Becoming a landlord

So as many of you already know, a few years ago I purchased my very first house, I'm very grateful of that fact that I have managed to do so.

However over the past few months I've been mulling over expanding my property portfolio and buying a 2nd house to possibly rent out. As it stands, the current amount left to pay on my mortgage is very minimal and I reckon I would be able to remortgage my current property in order to purchase a 2nd house to rent out.

I know a few people who rent out houses, and they always tell me nothing but horror stories about bad tenants they've had. So I thought I'd see if anyone on here is a landlord and see anyone has any advice on the subject of becoming a landlord.

These are some of the main questions I'd like answering.

Is it worth it?

Are you best off using an estate agent to rent out your property on your behalf?

Are there any expenses I need to be aware of?

How would I go about paying tax on the income, and are there any allowable expenses that get deducted before tax?

A mate of mine used to do this a few years back when it became popular to buy to rent.

He's had a couple of nightmare tenant in that time too!

He stopped doing it completely last year and sold of the houses he had.  He reckoned that the legislation brought in a couple of years back basically killed off the financial incentives for doing it and the nightmare tenants then became not worth the risk of doing it.

Not something I would wish to do.

Read the thread and thought you were opening a pub.

Anyhoo, I used to have rental properties and on average you can get 5 to 7% ROI providing you get low maintenance property in good condition, charge a good price and most of all get good tenants who don't trash the place. Downside is that you have to be ready to solve problems or pay for an agent - which makes it less stressful.
The only way you'll do better than just sticking your money in a Unit Trust that automatically buys up ISAs is by selling the property on at an inflated price so to that extent you'd be gambling on the housing market which is pretty volatile ATM. But if you want to do it with a mortgage and don't yet have the cash for a Unit Trust or other higher return investment then it's not a bad idea, but make sure you get the right property in an area that is on the up and you vet your tenants properly and hope the property market helps you out.

LT- think long and hard about this. It will be treated as an income like any other for tax purposes. All expenses such as repairs, letting agents fees etc., will be allowed as a deduction from rental income and the resulting amount will be taxable at your appropriate taxation rate. At the moment mortgage interest is allowable as a deduction but that is changing in 2020 where as low as 20% of it will be allowable. You need to be really conversant with this change as its not that easy to follow.
Make sure you get landlords insurance and particularly boiler insurance and you might need 3rd party insurance as well -all allowable as deductions for tax purposes.
I would use a management agency to manage it for you- they'll find and vet tenants and you may have legal rights to sue if they let any destructive tenants in.
If you sell you'll be liable for capital gains tax- again what you pay will depend on your current marginal tax rates. Before you jump- go and see a small firm of accountants for some advice.
I can recommend one who is a fanatical BWFC supporter who has been cursed with that all his life. PM me if you want to use them They sponsor the ball and players and stuff like that.
If you don't want the risk then invest in investment trusts ( high risk ones if you like) and you might save yourself time and money.

Thanks fellas. After listening to you all, I'm not sold on the idea. All seems nothing but trouble.

What about buying a property I can rent out for commercial use? Surely that would be a lot easier?

Leeds_Trotter wrote:Thanks fellas. After listening to you all, I'm not sold on the idea. All seems nothing but trouble.

What about buying a property I can rent out for commercial use? Surely that would be a lot easier?

That's a similar set of issues, but with ramped up risks and the way the economy is going I'd stay well away from retail lettings in particular.
Seriously, listen to Rammy - if you have saved a lump of cash a trust is the least hassle with decent returns unless you are into high risk with your savings.
It can spread the investments across the globe so that the relative economic fates of different countries and sectors balance each other out and currently nets around 7% (down from 10% a couple of years ago) but you can set your own level of risk. You don't get taxed until you take the money out so mine is set to buy my full allowance (currently £20k) of ISAs automatically with the profits and by building up an ISA portfolio you then have a tax free fund to draw down when you need to. The only downside is that most brokers charge a flat fee up front so it takes up to a year to get your original stake back to the starting point, but from then on it's making profit without gambling too much.


Another thing to bear in mind is that we are leaving the EU so property in general is likely to devalue. In amongst all this stuff about preparing for a no-deal scenario (which looks likely) there are huge concerns over property and I know Leavers don't want to hear it when Operation Ostrich is in full swing, but it has to be taken seriously. Today, Mark Carney predicted a drop in property values of up to 35% if it's a no-deal exit. Now Carney is a remainer at heart but as Governor of the BoE he has a fair bit of responsibility not to go down the scaremongering path so let's assume it won't be as bad as he predicts. Supposing it's only 20% - or 15%? That's still a disaster in anyone's books. And he was right about the pound and inflation so you have to give him some credit.

Just saying avoid the threat of negative equity.

Don't do it, at least not at the moment. There is too much uncertainty, and the law , when you need to evict a tenant isn't automatically on your side.

I rented my house out for 3 years, some years ago, when I went to Cyprus. We were warned off, specifically, teachers, who leave the place in an absolute mess, apparently, and professional people who were in the are for a fixed period. They wouldn't pay, and by the time you get it to court, etc, they will have moved on.

A friend's tenants wouldn't move out, and the judge said they could stay there as they would be homeless, this was after it was pointed out that my friends family would be as well, on their return to the UK. My friend agreed with the building society to stop the mortgage payments, (he wasn't being paid rent), and had the house repossessed. I don't know how it worked, (he knew the building society manager.) He then bought his own house back from the society. I don't know the legality of such a process, but it worked, as the tenants were thrown out, eventually.

The bad tenants and slum landlords that usually airs on channel 5 is a real eye opener!

I have always bought and sold didn't take too long to be able to buy cash I would definately recommend that but you have to know what you are doing. The only time I rented out was when I had to in 2007 I left it to an agent the first tenants were a couple that were gambling addicts had to get them out then a pub landlady who turned out a right bitch she blocked the drains up with towels and left the bath running which took the kitchen ceiling out, never again not worth it .