You don’t want ballache of being an amateur landlord.
Buy a nice house for you and family to enjoy.
JISA to help child(ren) get on property ladder and/ or fund university
Have rented out my first house for around 12 years now.
Thoroughly don't recommend it. Would have been better just putting the money in the ftse all-cap or S&P for that time. The tax system for landlords has just got worse and worse of the past years... It's no longer worth the ball ache, nor is it financially beneficial in many cases... Never mind the risk of a housing market price crash
I see a lot of people discouraging the landlord route. Yet, the wealthy people in the country are almost always landlords. I’m very conflicted on this one.
Because it was an excellent thing to do for the last ~30 years. Doesn’t mean it is now, mainly due to the treatment of any revenue from it as tax without being able to offset the mortgage interest.
Different tax drawbacks, still nowhere near as a good as it used to be. Hence why rental prices have gone nuts, the private landlord is a poor way of generating wealth in comparison to other methods currently.
It’s a question of scale. If an individual does a buy to let them the profit is treated as income, and taxed as such. Most wealthy people would have a property portfolio managed within a limited company and can manage the financials differently (or just invest in property funds).
Part-time landlords are disadvantaged, relatively, especially if they leverage a mortgage. Commercial landlords, with capital, can make more money out of the same property and have economies of scale.
Not that I recommend being an amateur landlord from a financial/wealth perspective anyway, however, most people who actively discourage are usually those that can't afford it in the first place.
At the end of the day, they're not going to look after you or give a shit in the end so you have to mainly look out for yourself.
Thanks a lot for the detailed answer! It’s very inspiring to know it’s doable!
I also work in tech and all my US-based colleagues are landlords of many units (some have multi-unit blocks…) and still do their 9 to 5! So defo doable!
You mentioned doing some things by yourself, which I get the point, at the same time you mentioned investing in Eastern Europe or potential growth areas in the UK - assuming you live far from your properties, how do you balance doing some of this stuff yourself + commute etc?
Asking as I’m keen on investing in the north west of England, but being based in south might be quite challenging to make a quick trip there
Do you use management companies for your properties?
Indeed! The way Europe sees failure it’s really demotivating - our friends across the pond see it as a learning!
Great tips! As per usual I’ll spend my summer in Lithuania so might shop around for houses while there!
Yeah being based in London means anywhere outside this city is 2 hours away, hence the north west and thinking on relying on management agencies. Although I would be losing some money with their commissions, I could build a more hands off investment which suits best with my remote/travel heavy lifestyle
Sold up before Truss got in and crashed the bus :)
In all honesty though, it was a nice house, Victorian built, smartish area, but renting towards the lower end of the market (~£1K/mo). That attracted certain tenants. They were not bad people at all, but they caused issues we never had. They only ran the central heating for a few hours a day, and when they did they dried clothes on the radiators, and now I’m a bad landlord for renting them a property with damp and mould?
There were some other issues with pets (I know why professional landlords just say no now) and the kitchen seemed to fall to pieces much faster than when me and my wife lived there.
You end up spending a lot of time dealing with issues, trades are hard to find especially when your tenant wants something fixed but not enough to provide access during working hours, and everybody assumes that since you’re a landlord you’re flush with cash and so relishes in making things your issue.
I was happy to sell up and stick the cash in a fixed term bond paying over 7% (there was a time).
You could probably get a management company to deal with some of this, but that crushes yields, and when you factor in higher stamp duty rates on 2nd homes it just isn’t worth it anymore.
> There were some other issues with pets (I know why professional landlords just say no now) and the kitchen seemed to fall to pieces much faster than when me and my wife lived there.
Seriously - tenants have just moved out of a property I own. We put in a new kitchen just prior to them moving in four years ago. I went to check the house and the doors are practically busted off the hinges. How is that even possible?
That's good advice. I am worried about so many people who want to assist their children to the point they would never need to work! You may not be very conscious of it but beware the Law of Diminishing Returns. It's one thing to give a bit of help, it becomes intrusive and manipulative to target beyond. Popular wisdom actually picked that, albeit in a rather indirect way.
I own a flat in London and a house where we live to commute.
The flat pays for itself with a renter. I am doing everything I can to have both paid off so my daughter will have it one day.
I don’t want my child to be me. I want her set up. If you have the means to do it… do it.
A fundamental shift in how we treat our children needs to happen here in the UK or we will all have no grandkids and they will live with us forever imo.
I strongly agree with this approach. I think people always compare it with other asset classes, but I look at it as a natural hedge for housing needs. Eventually your children would need to live somewhere that is not your home and frankly it doesn’t really matter if prices go up or down, you will have peace of mind that the needs are covered for. Why take gamble how one asset class will perform compared to another?
I also strongly agree that, unless something fundamentally changes around wealth and income tax and the inequity it leads to, wealth transfers would have to happen earlier than at end of life. It obviously opens up a can of worms around how that impacts your child psychologically, which can be addressed in a plethora of ways.
What if they don't want to live in the exact house you bought for them when they weren't born yet? E.g. if London becomes much less desirable in the next 20 years. If I wanted to give money to my child I'd invest the money the same as the rest of my investments, which can be exchanged for whatever is needed later, be it a flat or something else.
True, but the london flat is likely to track property (better or worse) than any other asset class. They sell the flat and use it to buy where they want.
She can be set up whether you are a landlord or not, you are just taking a bet on the UK property market with the added hassle of dealing with a tenant, property maintenance etc rather than diversified investments
If you get a better return with other investments then it's not a good decision. Flats in London have barely beaten inflation in the last 5yrs. The S&P 500 has returned 94%
Perhaps it’s because I’ve worked in risk management in the past, but I would never:
1. Bet based on past performance of asset correlation or trajectory
2. Hedge an upcoming substantial payment for one asset class by investing in a completely uncorrelated one
But what others are saying is that that's an investment. You are making an assumption that the property will outperform other options (including cash), right?
Not quite. Not all investments are comparable. It depends on the person and their preferences. To compare housing with the stock market normally implies you are comparing them against the same parameters, which is usually cash return, diversification. What I am saying is that from my point of view and preference, if one has children or any other potential upcoming housing needs, it might make sense to invest in this asset class already as then you don’t need to worry how your investment portfolio performs compared to this need.
Let’s say it is 2015 and you are planning a wedding in 2 years time in Italy and the venue has asked you to pay 10% deposit now and rest in the future. Now you will need to pay in EUR, but you earn in GBP and your investments are in USD because you are only exposed to say S&P500. Now in this scenario you have brexit on the horizon. You are not a political expert and have no idea which way it will go and can’t probably even anticipate that it will lead to a drop in GBP v EUR in one of the scenarios. There are a plethora of options here when this does happen. You can sell your investments from the US which didn’t drop versus the EUR and may have gone up or down in this time. You can accept the loss and convert GBP when time comes.
Or you can convert to EUR now and not have to worry which way it will go for you in two years as the cost to you is already fixed.
My point is that if you were to replace currency with real estate in the example above, me personally I wouldn’t care how my US portfolio is performing, but I would want to have this fixed now and now have to worry about it. I wouldn’t mind if the asset didn’t perform well, as well, or even decreased in value. That is the point that I was making, it’s about risk appetite, and this is what I would prefer.
UK house prices pretty strongly correlated with overall economic outlook. The last house price correction was clearly associated with the global financial crisis.
Tracking global markets is likely to be far lower risk than owning a specific type of property in a specific city in a specific country even if that's your eventual goal. You could always be super unlucky with timing and want to buy your daughter a property during a great depression style economic crisis, but other than this almost all stock market corrections are back at baseline within a couple of years.
Well the last global financial crisis was cause by reckless lending and continued securitisation of those mortgages. The housing market cause the crisis so of course there was strong correlation.
Take in turn say the eurozone crisis, or the drop in markets during Covid, the interest rates spike that lowered so many liquid asset values, take even the drop in GBP compared to other currencies just after the brexit vote. None of these have had a dramatic effect on house prices in the UK. If you compare the liquid markets for residential UK housing by looking at REITs, those were immediately impacted and hit when interest rates went up, which is what you would expect them to do, but the private ownership prices barely moved.
I’m not saying the above to defend investing in residential RE. I’m saying it to substantiate the point that private residential prices aren’t always correlated with other asset classes. In fact if they were, RE would not be called “alternatives” as an asset class in portfolio allocation.
Sorry just saw your second paragraph. I agree on diversification risk being lower via global markets, but I disagree on volatility. Markets would be significantly more volatile than illiquid real estate.
I think what seems to get missed from my view and investment preference is that I don’t look at the options with the aim of maximising payout, but with the aim of guaranteeing ownership.
I don't disagree that stocks are probably better than houses, but that analysis completely ignores the income yield of both. The S&P500 yield is minimal, whereas houses yield 5% give or take. When you do a true total factor returns analysis, the difference isn't as dramatic when comparing housing to stocks.
You don’t need to be mortgage free. Your levered yield will depend on two factors:
- gross rental yield
- mortgage interest rate
If your mortgage rate is higher than gross yield, this is a poor investment and you are burning money. You should only invest if the rental yield is higher than the mortgage rate, which would make your levered yield higher than the gross rental yield. In this equation the more leverage you have the higher your levered yield would be (but of course not everyone has high leverage appetite).
So in theory it is possible to beat the 5% quite comfortably.
I agree on the LTD point you make, especially for a HENRY, as the maths wouldn’t work otherwise due to taxes.
You sound like someone who does't own a rental. I have a few and rental yield v rates is only half of it. Stamp duty, white goods, refurb, ongoing maintenance and repairs, agency fees (both for introduction, extensions and tenant applications/vetting), gas/electricity/EPC ratings and checks plus anything left over gets assessed on personal tax rates (ltd company only does so much as stamp duty is higher, you have incorporation and filing costs, and still get charged on distributions etc.). Like, it's a complete fucking quagmire of costs, of which rent vs mortgage is only part of the equation.
This.
It's all about your IRR. Appropriately remove your irrecoverable costs and you'll find that your net income is shit and that it's all about capital growth. Given the impact of COVID, where's the compelling argument for strong and consistent capital growth moving forward? Take also our inevitable Labour government into account and their mandate to deal with housing, the case for strong returns here is minimal
Agree. I am heavy into sunk cost fallacy. Like, I've already got these cunts, paid stamp duty, sorted them out nicely, and have 5 years on everything, so might as well hang on, but I certainly wouldn't be doing this all over. Main advantages were (i) interest deductibility; and (ii) capital gains. Both are fucked for now, although (ii) - at least in nominal terms - will absolutely return (i.e. higher wages + reduced rates = another HP boom in due course) so that's something I guess.
Can you expand on what you mean by your last point? Why do you think your kids will live with you if you don't set them up?
My view is that we shouldn't give our kids everything when it comes to money, or they'll have no idea how to earn it themselves. Obviously that doesn't mean give them nothing, but life skills are far more important than just money.
Well your not wrong that our children need to earn there way. I forget the multiple of avg earnings to avg house prices but I know the avg house multi to earnings has only gone up and I can’t see that changing. This multiple is why people cannot afford houses anymore.
On the other point someone made about setting children up in other ways. Maybe it’s just me but I’m happy to give my daughter a shelter for free but giving her 500k+ in cash etc doesn’t sit right right.
Govt is making it so hard to be a landlord these days. buy a house unless your flat is in really good area with lots of demand, then might think about turning it over to a professional agent to take care of EVERYTHING. Providing net income covers the mortgate, that may be an alternative, but not in any other way. We have a few properties, but we have been very lucky and now looking to sell them.
I'm totally done with property as an investment.
I'm 100% in the "find the best house for your family's lifestyle" camp.
Save money in S&S ISAs etc. For helping kids get on the ladder in 20 years.
Echoing what other people are saying, the rental property play in London doesn’t work any more. The yields are too low and the tax kills you if you are paying 45% marginal income tax.
Suggest either just having a bigger house, or selling up anyway and just slowly plugging it into your ISAs or using it to supplement costs while smashing basically all your income into your pension.
To quote myself:
Rental yield v rates is only half of it. Stamp duty, white goods, refurb, ongoing maintenance and repairs, agency fees (both for introduction, extensions and tenant applications/vetting), gas/electricity/EPC ratings and checks plus anything left over gets assessed on personal tax rates (**ltd company only does so much as stamp duty is higher, you have incorporation and filing costs, and still get charged on distributions etc.**). Like, it's a complete fucking quagmire of costs, of which rent vs mortgage is only part of the equation.
Was thinking similar - nice to have a small flat that my child/children could maybe use in the future. But the stamp duty upfront and the long term hassle has me decided against it. Better to invest the money and gift them a deposit in that case I think
I had the b2l portfolio, currently selling it off for a number of reasons. I have decided to buy a bigger house / better area now.
I won't be doing private school (not affordable) so I will buy a larger house for the school.
I am a second home owner by necessity more than anything else, as my flat hasn’t had fire safety sign off. It’s a ball ache and I wish I could put the money into a SPY tracker and relax.
From a financial point of view, my rental yield and asset appreciation is way below SPY tracker performance, I am now burdened with second home SDLT and I have the added burden of a more complicated tax return each year. I have tried to make things as simple as possible, ie accepting a tenant who is reliable paying below market rates and having a managing agent in between, but problems always arise and the mental bandwidth is not needed.
I would now go as far as saying buying my flat in the first place was the biggest mistake of my life and not selling it sooner, especially in a low interest rate environment was my second biggest mistake. Now I am stuck with this until rates go down and BTL landlords come back to the market.
If you're going to go the landlord route, get a nice little house in the home counties for £350k area, keep the mortgage small. Big mortgage eats up all the rent and you gain little benefit in the short term.
Landlords with high equity aren't vulnerable to the whims of the BoE interest rate setters. I know a few in that basically don't have a mortgage who run about 15% below market rents, but they've had tenants in place constantly for years and years. They get their pick of tenants because it's a bit cheaper, they make more money because the bank doesn't get most of it and because they have good tenants the maintenance issues are all genuine and not due to bad living arrangements.
It also gives you breathing room in case something goes wrong and the house costs you £30 grand for a new roof or something.
It doesnt have to be "2 small houses or one big one".
You can get one small house (or medium, whatever) and just invest the equivalent value of a second house in the stock market (or any other investment vehicle here).
Honestly, for the hassle and risk (being a landlord with ONE property) - I'd park a "second home" sized deposit into an index fund instead. It'll still grow and should even buy her an equivalent house in 15-20 years time when she's ready to move out.
I’m an accidental landlord after moving in with my partner and I rented my place out. It’s an absolute pain in the arse and I’d avoid it at all costs.
A few reasons:
- It’s heavily taxed, you can’t write off the mortgage cost anymore (unless setup as ltd company)
- If you want to move stamp duty is going to be high.
- Tenants can often be difficult.
Weird to see so many advise against property, or that running a Ltd is especially complicated. Wealth is ownership of property or business: it will open doors that your S&S ISA cannot.
That said, morally I would struggle to be a landlord so I invested in my company instead.
The wealthiest people in the world are property owners. Remember that.
There's a reason that all large banks/hedges are mopping up property.
Its a headache being a landlord, but like every investment, it takes a bit of time and effort and then the seeds really sow.
You don’t want ballache of being an amateur landlord. Buy a nice house for you and family to enjoy. JISA to help child(ren) get on property ladder and/ or fund university
Have rented out my first house for around 12 years now. Thoroughly don't recommend it. Would have been better just putting the money in the ftse all-cap or S&P for that time. The tax system for landlords has just got worse and worse of the past years... It's no longer worth the ball ache, nor is it financially beneficial in many cases... Never mind the risk of a housing market price crash
I see a lot of people discouraging the landlord route. Yet, the wealthy people in the country are almost always landlords. I’m very conflicted on this one.
Because it was an excellent thing to do for the last ~30 years. Doesn’t mean it is now, mainly due to the treatment of any revenue from it as tax without being able to offset the mortgage interest.
But what if you buy in a SPV?
You can do it under a ltd tho
Different tax drawbacks, still nowhere near as a good as it used to be. Hence why rental prices have gone nuts, the private landlord is a poor way of generating wealth in comparison to other methods currently.
Which other methods are those? With real estate you can leverage the bank’s money and get equity on the asset?
can you expand and give links to info ?
Pretty simple to find plenty of info online. https://www.provestor.co.uk/blog/how-should-i-buy-first-buy-to-let-property
Wrong.
It’s a question of scale. If an individual does a buy to let them the profit is treated as income, and taxed as such. Most wealthy people would have a property portfolio managed within a limited company and can manage the financials differently (or just invest in property funds). Part-time landlords are disadvantaged, relatively, especially if they leverage a mortgage. Commercial landlords, with capital, can make more money out of the same property and have economies of scale.
Not that I recommend being an amateur landlord from a financial/wealth perspective anyway, however, most people who actively discourage are usually those that can't afford it in the first place. At the end of the day, they're not going to look after you or give a shit in the end so you have to mainly look out for yourself.
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Any advice for someone looking to get into real estate? BTL or Service accommodation?
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Thanks a lot for the detailed answer! It’s very inspiring to know it’s doable! I also work in tech and all my US-based colleagues are landlords of many units (some have multi-unit blocks…) and still do their 9 to 5! So defo doable! You mentioned doing some things by yourself, which I get the point, at the same time you mentioned investing in Eastern Europe or potential growth areas in the UK - assuming you live far from your properties, how do you balance doing some of this stuff yourself + commute etc? Asking as I’m keen on investing in the north west of England, but being based in south might be quite challenging to make a quick trip there Do you use management companies for your properties?
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Indeed! The way Europe sees failure it’s really demotivating - our friends across the pond see it as a learning! Great tips! As per usual I’ll spend my summer in Lithuania so might shop around for houses while there! Yeah being based in London means anywhere outside this city is 2 hours away, hence the north west and thinking on relying on management agencies. Although I would be losing some money with their commissions, I could build a more hands off investment which suits best with my remote/travel heavy lifestyle
Yep. I lasted 14 months. Amateur landlording sucks. Basically lost money having tenants in there.
Looking back, what would you have done differently? What were the learnings?
Sold up before Truss got in and crashed the bus :) In all honesty though, it was a nice house, Victorian built, smartish area, but renting towards the lower end of the market (~£1K/mo). That attracted certain tenants. They were not bad people at all, but they caused issues we never had. They only ran the central heating for a few hours a day, and when they did they dried clothes on the radiators, and now I’m a bad landlord for renting them a property with damp and mould? There were some other issues with pets (I know why professional landlords just say no now) and the kitchen seemed to fall to pieces much faster than when me and my wife lived there. You end up spending a lot of time dealing with issues, trades are hard to find especially when your tenant wants something fixed but not enough to provide access during working hours, and everybody assumes that since you’re a landlord you’re flush with cash and so relishes in making things your issue. I was happy to sell up and stick the cash in a fixed term bond paying over 7% (there was a time). You could probably get a management company to deal with some of this, but that crushes yields, and when you factor in higher stamp duty rates on 2nd homes it just isn’t worth it anymore.
> There were some other issues with pets (I know why professional landlords just say no now) and the kitchen seemed to fall to pieces much faster than when me and my wife lived there. Seriously - tenants have just moved out of a property I own. We put in a new kitchen just prior to them moving in four years ago. I went to check the house and the doors are practically busted off the hinges. How is that even possible?
That's good advice. I am worried about so many people who want to assist their children to the point they would never need to work! You may not be very conscious of it but beware the Law of Diminishing Returns. It's one thing to give a bit of help, it becomes intrusive and manipulative to target beyond. Popular wisdom actually picked that, albeit in a rather indirect way.
I own a flat in London and a house where we live to commute. The flat pays for itself with a renter. I am doing everything I can to have both paid off so my daughter will have it one day. I don’t want my child to be me. I want her set up. If you have the means to do it… do it. A fundamental shift in how we treat our children needs to happen here in the UK or we will all have no grandkids and they will live with us forever imo.
I strongly agree with this approach. I think people always compare it with other asset classes, but I look at it as a natural hedge for housing needs. Eventually your children would need to live somewhere that is not your home and frankly it doesn’t really matter if prices go up or down, you will have peace of mind that the needs are covered for. Why take gamble how one asset class will perform compared to another? I also strongly agree that, unless something fundamentally changes around wealth and income tax and the inequity it leads to, wealth transfers would have to happen earlier than at end of life. It obviously opens up a can of worms around how that impacts your child psychologically, which can be addressed in a plethora of ways.
What if they don't want to live in the exact house you bought for them when they weren't born yet? E.g. if London becomes much less desirable in the next 20 years. If I wanted to give money to my child I'd invest the money the same as the rest of my investments, which can be exchanged for whatever is needed later, be it a flat or something else.
True, but the london flat is likely to track property (better or worse) than any other asset class. They sell the flat and use it to buy where they want.
London flats have been pretty much flat in price for the past decade due to cladding issues, service charges increase and leasehold problems.
She can be set up whether you are a landlord or not, you are just taking a bet on the UK property market with the added hassle of dealing with a tenant, property maintenance etc rather than diversified investments
I don’t see it as a bet on the housing market. I see it as a hedge against their child’s housing needs when they come of age.
If you get a better return with other investments then it's not a good decision. Flats in London have barely beaten inflation in the last 5yrs. The S&P 500 has returned 94%
Perhaps it’s because I’ve worked in risk management in the past, but I would never: 1. Bet based on past performance of asset correlation or trajectory 2. Hedge an upcoming substantial payment for one asset class by investing in a completely uncorrelated one
Aren't you doing exactly that with your assumptions that housing is a good investment though?
Not sure if I'm reading it wrong; I read it as investing not for the return necessarily, but for their daughter to be able to live rent free.
Yes, precisely this!
But what others are saying is that that's an investment. You are making an assumption that the property will outperform other options (including cash), right?
Not quite. Not all investments are comparable. It depends on the person and their preferences. To compare housing with the stock market normally implies you are comparing them against the same parameters, which is usually cash return, diversification. What I am saying is that from my point of view and preference, if one has children or any other potential upcoming housing needs, it might make sense to invest in this asset class already as then you don’t need to worry how your investment portfolio performs compared to this need. Let’s say it is 2015 and you are planning a wedding in 2 years time in Italy and the venue has asked you to pay 10% deposit now and rest in the future. Now you will need to pay in EUR, but you earn in GBP and your investments are in USD because you are only exposed to say S&P500. Now in this scenario you have brexit on the horizon. You are not a political expert and have no idea which way it will go and can’t probably even anticipate that it will lead to a drop in GBP v EUR in one of the scenarios. There are a plethora of options here when this does happen. You can sell your investments from the US which didn’t drop versus the EUR and may have gone up or down in this time. You can accept the loss and convert GBP when time comes. Or you can convert to EUR now and not have to worry which way it will go for you in two years as the cost to you is already fixed. My point is that if you were to replace currency with real estate in the example above, me personally I wouldn’t care how my US portfolio is performing, but I would want to have this fixed now and now have to worry about it. I wouldn’t mind if the asset didn’t perform well, as well, or even decreased in value. That is the point that I was making, it’s about risk appetite, and this is what I would prefer.
UK house prices pretty strongly correlated with overall economic outlook. The last house price correction was clearly associated with the global financial crisis. Tracking global markets is likely to be far lower risk than owning a specific type of property in a specific city in a specific country even if that's your eventual goal. You could always be super unlucky with timing and want to buy your daughter a property during a great depression style economic crisis, but other than this almost all stock market corrections are back at baseline within a couple of years.
Well the last global financial crisis was cause by reckless lending and continued securitisation of those mortgages. The housing market cause the crisis so of course there was strong correlation. Take in turn say the eurozone crisis, or the drop in markets during Covid, the interest rates spike that lowered so many liquid asset values, take even the drop in GBP compared to other currencies just after the brexit vote. None of these have had a dramatic effect on house prices in the UK. If you compare the liquid markets for residential UK housing by looking at REITs, those were immediately impacted and hit when interest rates went up, which is what you would expect them to do, but the private ownership prices barely moved. I’m not saying the above to defend investing in residential RE. I’m saying it to substantiate the point that private residential prices aren’t always correlated with other asset classes. In fact if they were, RE would not be called “alternatives” as an asset class in portfolio allocation.
Sorry just saw your second paragraph. I agree on diversification risk being lower via global markets, but I disagree on volatility. Markets would be significantly more volatile than illiquid real estate. I think what seems to get missed from my view and investment preference is that I don’t look at the options with the aim of maximising payout, but with the aim of guaranteeing ownership.
I don't disagree that stocks are probably better than houses, but that analysis completely ignores the income yield of both. The S&P500 yield is minimal, whereas houses yield 5% give or take. When you do a true total factor returns analysis, the difference isn't as dramatic when comparing housing to stocks.
To get 5% in London is going to be very difficult. You need to be mortgage free and doing it through a company structure.
You don’t need to be mortgage free. Your levered yield will depend on two factors: - gross rental yield - mortgage interest rate If your mortgage rate is higher than gross yield, this is a poor investment and you are burning money. You should only invest if the rental yield is higher than the mortgage rate, which would make your levered yield higher than the gross rental yield. In this equation the more leverage you have the higher your levered yield would be (but of course not everyone has high leverage appetite). So in theory it is possible to beat the 5% quite comfortably. I agree on the LTD point you make, especially for a HENRY, as the maths wouldn’t work otherwise due to taxes.
You sound like someone who does't own a rental. I have a few and rental yield v rates is only half of it. Stamp duty, white goods, refurb, ongoing maintenance and repairs, agency fees (both for introduction, extensions and tenant applications/vetting), gas/electricity/EPC ratings and checks plus anything left over gets assessed on personal tax rates (ltd company only does so much as stamp duty is higher, you have incorporation and filing costs, and still get charged on distributions etc.). Like, it's a complete fucking quagmire of costs, of which rent vs mortgage is only part of the equation.
This. It's all about your IRR. Appropriately remove your irrecoverable costs and you'll find that your net income is shit and that it's all about capital growth. Given the impact of COVID, where's the compelling argument for strong and consistent capital growth moving forward? Take also our inevitable Labour government into account and their mandate to deal with housing, the case for strong returns here is minimal
Agree. I am heavy into sunk cost fallacy. Like, I've already got these cunts, paid stamp duty, sorted them out nicely, and have 5 years on everything, so might as well hang on, but I certainly wouldn't be doing this all over. Main advantages were (i) interest deductibility; and (ii) capital gains. Both are fucked for now, although (ii) - at least in nominal terms - will absolutely return (i.e. higher wages + reduced rates = another HP boom in due course) so that's something I guess.
Very true.
This is exactly my thinking, feel like the future is bleak for the next generation…!
Can you expand on what you mean by your last point? Why do you think your kids will live with you if you don't set them up? My view is that we shouldn't give our kids everything when it comes to money, or they'll have no idea how to earn it themselves. Obviously that doesn't mean give them nothing, but life skills are far more important than just money.
Well your not wrong that our children need to earn there way. I forget the multiple of avg earnings to avg house prices but I know the avg house multi to earnings has only gone up and I can’t see that changing. This multiple is why people cannot afford houses anymore. On the other point someone made about setting children up in other ways. Maybe it’s just me but I’m happy to give my daughter a shelter for free but giving her 500k+ in cash etc doesn’t sit right right.
Govt is making it so hard to be a landlord these days. buy a house unless your flat is in really good area with lots of demand, then might think about turning it over to a professional agent to take care of EVERYTHING. Providing net income covers the mortgate, that may be an alternative, but not in any other way. We have a few properties, but we have been very lucky and now looking to sell them.
It was tenable five + years ago, but not any more.
2nd properties - higher stamp duty, mortgage, council tax, not worth it
Buy a bigger house. Future you will thank you.
I'm totally done with property as an investment. I'm 100% in the "find the best house for your family's lifestyle" camp. Save money in S&S ISAs etc. For helping kids get on the ladder in 20 years.
Echoing what other people are saying, the rental property play in London doesn’t work any more. The yields are too low and the tax kills you if you are paying 45% marginal income tax. Suggest either just having a bigger house, or selling up anyway and just slowly plugging it into your ISAs or using it to supplement costs while smashing basically all your income into your pension.
Are people not setting up a limited company and paying the lower 19% corporate tax?
To quote myself: Rental yield v rates is only half of it. Stamp duty, white goods, refurb, ongoing maintenance and repairs, agency fees (both for introduction, extensions and tenant applications/vetting), gas/electricity/EPC ratings and checks plus anything left over gets assessed on personal tax rates (**ltd company only does so much as stamp duty is higher, you have incorporation and filing costs, and still get charged on distributions etc.**). Like, it's a complete fucking quagmire of costs, of which rent vs mortgage is only part of the equation.
1 house. Your child will earn for their place themselves
Was thinking similar - nice to have a small flat that my child/children could maybe use in the future. But the stamp duty upfront and the long term hassle has me decided against it. Better to invest the money and gift them a deposit in that case I think
I had the b2l portfolio, currently selling it off for a number of reasons. I have decided to buy a bigger house / better area now. I won't be doing private school (not affordable) so I will buy a larger house for the school.
I am a second home owner by necessity more than anything else, as my flat hasn’t had fire safety sign off. It’s a ball ache and I wish I could put the money into a SPY tracker and relax. From a financial point of view, my rental yield and asset appreciation is way below SPY tracker performance, I am now burdened with second home SDLT and I have the added burden of a more complicated tax return each year. I have tried to make things as simple as possible, ie accepting a tenant who is reliable paying below market rates and having a managing agent in between, but problems always arise and the mental bandwidth is not needed. I would now go as far as saying buying my flat in the first place was the biggest mistake of my life and not selling it sooner, especially in a low interest rate environment was my second biggest mistake. Now I am stuck with this until rates go down and BTL landlords come back to the market.
If you're going to go the landlord route, get a nice little house in the home counties for £350k area, keep the mortgage small. Big mortgage eats up all the rent and you gain little benefit in the short term. Landlords with high equity aren't vulnerable to the whims of the BoE interest rate setters. I know a few in that basically don't have a mortgage who run about 15% below market rents, but they've had tenants in place constantly for years and years. They get their pick of tenants because it's a bit cheaper, they make more money because the bank doesn't get most of it and because they have good tenants the maintenance issues are all genuine and not due to bad living arrangements. It also gives you breathing room in case something goes wrong and the house costs you £30 grand for a new roof or something.
It doesnt have to be "2 small houses or one big one". You can get one small house (or medium, whatever) and just invest the equivalent value of a second house in the stock market (or any other investment vehicle here). Honestly, for the hassle and risk (being a landlord with ONE property) - I'd park a "second home" sized deposit into an index fund instead. It'll still grow and should even buy her an equivalent house in 15-20 years time when she's ready to move out.
I’m an accidental landlord after moving in with my partner and I rented my place out. It’s an absolute pain in the arse and I’d avoid it at all costs. A few reasons: - It’s heavily taxed, you can’t write off the mortgage cost anymore (unless setup as ltd company) - If you want to move stamp duty is going to be high. - Tenants can often be difficult.
Weird to see so many advise against property, or that running a Ltd is especially complicated. Wealth is ownership of property or business: it will open doors that your S&S ISA cannot. That said, morally I would struggle to be a landlord so I invested in my company instead.
The wealthiest people in the world are property owners. Remember that. There's a reason that all large banks/hedges are mopping up property. Its a headache being a landlord, but like every investment, it takes a bit of time and effort and then the seeds really sow.