Is it still worth it being a private landlord?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Is it still worth it being a private landlord?

    Simple question - is it still worth the effort of being a private landlord?

    I have a single property which I let out in Bristol. This was my own home and well maintained but circumstances needed me to relocate. At the time the market was not good for selling so i decided to let the property. I have a great tenant and comply with all requirements. But my net return on the property after paying off the HMRC, certificates, insurances, mortage, selective license, etc. seems to make it hardly worth the effort.

    My net profit, not deducting any unforseen expenses, is in the region of £500 per year (around £40PCM) from an rental charge of £700. Is this normal or am I completely getting it wrong?

    I'm certainly not going to be quiting my day job anytime soon.

    #2
    Your problem is probably because it is your former home. If you were looking to buy an investment property, would you have bought that property, in that location and at that price?

    Comment


      #3
      For me it is the element of capital growth and the eventual chance to draw an income from the rent once the mortgages are paid off that keeps me going.
      Month by month and year by year, especially after my recent tenant issue and eviction the answer would be a big fat NO

      Comment


        #4
        Originally posted by BristolLandlord2013 View Post
        My net profit, not deducting any unforseen expenses, is in the region of £500 per year (around £40PCM) from an rental charge of £700. Is this normal or am I completely getting it wrong?
        I don't want to be rude, but that's not worth being a landlord for, the risks are simply not worth that.

        Are you repaying a mortgage from the rent, in which case, you should probably add back the capital repayment element of that mortgage to the "income" column?
        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).

        Comment


          #5
          My property is a 3 bed semi with easy access to local amenities, take-aways, shops, gyms, petrol stations, pubs, cash points - all walking distance. Cinemas, bowling allies, superstores, etc are less than 20 min away by car in either direction and the same goes for local schools. It is also 2 min walk to a direct bus route into the city center so as for location I'm not sure what else you would look for.

          The property itself requires minimal maintenance as it was already well maintained before the tenant took over and the mortgage is low and close to being payed off.

          I had considered pulling equity from the property and converting to a buy-to-let mortgage but that won't really change the situation in terms of income and has it's own costs. The bulk of the money is going to the HMRC.

          As for capital equity, as it's no longer my single place of residence it will now be subject to capital gains tax on sale and it's unlikely the income from the tenancy will make up the differance. It just seems like one big fat waste of time.

          What makes it worse is the constant feeling that your tenant thinks your lining your pockets and rubbing your hands with money from their rent payments.

          Comment


            #6
            @jpkeates, not rude at all - it is exactly what I am thinking.

            I am repaying the mortgage from the rental income. The mortgage is around £200 and the interest rate is below 0.5% with less than 5 years to go. My understanding is that with a repayment mortgage you can only reclaim the interest portion which in this case is next to nothing.

            Is the only way people are making money by having interest only mortgages?

            Comment


              #7
              There's something wrong with the figures then.

              Did you mean that the mortgage is £200k or is it £200 pcm?

              You should consider the capital repayment element as income, as that's exactly what it is.

              People make money differently - for many it's a long term punt, it's the only realistic way that a normal person can borrow against an investment asset.
              So people build a portfolio over a long period, by using a long term rising house value to be the return, so the income element is mainly to fund the asset loan and build a deposit.
              It depends what the purpose of the investment is.

              The issue is that most people don't think of themselves as investors, they find themselves with a "spare" property, don't want to sell iy (often because there's a nice feeling about having a property and look how much it's gone up since we bought it).
              So they start to let it because it's an easy decision to make.
              It's just not a considered decision.
              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).

              Comment


                #8
                Your current net return pa is insufficient for most LLs.
                Do you have Lender's permission to rent?
                You will also be liable for CGT for period of rental, when property is sold.
                So sell now before diff in sale price - acquisition price exceeds your annual CGT exemption, raise the rent or move back in and commute to job.
                What savings do you have to pay for unexpected eventualities?

                I doubt small LLs will find much relief in next week's Autumn Statement.

                Comment


                  #9
                  Really I think landlords look at this all wrong.

                  You have to look at the enterprise as TWO totally separate endeavours:

                  A) A Capital purchase which involves a bet on property prices, perhaps with some serious "gearing" via a mortgage. Everything to do with that goes on this side. And paying potential CGT on that. Or accepting a massive capital loss.

                  B) A business which involves keeping a property maintained, and renting it out, and paying tax on that.

                  I can't see any point in mixing the two. And it is in (A) that the burning bums are going to come when the chickens come home to roost.

                  Comment


                    #10
                    We only have one property we rent out too and although I agree, the return is not great, you have to remember your mortgage is being paid on a property that would otherwise stand empty.

                    If market values were increasing as they did many years ago you wouldn't be having any doubt that it was worthwhile.

                    As it is, you need to be thinking about what your intentions are long term.

                    We don't have a great deal of equity and so selling for us wasnt worthwhile at the time. Having the current experience and cost of evicting a wayward tenant however has made us wonder if it's also worth the aggravation for us to.

                    I think the government has made it so hard for landlords that it's almost not worth it I agree.

                    Comment


                      #11
                      O/P, in 5 years time, you'll be able to keep all the rent (less income tax). No need to sell at all. Happy days!

                      Comment


                        #12
                        Thank you for all the responses guys.

                        Trying to answer some of the questions:

                        @jpkeates: That's £200 PCM repayment. I think I see your point about the capital repayment as income.

                        @mariner: It's a bit complicated but in theory yes I do have permission to let. The bank is being a bit funny about it. The letting department gave me initial permission for two years then denied further permission until I converted to a buy-to-let mortgage and put me in touch with their loans department. When the loans department heard that what I owed was less than the smallest loan amount they can provide they got very nervous and then said so long as I keep repaying it's ok but refused to put it in writing as that was the other departments job.

                        Basically, no bank can legally force or even suggest you should borrow money - especially if you don't want to. As what I owed was less than the lowest loan amount converting the mortgage would require taking on more money than I needed. Hence they shut up and wished me luck.

                        Unfortunately the local council has decided to apply a Selective License and the first thing the council done was contact the bank and tell them I was letting the property and stirring **** up that I have to deal with again.

                        How do I calculate : 'CGT for period of rental'

                        I thought the capital gains was just calculated on the sale price less the original purchase price at the time of sale. I did read there was some allowance if you can prove you had lived in the property at some point.

                        A friend told me to remortgage the property and take out as much money as possible so that when it came to the time to sell there would be no profit in the sale price less the outstanding mortgage balance. But that doesn't seem right? Does anyone have any suggestions on this?

                        Comment


                          #13
                          Originally posted by Wright76 View Post
                          I think the government has made it so hard for landlords that it's almost not worth it I agree.
                          No, it's the overpriced houses ( by a factor of 3 ) that makes it uneconomic.

                          Comment


                            #14
                            Originally posted by BristolLandlord2013 View Post
                            How do I calculate : 'CGT for period of rental'

                            I thought the capital gains was just calculated on the sale price less the original purchase price at the time of sale. I did read there was some allowance if you can prove you had lived in the property at some point.
                            Yes, you get Private Residence Relief for the proportion of time you had lived in the property as your main residence.

                            Originally posted by BristolLandlord2013 View Post
                            A friend told me to remortgage the property and take out as much money as possible so that when it came to the time to sell there would be no profit in the sale price less the outstanding mortgage balance. But that doesn't seem right? Does anyone have any suggestions on this?
                            CGT is based on the original purchase price, not how much equity there is in the property. There is potential benefit to remortgaging for cash now, but many pitfalls longer term as well. Speak to an accountant with knowledge of this area before making any decision.
                            I am not a lawyer, nor am I licensed to provide any regulated advice. None of my posts should be treated as legal or financial advice.

                            I do not answer questions through private messages which should be posted publicly on the forum.

                            Comment


                              #15
                              Originally posted by ram View Post


                              No, it's the overpriced houses ( by a factor of 3 ) that makes it uneconomic.
                              Personally I find its the HMRC that is killing it for me. Even my accountant was surprised at how much I owed and apologised that he had no suggestions for making it better.

                              Comment

                              Latest Activity

                              Collapse

                              Working...
                              X