Is it worth doing a "buy to let" as an investment for our pension

Spot on newnanny
I can't remember the last time property went down here in Southend.

House prices have gone up in the area we live.

In ten years we have only had any of our properties empty in between lets when we were decorating or refurbishing. You do not pay council tax if property is empty for up to 2 months. Ours have never been empty for more than the one month we were working on them. We have a waiting list for our properties probably because we are good landlords who keep properties well maintained and decorated, and charge a little less than going rate. Hence full occupancy. We find some greedy landlords who overcharge for rent sometimes have to wait a couple of months in between some tenancies. Also our tenants tend to stay long term, one up to 8 years so we do not think it is a risky strategy. Also even if the council charged tax on empty property that is still a tax deductible expense so written off against tax paid.

newnanny I think your strategy is high risk in that if your properties lie empty, you are still having to fund those mortgages and pay council tax in them.
There is no guarantee that their value will go up, in some places house prices have actually fallen.

Our property is just outside the Lake district national park and as a privately owned property among BTL it has now probably reduced in value. The letting agents are not doing their job and often wrongly assume that DH is a caretaker and ask him to sort things out. I am livid.

There are many entry level houses for sale where I live and many on market for up to 6 months with no one buying them. Plenty of chances for first time buyers if they have deposit and can get mortgage. It is the restrictive stress tests set by mortgage company's that prevents many first time buyers from gaining mortgage not a shortage of housing stock.

If you had £200k to invest in B2L you would utilise the full potential of your investment by buying 4 properties with mortgage and putting £50 deposit into each, buy on a interest only option and maximise profits. When you wish to liquidize your assets sell B2L homes and claim back any stamp duty you paid. As well as upwards of £17k which you will have to pay tax on your houses will increase in value and so you will have capital increase as well when you come to sell. If you are prepared for a little work it is a no brainer.

I take your point re young people possibly buying up run-down properties and improving them too. My daughter and her husband did that.

Yes you’re right about the annual limit for ISAs Terribull. But for a couple, that’s £40K per year and so it would only take 5 years to get up to £200K, not that long in investment terms.
There are risks in any investment I think, and generally return is related to risk.
With rented properties, besides the risk of bad tenants, the risk is long periods of the property being empty, especially if there is a buy to let mortgage which still has to be paid even though no income is being generated.
gk of course it’s a good thing that properties are improved and refurbished - but who’s to say that if your BiL hadn’t bought those properties, they wouldn’t have been bought and improved by young couples? I doubt if I’m the only one on GN whose first property was a run-down two-up two-down terrace house, back in the early 70’s when a mortgage to buy a property cost less than the rental would.
I don’t deny that there’s a need for some rented accommodation, for students or workers on short-term contracts, and I think that most of the blame for the massive increase in house prices over the last 40 years lies with banks and building societies who lent too much money, but I also think that buy to let and second homes are part of the problem.

janeainsworth, correct me if I'm wrong, but isn't the maximum one invidual can invest in an ISA £20,000? Stocks and shares are subject to the vagaries of the market and how much risk you wish to take with your nest egg. I leave that side of our affairs to my husband, since retirement he has made that part of his raison d'etre and consults fairly regularly with an independent financial advisor, but is pretty good on knowing where and where not to invest, keeping himself up to date reading the financial pages of various publications. I do know he has invested in an ISA in my name as well as his own. I'm not sure I'd have the knowledege or confidence to do that if it was just me. Yes I know that's what an IFA is for but they charge an annual fee, or course that's to be expected, but in my experience they aren't infallible, some holdings recommended haven't always performed as well as anticipated. Apropos of your post, I did a quick reckoning and estimate after all the deductions, agents fee, management/mainteanance fee and sundry variables if the flat is fully let, then the return is between 4% and 4.50% of the initial value, without taking into account any appreciation. Of course that is not the case between lets. There has been some capital appreciation since I took ownership, although I appreciate if I were to sell, I may well have to pay some Capital Gains Tax.

Newnanny I'm like you as a landlord(lady?). We were so badly exploited by landlords when we first arrived in the UK and we were tenants in London, we committed to being exemplary toward our tenants with our buy-to-let house. And so we are .

There's another aspect to BTL that hasn't been mentioned yet.

My BIL lives and works in Dubai, he is a UK national. He owns several "buy-to-let" properties in Newcastle, which were run down and in a poor state of repair when he bought them. He has now refurbished them to a high standard and lets them to students. Surely that's a good thing ... I wonder why so many properties are left to go to rack and ruin.

Buy to let vs stocks and shares ISAs.

Suppose you had a pot of £200K, invested in an ISA. That could generate a net income of £6-7K, plus some capital growth. All you do is watch the income being paid into your bank account from the comfort of your armchair, occasionally monitoring its progress.

Compare that to renting out a house valued at £200K. I’m guessing the rental income would be around £700 per month, giving an income of £8400 per year.
Less tax, agents’ fees, maintenance costs, and potentially a lot of aggravation.
And in most areas house prices are not going up.
Happy to be corrected on the potential rental income. I appreciate it could be a lot more from a holiday let, but that is seasonal, or HMOs, but they come with a raft of compliance regulations in addition to everything else.

We're in Yorkshire, and I would think it's a problem across the country. I'm not getting into the issue of good and bad landlords, though I know that young people have had experience of both on this street. But I think it's a shame that they can no longer buy these little houses, because someone who wants to add to their portfolio can pay a little bit more. We've told our children that when we fall off our perch we'd prefer this house to go to someone who wants to live in it, even it they aren't the top bidder. Whether they take notice of that or not is entirely up to them.

I would concede that "buy to let" has been a factor in pushing up house prices. London of course has the problem of foreign nationals buying top end properties and leaving them empty. Whilst that would not affect the first time buyer as far as affordibility is concerned, I guess it could have a knock on effect of forcing up prices down the line. What I did read a while back is that the new middle classes of China are now buying cheaper property in less fashionable areas such as Croydon and then leave them empty which definitely would disadvantage the first time buyer.

As Iam stated above there is a huge difference between the corporate and multiple property owning landlords who have little concern about their tenants and those of us who own a letting property and take our landlord commitments seriously.

Sorry if we had an edit button I'd add that my concern is largely aimed at corporate or large buy to rent landlords who don't live near their tenancies or have any real interest in their tenants. I have come across so many disadvantaged tenants who were shipped out of expensive rents in the south east to the north because rents are cheaper. Rats, cockroaches, damp and disregard have been common.

I agree with janea and Maggiemaybe about the impact of buy to let on young people. I'm not having a go at buy to let owners because I recognise the pro's and cons as well as the risks and hard work they put into managing their investment.
Terraced and former council houses in our town are often snapped up by buy to let landlords. As Maggie said, some streets and former council estates are largely owned by private landlords. I've always felt strongly that the sale of council and social housing is just wrong. Another downside is that some former council tenants who were eg evicted for anti social behaviour or drug dealing can move into a former council house and begin their reign of terror again.

I do wonder how much buy-to-let and second home ownership contributes to the problem of young people finding it difficult to buy their own homes.

Round here, significantly, janea. I live in a terraced street of what used to be affordable first homes. Now at least 50% are owned by buy-to-letters and occupied by young people who may well have saved up a deposit, but would be hard pressed to find a small house locally they can afford. Most of the rest are owned by older owner occupants like us - as soon as their houses become available, they're snapped up for buy to let.

www.mortgagefinancegazette.com/features/influence-buy-let-uk-housing-06-02-2017/
Interesting article about how buy-to-let has increased house prices in the past 20 years, but also saying that recent tax changes make it a less attractive investment.
The article also points out that if all Britain’s golf courses were built over with new houses, we could have 8 million more new homes

I wasn’t getting at you personally newnanny. You sound like a good landlord.
I was just wondering how much of the housing stock at the lower end of the market is owned by private landlords, and how much that affects the selling price.
And if the private landlords were taken out of the equation, whether the prices would then be affordable for young people.

Janeainsworth I look at it differently. I don't think my having having B2L's causes other people not to be able to afford the deposit to buy their own home. Nor does it mean they would earn enough to meet the stringent demands of a mortgage company who will only allow certain multiples of salary and deduct for childcare and student loans. I supply a good quality home which I tend to let to couples or young families. I keep rent stable and ensure if their are any issues with home I send repair person around immediately. I use same gas engineer and electrical contractor for all our houses and because I am a good customer my properties are prioritised meaning the tenant gets any necessary repairs done quickly. I charge below market value and when a long term tenant goes to buy a home I have given them their reference for their mortgage company. There is a huge shortage of good quality rental accommodation and if all b2l landlords sold their homes it would not mean more 1st time buyers could suddenly afford to buy them but it would mean many families with small children had no suitable accommodation as councils do not have enough houses to meet the demand which you must realize. Many years ago I was in the position where I needed to rent a property before buying our own home and renting allowed us to save for our deposit. I try to treat our tenants fairly and well.

We invested money MIL left DH and SIL in 2 shared terraced houses. The income makes all the difference to us as DH had to retire early without a full pension. No investment brings in what the houses do in rent. DH used to manage the houses himself, but last year we made the decision to let agents manage for us and even with their management fee deducted the income is good.

Properly managed, with references taken, photos and inventory at start and finish of tenancy, and the properties kept in good repair so tennants also look after them, it has been a good decision for us.

I notice no-one else has mentioned Capital Gains Tax on the profit from the sale of business assets. I remember having to make a declaration regarding CGT on my final Self Assessment application. However, I don't know if this is still relevant but if it is, it could also affect profit on the resale of a Buy to Let property.

Another advantage of stocks and shares ISAs is that the income is tax free.

We have one rental property which has turned out well so far, but then we have had the same very good lead tenant for over 5 years. In return, we have never raised the rent, despite our letting agent's annual urging.

I'm not sure I'd put any more spare cash - if I had any - into BTL, though - can't think we'd ever be so lucky tenant-wise again. I would add it to our S&S ISAs.

We were in the same boat and thought long and hard about buying to let. However thinking about the horror stories of friends who have let properties out and what happened to me just letting out a room in my house year's ago we decided we couldn't stand the stress.

Another reason was that if we only had one property to let out we had to take into account the time it could be empty between tenants and the cost if one defaulted or did a runner. This does happen quite frequently.

We rely on our State Pensions and need some of that capital if one of us pops their clogs, as a top up. We therefore divided the money into approximately the years we may have left to live and worked out, that as long as we have our health, we would have a good chunk each year, for a few years, to spend on travelling. We now pet sit for free all over Europe or holiday and that chunk each year pays for flights and car hire and holiday rentals.

Another consideration was that we wouldn't live long enough for any Buy to Let to make any worthwhile money when the time came for the need to sell.

All depends how much spare cash you have of course.