properties so the chances of bad tenants taking all your extra income was split 4 ways. With only one property if you got bad tenants, not only did you lose income and have to bear the legal costs of getting them out and  cost of rectifying damage too.

We did have tenants in my late husbands house for a few years after he moved in with me. They paid their rent ok, but when they moved out they left piles of rubbish behind both in the house and garden. As the house was being sold it was a nightmare to get it cleared before the new owner exchanged contracts.

[JohnfromUK]

1 hour ago, Jega said:

Unfortunately the bad /dodgy tenants out number the good ones by about 20-1

Whilst I was letting, I had 6 good tenants and only one bad (and the bad was due to their business failing, so unable to pay).  The loss on the 'bad' was compounded by me not being 'hard enough'.  Said tenant had got behind once before and after a meeting - promised to catch up - which they did.  When it happened a second time, I should have acted quickly to re-possess - but thought/hoped that they would catch up - as they had done before.  It didn't happen and it became clear (through other local sources) things were going from bad to worse, so I acted, but the delay in acting cost me money. 

I also had debt collectors round and had to be careful they didn't seize anything of mine!  I did take legal advice, which was basically that if the Inland Revenue are owed significant amounts (which they were) - anything I tried to get back would probably be throwing good money after bad.

[harrycatcat1]

3 hours ago, ShootingEgg said:

Yeah sorry bad ... 

You are right thick skin is needed... 

😉👍

[Rim Fire]

Sold three of mine got one left with family in it I've had  no problems at all in 10 yrs 

[Weihrauch17]

With all the EPC economy wrecking insanity coming down the track I wouldn't touch a rental with a barge pole.

Edited April 10, 2023 by Weihrauch17

[amateur]

Dependent upon your local authority, particularly if you are looking at HMOs, you may have to register (at a cost of a few hundred quid) as a landlord and have jump though more hoops such as a DBS check.

[button]

12 hours ago, Mr.T said:

I have a property that I rent out, my advice would be get a good agent that gets good tenants. Shortest tenancy I have had is three and a half years. Be a good landlord and hopefully you can keep good tenants. 

This

[Jim Neal]

As you can see, there are lots of people with a less than positive experience in renting out property.  The quiet majority are those who do make it work.

There are lots of reasons why people say "never again" after a foray into BTL, most of which are down to poor planning, unrealistic expectations and a general lack of ability to make a venture work the way they want it to.

I draw on my own experiences as a landlord, being a tenant in the past, having friends with rental properties, and also working as a contractor to the BTL sector.  I have some golden rules which I think, if followed, will steer you in the right direction:

1. Invest in the right type of property.  This is the absolute most important thing of all because it's the foundation that your BTL venture is built upon so a **** property is going to set you on the wrong path.  Forget the bottom end of the market; letting out cheap properties at low rents is simply asking for the dregs of the market to cause you problems.  Go in a bit higher, for example a decent quality, post-war 3-bed semi in a respectable enough part of town.  If all you can afford to buy now is a skanky Victorian terrace or somewhere that looks a bit grim, forget it, save up some more and look at it in another year or two's time.  Also, older and/or cheap properties have a habit of springing unexpected maintenance costs on you, constantly.  I'd rather rent out 3 good quality properties than 6 wrecks.
2. NEVER advertise privately to save money on an agent's finding fee.  You'll end up with the dregs who can't go through an agent because they have bad credit, bad references etc etc.... these sort of people are MUCH more likely to end up as non-payers and/or house-wreckers.  A good agent is well worth their fee.  You still can't guarantee a great quality tenant through an agent, but you massively reduce the chance of getting a nightmare one.
3. Manage the property yourself.  You don't need an agent.  If you've made sure the property is in good order and have a good tenant you don't need to pay an agent to do nothing month after month.
4. Make your property one of the best examples of its type in your area.  Whatever property you buy, DO NOT be a skinflint and leave it with peeling wallpaper, tired decor, shabby flooring, dripping gutters etc etc.... this again will attract the dregs of the renters who are probably stretching themselves a little to rent this type of property.  INVEST in the property by giving it a decent kitchen and bathroom.  Make sure all the joinery is in good order.  Fit some nice door furniture and faceplates on the switches.  Sort any dodgy plastering and decorate it throughout to a high standard (nowt wrong with a bit of good old magnolia!).  Renew the carpets; you don't have to spend a fortune on carpets, just a respectable quality polypropylene pile that looks OK - steer clear of wool and nylon which stain easily, always go for polypropylene because it cleans up really well even if fairly trashed.  Making your property look better than the competition gets you the best rent for it and filters out the dregs who will always be down the cheaper end.  I can't stress that enough.
5. Be realistic with your financing.  If your mortgage is going to be more than about 70% of the expected monthly rent, you're cutting it too fine.  Don't do it.  You need to consider also that every time you change tenants you'll likely have at least one month void with no income and you'll also be paying an agent anywhere between 50% and 100% of a month's rent to find you a new tenant.
6. Don't go into BTL if you want to use all of the profit as an income source.  One blip and you're stuffed.  Sure, take a couple of hundred quid, but not all the profit.  You can overpay on your mortgage up to a certain % every month, which will reduce the monthly payments as time goes on (slowly at first but as you get a few more years down the line it starts to really show).  Keep an amount back every month in a separate savings account as a contingency fund.  You'll need it at some point.
7. VALUE your tenants because without them you're screwed.  Make sure they can contact you easily and RESPOND to them immediately if they have any concerns or report maintenance issues.  Get maintenance issues sorted IMMEDIATELY.  This really does earn you a lot of good will from your tenants.
8. Don't get emotionally attached to the property because it affects your reasoning and rationality.  I'll give you an example: last week I went to do some work at a BTL property between tenants and the landlady was there, totally stressed out..... "Can you believe it?  She's done this, she's done that, only been here 9 months..... blah blah..."  She was blurting out all sorts of irrational, unrealistic things.  So what?  It's a brick box that makes you money, this involves someone living in it, sometimes people have mishaps, it's all just material stuff and you have a deposit to cover damages.
9. You also have legal options if a tenant causes you large losses above the deposit amount, so make sure you get yourself an insurance policy that's worthwhile.  It shouldn't be more than around £300 or so per annum.
10. Remember good times and bad times ebb and flow, so don't lose heart if you have a tricky period, the good times will come back if you've made realistic plans and can make rational decisions.

 

Nobody's got a crystal ball, even with careful planning sometimes you can end up with a few problems.  BUT the better you plan, the less problems you have and the less expensive they are.  You can make it work if you're smart.

Good luck 👍

[Mungler]

1. Rent to a working family with a kid that attends a school local to the property.

2. Don’t over charge rent - if you rent a property which they couldn’t rent elsewhere for less money, then they’re staying. Which means no voids and no agents and no lawyers fees.

3. If you can, buy in a Ltd company vehicle, treat it like a business and claim every business expense imaginable including the mortgage interest.

4. Work out if you want income or capital appreciation first and foremost. It will shape the property you buy - we’ve always gone for fixer uppers and in a rising market. 

5. One of our properties, the post code got dumped in a selective licensing scheme which was a massive admin pain as the local authority demanded a floor plan and all square footages together with £1,000 fee for the licence over 5 years. Total rip off and I told the officer that that would just end up on the tenants’ rent (for the whole postcode).

 

We started out all in residential and now we’ve moved into some commercial (in a SIP) because of tax. The government has done all it can to screw B2L landlords and they’re not stopping anytime soon. 

I can’t but help think that all these asylum seekers are still going to have to go somewhere and yet we’re not building enough new units. And give it 5 years and they will have all had children etc.

[Vince Green]

A lot of landlords don't realise you are supposed to have fire doors fitted to the bedrooms. 

I didn't until we bought our flat in Cornwall and I asked the vendor why he had changed all the internal doors.

He said he had to for fire regs when he rented it out. The letting agent insisted on it . I checked it out and yes he was right

 

Edited April 11, 2023 by Vince Green

[eddoakley]

2 good posts above.

Using an agent is a decision you'll have to weigh up.

I've been on both sides and am currently leaning towards using an agent. 

I've always managed my own property and have managed for others and thought that it was money for old rope and I've also done plenty of work for agents on properties that they managed again thinking that it was easy money.

But lately I've considered using an agent who is offering me 10% fee for portfolio (15% for less than 5 properties) buy offering guaranteed rent. I'm trying to be retired (not doing too well at that) and just can't be bothered with the work involved in managing tenants. The agents get top rent meaning that their fee is actually less out of my pocket. I still get the option to do any of the maintenance too so if I feel like it I just get it done or if I can't be bothered I give them the go ahead to do what's needed.

10% as a pound note figure looks like a lot to lose each month but overall I think its going to be sensible for me, OP would need to weigh it up.

I've been doing it for 25 years and have had the good and the bed but I know what to expect and have never relied on the income, jndeed at times I had to top up the rent to pay the mortgages but I was working and able to cope.

25 years since the 1st one and with mortgages paid off and other properties bought cash then the income is enough to live, not a fortune but enough if I'm sensible. 

To the OP, don't get into it if you are going to rely on it. It's a good supplementary income if you have spare cash yo set it up and plan it properly and don't mind the work at times. Or it's a good long term savings plan if you do repayment and just forget about the income for as long as possible.

It's not all doom and gloom but it's certainly not easy.

 

Edd

13 minutes ago, Vince Green said:

A lot of landlords don't realise you are supposed to have fire doors fitted to the bedrooms. 

I didn't until we bought our flat in Cornwall and I asked the vendor why he had changed all the internal doors.

He said he had to for fire regs when he rented it out. The letting agent insisted on it . I checked it out and yes he was right

 

Not in all cases. 

Flats and houses are different. Fire strategies differ. Escape routes matter.

I don't think any of my places have needed fire rated doors retro fitted.

 

Edd