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Buy To Let Profits Are "a Myth" Says Finance Expert

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This is from March 2013 but thought the posters here would find this article interesting;

http://www.lettingagenttoday.co.uk/news_features/Buy-to-let-profits-are-a-myth-claim

Anecdotally, as I was leaving my rented flat yesterday I bumped into the landlord who owns the empty flat next door. He was renting to students but they have now left and he asked me about the block and when the communal heating comes on (presumably he hasn't read the lease or any of the purchase documents). He then complained that he had just received a huge bill for maintainence fees to which I told him that presumably the rent he charges covers it. He responded by saying that he wasn't getting any rent because there wasn't anybody inside. Not surprised really as the poor students were living in a flat with many smashed single pane windows and only a small communal heater (which comes on in the winter months). I was surprised the landlord was surprised that there were actually costs involved in renting. Duh!

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Seen plenty of ex rental properties up for sale, hardly surprising, you have to treat BTL as a business with responsibilities majority of those in BTL are totally clueless

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Seen plenty of ex rental properties up for sale, hardly surprising, you have to treat BTL as a business with responsibilities majority of those in BTL are totally clueless

The maintenance side can be very expensive, I wonder how many with BTL put say 10% of the income away to cover the cost of repairs?

Did anyone mention these types of issues at any of the glorious money printing BTL seminars that used to tour the UK? If you treat it as a business you'll probably get good tenants but BTL is a long term commitment unless you are flipping properties to make a profit.

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Seen plenty of ex rental properties up for sale, hardly surprising, you have to treat BTL as a business with responsibilities majority of those in BTL are totally clueless

The maintenance side can be very expensive, I wonder how many with BTL put say 10% of the income away to cover the cost of repairs?

Did anyone mention these types of issues at any of the glorious money printing BTL seminars that used to tour the UK? If you treat it as a business you'll probably get good tenants but BTL is a long term commitment unless you are flipping properties to make a profit.

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Recently viewed a large 200m2 bungalow here in ROi, built in 1979 and I suspect had no maintenance since being built. The roof wasl leaking, large crack you could see through etc - I drew the conclusion that a property needs to be effectively rebuilt every 35 years:

> 25k New roof

> 8k New windows

> 8k+ New flooring (every 10 yrs for 30 years)

> 3k+ New bathroom

> 5k+ New kitchen

> 1k+ New en suite

> 1k+ New lighting/ partial require of the electrical

> 5k+ New boiler every 15/20 years

> 4k+ energy improvements such as insulation.

Values based on the average 4 bed house you get here. about €60k every 30 years or aprox. 25% of my current rent. The smaller the house the less maintenance fees unless you have a managed flat or estate fees.

Kick some inflation into the figures against a background of falling / static wages it is not hard to imagine a scenario where renting is a better option.

I have a relative in the UK bought a council house in 1998 40k, now remortgaged a couple of times so they can afford a small car for their work in care - so about 50k owing. They do not earn enough to maintain their 150k house and really need a new boiler, bathroom and kitchen. Even if they sold up could not afford to outright buy a smaller property or even a flat in the area in better condition.

IMO they would have been better off if the council still owned and maintained the house and paid rent which would be about the same as the mortgage payments.

I also have another pensioner relative in a similar position where they cannot afford the bills on their small 2.5 bedroom semi, but there is nowhere cheaper for them to downsize to.

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I have a relative in the UK bought a council house in 1998 40k, now remortgaged a couple of times so they can afford a small car for their work in care - so about 50k owing. They do not earn enough to maintain their 150k house and really need a new boiler, bathroom and kitchen. Even if they sold up could not afford to outright buy a smaller property or even a flat in the area in better condition.

IMO they would have been better off if the council still owned and maintained the house and paid rent which would be about the same as the mortgage payments.

I also have another pensioner relative in a similar position where they cannot afford the bills on their small 2.5 bedroom semi, but there is nowhere cheaper for them to downsize to.

Couldn't agree more. Have a council flat with a new kitchen bathroom and gch. Boiler is newish and its all maintained for £65 per week.

Felt a real scumbag when had a problem with a broken socket in the kitchen and thought twice about ringing the ALMO and considered going to Wilko to buy my own socket, but phoned them and a Council workman replaced it the next day.

Then I recall my time in a private rented BTL. Twelve months to fix leaking underfloor heating system (and was only fixed when the managing agent noticed a leak into the car park below). Ten months to fix a faulty en-suite extractor fan.

As I was leaving my old BTL flat noticed the grouting was going around the shower and bath, and thought there was no chance of any of the landlords fixing those faults (especially if there is scope for blaming the tenants).

Edited by aSecureTenant

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Recently viewed a large 200m2 bungalow here in ROi, built in 1979 and I suspect had no maintenance since being built. The roof wasl leaking, large crack you could see through etc - I drew the conclusion that a property needs to be effectively rebuilt every 35 years:

We have had this discussion before. It is generally accepted that the house needs to be rebuilt every 100 years that is the initial construction cost will be spent again over that time; 35 is far too short unless the house was poorly built. A roof should stay water tight for 100+ years. Walls for longer but your other figures make some sense. A rental house will need more maintenance than an OO house. Modern combi boilers you may be looking at just 10-15 years. Bathroom and kitchen would need doing more frequently too. 5K is pretty cheap for a kitchen.

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Recently viewed a large 200m2 bungalow here in ROi, built in 1979 and I suspect had no maintenance since being built. The roof wasl leaking, large crack you could see through etc - I drew the conclusion that a property needs to be effectively rebuilt every 35 years:

> 25k New roof

> 8k New windows

> 8k+ New flooring (every 10 yrs for 30 years)

> 3k+ New bathroom

> 5k+ New kitchen

> 1k+ New en suite

> 1k+ New lighting/ partial require of the electrical

> 5k+ New boiler every 15/20 years

> 4k+ energy improvements such as insulation.

I think some of your figures may be a little high, however a property requires constant maintenance to avoid the big bills, whether rented or "owned" at some point there will be expense. If you have saved then it shouldn't be a problem.

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Then I recall my time in a private rented BTL. Twelve months to fix leaking underfloor heating system (and was only fixed when the managing agent noticed a leak into the car park below). Ten months to fix a faulty en-suite extractor fan.

As I was leaving my old BTL flat noticed the grouting was going around the shower and bath, and thought there was no chance of any of the landlords fixing those faults (especially if there is scope for blaming the tenants).

We rent from a pensioner who is one of the tightest people I've ever met despite easily being a millionaire on paper. She owns the whole building which is subdivided into flats, each of which is paying at least 5 figures in rent each year (London).

A few months ago we noticed water dripping from the ceiling in our kitchen when the upstairs neighbours were emptying the bath (easily heard). There are clear watermarks on the ceiling. We dutifully reported it to the landlady who, instead of getting a plumber out, phoned our upstairs neighbours to ask them not to spill water over the sides when taking a bath. Months later, water is still coming through the ceiling on an almost daily basis. I no longer care as we have already given notice and are leaving soon. Whatever lady, it's your property you are destroying.

Edited by Dorkins

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Whatever lady, it's your property you are destroying.

Sounds like a block I lived in in Paris. The owner had 48 badly maintained flats paying him 1000 to 1500 euros a month. One day scaffolding went up outside my window and works started. The owner had a ladies swimsuit shop down the road (ive no real idea why) as well so I popped in to ask what was up. An architect had surveyed his property and said it was unsound and risked collapse - the outer rendering was cracked and porous and letting water into the underlying mortar and stonework. It was the first maintenance since 1948 he grumbled! - Some of the flats still had outside turkish style toilets.

His parting words were "I will be putting the rent up when all the work is finished mind".

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This is from March 2013 but thought the posters here would find this article interesting;

http://www.lettingagenttoday.co.uk/news_features/Buy-to-let-profits-are-a-myth-claim

Well, the article does say "Landlords who entered the buy-to-let market five years ago are unlikely to have made any money at all – and could be counting their losses."

I.e. just before the financial crisis. All BTLers will have seen the value of their property drop considerable from that particular year. may be a different story fi you chose to buy before or after 2008.

I do get the impression that BTLers have little grasp of the responsibilites of being a LL, pass the work onto lettings agents, and pay the lettings agents a lotg of their BTL income. I think they just bank on selling at a profit down the line. If IR goes up, that might be unfeasible too,

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I do get the impression that BTLers have little grasp of the responsibilites of being a LL, pass the work onto lettings agents, and pay the lettings agents a lotg of their BTL income. I think they just bank on selling at a profit down the line. If IR goes up, that might be unfeasible too,

I think you are perfectly describing the attitude of the many Accidental Landlords that have sprung up these last few years. Although, truth to be said, if they can keep it going until mortgage is paid up could end up making some money out of it. I agree biggest risk is an IR escalation, which is coming in the not too distant future.

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Great post.

I know plenty of amateur landlords and almost every single one, when questioned, recognises that their returns are derisory.

But they're "property bugs" and smitten with the same unquestioning faith as "gold bugs". No matter how dire the numbers they know, they just know, that it'll all turn out well in the end and that their blind faith will be rewarded.

What can you say?

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Great post.

I know plenty of amateur landlords and almost every single one, when questioned, recognises that their returns are derisory.

But they're "property bugs" and smitten with the same unquestioning faith as "gold bugs". No matter how dire the numbers they know, they just know, that it'll all turn out well in the end and that their blind faith will be rewarded.

What can you say?

You can understand them in a way......once upon a time to start your own business, being self-employed was something others looked up to.....now the system has all but killed anyone wanting to risk all at great cost to themselves and their family, all the red tape and bureaucracy, working all hours under the sun, no holiday or sick pay no pensions......BTL looks on the face of it a better bet....at least there are plenty of lenders ready and willing to help out, with few questions asked and low rates of interest. ;)

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Recently viewed a large 200m2 bungalow here in ROi, built in 1979 and I suspect had no maintenance since being built. The roof wasl leaking, large crack you could see through etc - I drew the conclusion that a property needs to be effectively rebuilt every 35 years:

> 25k New roof

> 8k New windows

> 8k+ New flooring (every 10 yrs for 30 years)

> 3k+ New bathroom

> 5k+ New kitchen

> 1k+ New en suite

> 1k+ New lighting/ partial require of the electrical

> 5k+ New boiler every 15/20 years

> 4k+ energy improvements such as insulation.

Values based on the average 4 bed house you get here. about €60k every 30 years or aprox. 25% of my current rent. The smaller the house the less maintenance fees unless you have a managed flat or estate fees.

Kick some inflation into the figures against a background of falling / static wages it is not hard to imagine a scenario where renting is a better option.

I have a relative in the UK bought a council house in 1998 40k, now remortgaged a couple of times so they can afford a small car for their work in care - so about 50k owing. They do not earn enough to maintain their 150k house and really need a new boiler, bathroom and kitchen. Even if they sold up could not afford to outright buy a smaller property or even a flat in the area in better condition.

IMO they would have been better off if the council still owned and maintained the house and paid rent which would be about the same as the mortgage payments.

I also have another pensioner relative in a similar position where they cannot afford the bills on their small 2.5 bedroom semi, but there is nowhere cheaper for them to downsize to.

Ahh the madness of Thatcherism

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We have had this discussion before. It is generally accepted that the house needs to be rebuilt every 100 years that is the initial construction cost will be spent again over that time; 35 is far too short unless the house was poorly built. A roof should stay water tight for 100+ years. Walls for longer but your other figures make some sense. A rental house will need more maintenance than an OO house. Modern combi boilers you may be looking at just 10-15 years. Bathroom and kitchen would need doing more frequently too. 5K is pretty cheap for a kitchen.

i've seen a lot of houses much less than a hundred years being re-roofed. The rest I agree with (well kitchen can be done for 5k no problem)

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I think you are perfectly describing the attitude of the many Accidental Landlords that have sprung up these last few years. Although, truth to be said, if they can keep it going until mortgage is paid up could end up making some money out of it. I agree biggest risk is an IR escalation, which is coming in the not too distant future.

Not just accidental landlords, all landlords who bought from around 2004. And the mortgage won't be paid, the rent just about covers the interest on the loan, buy to let mortgages are interest only. Look at a property for sale and also for rent, the yield will be the same as the interest on an interest only mortgage.

Ive looked into the numbers for most of the places I have rented and not one of them is making a penny. Not one. Yields need to be double what they are now for it to stack up at all, which means property is double the price it should be. Yet still they pile in and subsidise renters living costs for them. Bizarre folk.

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Pah.

You losers have got it all wrong.

Buy to let: can you afford not to?

[...]

Yet the financial case for buying-to-let – all moral or social issues aside – has rarely seemed so compelling. There are many reasons for this, but the big game changer of late has been the dramatic increase in the availability of cheap landlord mortgages, especially for those with big sums to put down.

Say you had £120,000 available to invest. You could, at today’s best landlord deals, borrow £180,000 at a rate of 3.89pc, fixed for five years, allowing you to buy a property for £300,000. To satisfy the lender’s requirement you would need to achieve a monthly rent of about £1,100, but that should not be a problem. Even in London and the South East, where prices are high and so yields – rental income against price – are lower, you could expect to let a £300,000 property for £1,500 per month.

The numbers are even more attractive in other regions.

http://www.telegraph.co.uk/finance/personalfinance/houseprices/10308472/Buy-to-let-can-you-afford-not-to.html

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Say you had £120,000 available to invest. You could, at today’s best landlord deals, borrow £180,000 at a rate of 3.89pc, fixed for five years, allowing you to buy a property for £300,000. To satisfy the lender’s requirement you would need to achieve a monthly rent of about £1,100, but that should not be a problem. Even in London and the South East, where prices are high and so yields – rental income against price – are lower, you could expect to let a £300,000 property for £1,500 per month.

All that hassle for £100 'profit' a week.

yet

£120,000 invested @ 2% yields £160 a month after 20% tax on interest

So, all that hassle for £60 a week and you have lost the ability to spend £120k

so all that hassle for £3k a year.

voids, maintenance ?

Genius

Have I got that wrong ?

Edited by LiveinHope

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I note no-one dare put their name to that piece.

Can't help but notice this line:

The numbers are even more attractive in other regions.

Here's a couple from my town which on the face of it fit their targeted minimum rental values of circa £1,100pcm:

http://www.rightmove.co.uk/property-to-rent/property-42832760.html

http://www.rightmove.co.uk/property-to-rent/property-31370590.html

They appear to be in a decent state of repair.

So fill yer boots and join the BTL crazy for £300k, right? £495k:

http://www.rightmove.co.uk/property-for-sale/property-36786502.html

or a 4-bed place in need of overhaul, £415k:

http://www.rightmove.co.uk/property-for-sale/property-40726294.html

Err..

edit, the numbers in the article are worth a look.

£120k in, £180k borrowed for 3.89% (assume IO) means £7k interest and £2k lost interest on the £120k. = £9k for starters.

Rental income of £13k reduced by agent's cut, 1 month void assumption, maintenance etc probably means £11k net rent per annum maximum.

Barely makes any sense at all.

Edited by cheeznbreed

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Cannot fathom BTLs personally, especially on leasehold property. Once the rental income arrives, there are a few signifcant outgoings like paying the mortgage, if applicable - paying the lettings agents and freeholders. Plus some of that income needs to be plugged back into the property for the mandatory gas boiler checks and other maintenance. I would never own a property to rent out unless I owned it outright and was able to keep most of the income from it.

I think my sister was thinking of buying a flat to rent to rent out once/if the sale of her house goes through and goes into rented. However, I think that has been knocked on the head as the inability to get to those funds should she wish to buy a family home again.

Anecdotal from my Rightmove searches of property in Norwich are homes for sale (mostly flats) that are to be sold tenanted. Seems like the vendors themselves cannot get the maths to work. :D Of course, these properties seem to languish on RM forever.

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All that hassle for £100 'profit' a week.

yet

£120,000 invested @ 2% yields £160 a month after 20% tax on interest

So, all that hassle for £60 a week and you have lost the ability to spend £120k

so all that hassle for £3k a year.

voids, maintenance ?

Genius

Have I got that wrong ?

In a nutshell? Yes. You ought to expect property to go up in price - it nearly always has in the past. This year this property has already gone up something like £3k (not in a year but between Jan and July).

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