Why arent more people doing it?

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    Why arent more people doing it?

    Hey guys hows it going? Spent the day in Birmingham today, met with a letting agent and spent the day getting a feel for the place as me and my brother (32-him & 35-me) are wanting to buy a place to let next year - and then, providing its been a success (financially), we want to build a portfolio.

    Please forgive me if I ask basic or obvious questions but we have never done this before.

    A brief background on us - both London based, I work on films and my brother has his own flooring company - both earning £100K + each, with no children.

    The letting agent has advised us that she has something which matches the 3-bed type place we are looking to BTL for our first place and it is £136,000 and in excellent condition - ready to go. Although the money seems good and we can easily raise 25% deposit - plus a few more grand for fees etc - she thinks we could get approx £1,500 to £1,600 rent per month. If we get an interest only mortagage then this leaves quite a healthy amount left over. We are aiming to leave all moneys after tax is paid in the account and only use company money to put towards new propeties. We also plan to buy more out of our own money from our regular jobs - literally putting eveyrhing into it that we can and keep building.

    I have done research into the student pro's and cons and the 'young professional' pro's and cons and it seems that our agent would be able to manage the places as well as guarantee the rent (how likely is this???)

    It looks like we could have anywhere between £1,000 and £1,300 per month - per property - I know you have to accept things going wrong but this seems like a great return - in terms of a passive income / cash flow. Why arent more people doing this? Is it literally lack of funds / lack of inititative?

    Best Wishes


    In GF's case, it is due to not owning a property already. They won't give her a mortgage.

    BTW. This sounds suspiciously like a 'rent to rent' scheme. Don't get involved with them, or you'll be sorry.

    For my HMO, one of the sharers is the tenant, and collects the rent and bill money from her housemates who are her lodgers. Thus very little 'managing' needs doing.


      There's no such thing as "guaranteed rent". You're simply swapping one payment risk (the tenant) for another (the letting agent).

      The yield you're quoting is just over 14%, which is extremely high for any BTL, let alone a good-quality turn-key investment in Birmingham (even let to students or a group of young professional sharers). I'd be very suspicious. Either the letting agent is lying about the rent or is planning to let it in a manner which you wouldn't be at all happy with.

      There are also innumerable other costs and risks which I am sure you're not factoring in.

      To answer your question more directly, however, the number of people who have a spare £40k hanging around which they might use for deposit and fees on a BTL with is probably a lot smaller than you think, and of those who do have that sort of money lying about not everyone wants the various complications of property compared to say a global equity tracker fund in an ISA. However you will find plenty of people on this website who do agree with you that property is a good investment, although perhaps not as good as you are anticipating.


        Thanks for your replies so far, I am here to get as much advice as I can and am grateful for anything you are able to add. I dont expect it to be easy, and yes I am sure there are tons of unforeseen problems - this is all part of the learning curve. Long term capital gains is not currently the goal. Even a 10% yield would be good, considering we are prepared to make nothing in the beginning lol. The agent said that they have a scheme where not only do they manage the property but for an extra percentage they would pay the rent even if it’s not paid to them , maybe as you said this is well and good until the dreaded time comes.


          Things go wrong with rentals: Terrible tenants or agents who don't pay for 7 months whilst you pay for legal fees and repairs. Repairs? Yes of judge will give tenant more time. Unexpected big repair bills - new roof, central heating. Voids. Crooks ripping you off. Chancellor decides to tax landlords more (it's happened a few times recently). These things take a lot of your time & money & stress.

          No those "guaranteed rent" schemes/scams often turn out to be scams.

          With Br*x*t house prices and rental amounts could drop significantly against both £££ and Euro and Dollar.

          There are also arguably better alternative investments.

          Spread you investments over at least three areas - eg pensions, property, stocks&shares. All eggs in one basket is unwise. Certainly property is a good option: But in no way guaranteed!

          Most years I make money from my rentals: But not always.
          I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...


            Thanks, so don’t try to build up 100 properties then?


              Agent may be offering rent guarantee insurance rather than a rent-to-rent agreement.
              You need to understand exactly what is being offered.

              Why aren't more people doing it?
              1. As per #3, having a spare £40K laying around is not that common.
              2. As well as purchase costs you need to be able to cover no rental income for at least 6 months to cover non-paying tenant or dishonest/inept agent.
              3. Increased regulation/legislation, selective licencing, etc means there are many pitfalls (or elephant traps, if you believe conspiracy theorists) with potentially costly consequences or even possibility of not being able to regain possession of the property.
              4. If you use an agent, then YOU are legally responsible for the actions and failings of your agent. Your agent can make mistakes that cost you tens of thousands of pounds or even a criminal record, and if agent is a company, it can fold giving nothing for you to reclaim losses from.
              5. It is passive only if you are willing to put your trust and financial future in the hands of an agent. To do that you need to thoroughly vet the agent, and to do that you need a thorough understanding of the applicable law.
                However, you still need to monitor the actions of the agent, so you still need a thorough understanding of the applicable law.
              6. You need to be able to terminate the agency agreement if agent is not complying with the applicable law. So, hard negotiations (because that will not be in their standard agreement) and a need to have a thorough understanding of the applicable law.
              7. If you plan to develop a large portfolio, then you need to distribute properties across agencies to provide some protection against agent unintentionally or criminally screwing up.
              8. If you are going in to the business now , then the tax situation means that most people need to set up a company to own the properties and receive the rental income (most people will have plans to grow the portfolio or will already be over or near the higher rate income tax threshold). That needs to be a limited liability organisation.
              9. There are a number of limited company laws and regulations that need to be complied with, which complicates the situation. Some of these are just company admin, but some can have significant impact on lettings (e.g. I believe that contracts need to be signed by two officers of the company, so that means your agent cannot sign on your behalf).
              10. Company mortgages tend to be more expensive than personal BTL mortgages.
              11. Your £1000 - £1300 per month appears optimistic even at the lower end, unless you are not considering non-monthly costs like repairs and possibly an unrealistically low interest rate (which is likely to increase in the future).
              12. Mortgages are likely to be short-term fixed rate deals, meaning regular refinancing costs and possibility of having to switch lenders.
              13. You need to find mortgage deals that do not allow the lender to call in loans on all properties if one is sold.
              14. Mortgage terms can be onerous if LTV goes up because property values reduce.
              I'm sure there are many other reasons hat more people are not doing it.


                As per post #3 a yield anywhere near 14% for a hands-off ready-to-go investment is not consistent with anything I see on the market. Generally, yields like that involve buying a wreck and refurbishing, change of use / conversions, or perhaps low-rent HMOs with all the work / cost / risk that entails.
                There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.


                  Thanks for your replies - I am certainly glad we came here first, and we will continue to do so. I guess it’s what we thought - hard work, which makes it even more appealing to us. Don’t want it to be too easy or else literally everyone will be at it. We are willing to dedicate a lot of time and money to this and nothing which has been outlined in the above threads makes us think we don’t want to do this. Thanks for your advice guys,best



                    Can I make observations on sections 12/13 &14 which I believe to be somewhat misleading.My comments are focused on BtL mortgages since these are Unregulated loans whereas Residential Homeowner mortgages are regulated and subject to different conditions as applied by the Financial Conduct Authority

                    One cannot simply state that mortgages are likely to be short term deals, in today’s market place borrowers have the options which reflect their investment strategy and their perceived view on interest rates going forward. Today in addition to Tracker and Discounted Rates there are 2/3/5 & 10 year Fixed Rates with mortgages available for up to 35 years depending on the date of birth of the applicants , certainly 70 year old applicants can obtain with certain lenders a mortgage term of 20 years.

                    There is a growing practice amongst lenders to offer loyalty switch products when existing facilities are coming up for renewal thereby negating the need for seeking a Remortgage , this is of course dependent on the switch rate being competitive or if the borrower is seeking a release of equity and the lender does not accommodate providing Further Advances. Historically it was wide spread practice amongst some brokers to place emphasis on short dated products as a means of churning the loans in order to seek an income stream on Remortgage financing. A good broker will establish exactly what the options are available taking full account of the clients property strategy.

                    Any lender will always want recourse if the loan defaults and there is a shortfall to recover , what is certain is that being made to sell one’s house is very unlikely but there is nothing to prevent a charge being placed on the home or any other property. If the loans are via a Limited Company, then Directors have to give their full Personal Guarantees in addition to have a charge on the subject properties; whilst Floating Charges across the company’s assets is now a rare condition clearly the Directors will need to use all assets within the direct control to discharge any debts due to the lender.

                    I cannot comprehend the comments on mortgage terms being onerous if the LtV changes adversely because of market conditions. The mortgage will not be called in should on a worse case scenario place it in negative equity. As long as the borrower maintains the payment of the mortgage in accordance with the stated terms then the loan will indeed continue until the loan expires . Clearly the only impediment is if there was such an occurrence in the market and the owner wish to sell then any Early Redemption penalties would indeed create problems but I cannot understand the inference of onerous terms, perhaps MdeB might explain.


                      If it was that easy and gave a 14% return everyone would be doing it. If it sounds too good to be true - like this does - it probably is. Take the blinkers off and do more research before you commit. As has been pointed out YOU are legally liable for errors/scams your LA makes so you need to be absolutely certain they're genuine and knowledgeable. Personally I would stick to local, it's easier to check the reputation of LA, good area to buy etc.


                        Originally posted by LDlettings View Post
                        If we get an interest only mortgage then this leaves quite a healthy amount left over.
                        No it does not.
                        At the end of the mortgage period, you have to find £ 136,000 almost immediately to pay off the loan.
                        Where is that money coming from ?
                        You have to save most of the rent to pay off that loan when it becomes due.

                        I wont bore members any more by telling you about my business venture i stared with £ 300 from my back bedroom, and sold it 7 years later and retired. So take all the advice on here from those telling you to steer clear of property.

                        Also, i hear that interest only mortgages are hard to come by for B.T.L. properties.
                        because it is normal that your rent received is at 125% E.G. rent of £ 1250 per month if mortgage repayments are £ 1000 per month, hence some not doing interest only mortgages.
                        I had a tenant who did not pay rent, and we got him out. Took 8 months, and ex tenant has completely disappeared, therefore I've lost £ 10,800.
                        Had to sell one of my cars to make up the difference, even though i had no mortgage.

                        28 MARCH 2018
                        169 tenant evictions in Britain a day ( 61685 per year )
                        You will not be immune from these evictions.


                          I rent in Birmingham (admittedly not the centre) and that 14% return isn't realistic.

                          If the agent can get a guaranteed £1500 - £1600 a month investing £35k what on earth do they need you for?
                          What do you have that they don't have already and why would they give you that opportunity?
                          Even if they didn't have any money at all, lenders would bite the hand off anyone wanting finance on that kind of deal.

                          My two bed properties far out in the suburbs cost 50% more than the price quoted and don't rent for anywhere near that much.

                          Based on what you've said your plans are, you should be talking to your accountant about whether it's best to run this via a company or personally.

                          You both sound quite handy, so you might want to consider somewhere closer to where you live, so you can carry out some of the routine maintenance, rather than pay someone else to do it.
                          You'd also have a better feel for the local market - Birmingham is a nice place and it's definitely on the up and up, but it's not delivering that kind of return and, if you knew the local market, you'd have been immediately suspicious of what the agent was telling you.

                          Be interesting to know why you decided to go into this business (as opposed to any other business).
                          It can be hard work with relatively low returns, compared to other investments.
                          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


                            Originally posted by LDlettings View Post
                            BTL for our first place and it is £136,000 and in excellent condition - ready to go. - she thinks we could get approx £1,500 to £1,600 rent per month
                            I have done research into the student pro's and cons and the 'young professional' pro's and cons and it seems that our agent would be able to manage the places as well as guarantee the rent (how likely is this???)

                            It looks like we could have anywhere between £1,000 and £1,300 per month - per property - I know you have to accept things going wrong but this seems like a great return - in terms of a passive income / cash flow. Why arent more people doing this?
                            This is the question you should ask the agent - why is the present owner selling? You could also try to look at actual figures to see if the returns advertised are correct. Also query the 'young professionals' description as you will find the easiest way to fill a property is with bar,or night club workers who have a different work pattern.

                            You will require a property manager and comply with HMO regulations, and pay for all utilities, cleaner and a gardener. I never found an agent who would do the management advertising and running of the HMO for 10 or 12% and if you got somebody the fee was more like 20%. An ordinary property manager managing 150 properties will not be able to manage yours properly ( you will have 4 individual tenants)

                            I owned several properties near the centre of Birmingham and a lot has changed there over the last few years. I have sold most of my
                            properties now and all went to out of town buyers who did not appear to change what I did, and I can confirm that what you have been told is extremely optimistic over the medium to long term. You are obviously not looking for the income and I think the agent knows that if you get a net 5% or even 7% return it is better than your return on cash in the bank.



                              Why arent more people doing this?
                              'Cos at those returns it will be multi-lets.
                              Subdivide the lounge and master bedroom and let out 6 rooms to lots of desperate occupants.
                              Luvvly Jubbly!

                              (Legality, morality and risk.)


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