My buy to let business the beginning
Discussion
My buy to let business the beginning
In the back of my mind I had wanted to explore the possibility of buy to lets for a while and about two years ago I really started to look into the possibility with some intent. I bought my first buy to let in November 2019 and I’m going to document my journey with some figures and pictures and then update as things progress.
I was actually in a position to move on a property in April 2019 but got a bit paralysed on what direction to go in. Anybody who has, or is looking into this seriously will know there are many immediate decisions you have to make. “Vanilla”, HMO, cash flow v capital appreciation, area, type of property, tenant profile, doer upper and this is naming only a few of the decisions before you can really make a decisions on buying a property.
Anyway, after much head scratching I decided on the following:
Straight forward single let properties.
One or two bedroom properties.
Mix of houses and flats
£100k or less purchase price.
No more than 1 hour from my current home.
Concentrate on properties that had been on the market for six months +
Look at properties needing light refurbishment (carpets and a repaint).
Only buy a property that I would or would have been prepared to live in myself.
Reflecting back now the aforementioned is a little naive but I think it was a good premise to start with and I have moved away from some of those parameters. I also planned to work with an agent local to each property and find a use the same mortgage broker and solicitor.
I’d also decided that credibility with estate agents was really important to get a good deal so I created a bit of back story about developing property and being an experienced landlord and looking at moving into ‘their’ area.
In November 2019 it finally happened and I purchased the first one the details are below.
Property Number one
One bedroom flat
£87,000 asking price
Agreed the deal at £81,000 and then renegotiated down to £80,000 after the survey condemned the combi boiler in the kitchen.
£80,000 final price
£28,000 deposit (35%)
£3,622 fees
£2,000 refurb (boiler and associated costs with painting which I did myself)
Tennanted within 6 weeks and rented monthly for £550
Rent £550pm
Mortgage £123pm
Agent’s fees £52.80pm
GR / SC £55pm
£319pm Net (11.4% ROI)
Property number two to follow
In the back of my mind I had wanted to explore the possibility of buy to lets for a while and about two years ago I really started to look into the possibility with some intent. I bought my first buy to let in November 2019 and I’m going to document my journey with some figures and pictures and then update as things progress.
I was actually in a position to move on a property in April 2019 but got a bit paralysed on what direction to go in. Anybody who has, or is looking into this seriously will know there are many immediate decisions you have to make. “Vanilla”, HMO, cash flow v capital appreciation, area, type of property, tenant profile, doer upper and this is naming only a few of the decisions before you can really make a decisions on buying a property.
Anyway, after much head scratching I decided on the following:
Straight forward single let properties.
One or two bedroom properties.
Mix of houses and flats
£100k or less purchase price.
No more than 1 hour from my current home.
Concentrate on properties that had been on the market for six months +
Look at properties needing light refurbishment (carpets and a repaint).
Only buy a property that I would or would have been prepared to live in myself.
Reflecting back now the aforementioned is a little naive but I think it was a good premise to start with and I have moved away from some of those parameters. I also planned to work with an agent local to each property and find a use the same mortgage broker and solicitor.
I’d also decided that credibility with estate agents was really important to get a good deal so I created a bit of back story about developing property and being an experienced landlord and looking at moving into ‘their’ area.
In November 2019 it finally happened and I purchased the first one the details are below.
Property Number one
One bedroom flat
£87,000 asking price
Agreed the deal at £81,000 and then renegotiated down to £80,000 after the survey condemned the combi boiler in the kitchen.
£80,000 final price
£28,000 deposit (35%)
£3,622 fees
£2,000 refurb (boiler and associated costs with painting which I did myself)
Tennanted within 6 weeks and rented monthly for £550
Rent £550pm
Mortgage £123pm
Agent’s fees £52.80pm
GR / SC £55pm
£319pm Net (11.4% ROI)
- I know the above net figure does not take into consideration voids, maintenance etc
Property number two to follow
Buy2Let PJ said:
Unfortunately the letting agent did see me coming and while I was busy negotiating the monthly fee down he was adding stuff to the setup charges and I didn’t realise what was going on.
Well, you created your backstory about being an experienced landlord 
B2B can be harsh when compared to the nice fluffy world of B2C.Interesting though. Out of curiousity, why Buy to Let, and not stocks and shares? I would have thought the easy money left the market a while back?
Edited by randlemarcus on Tuesday 15th September 07:51
Where abouts in the land are you?
Pretty similar to how I started out yet my venture was started about 2010, so have been lucky enough to ride the property ladder with my btls. I don't touch flats though, mainly 2/3 beds, and I have 1x4 bed too.
Good luck, the housing market is a funny one at the minute, I've been looking for another but the market here in Leeds is just bonkers, even the back to back rubbish is going for silly money.
Pretty similar to how I started out yet my venture was started about 2010, so have been lucky enough to ride the property ladder with my btls. I don't touch flats though, mainly 2/3 beds, and I have 1x4 bed too.
Good luck, the housing market is a funny one at the minute, I've been looking for another but the market here in Leeds is just bonkers, even the back to back rubbish is going for silly money.
Defcon5 said:
What does the agent do for their £50 a month?
I pay a similar amount (11%) for Full Management, these are the bullet points of what they do:- Fully advertise the property on the lettings market
- Reference prospective tenants upon application approval
- Prepare legal documentation
- Notify service companies of user change
- Prepare inventory & schedule of condition
- Monitor monthly rent for landlord’s account
- Visit and report on property condition on a regular basis
- Arrange repairs and maintenance on instruction
- Undertake a termination check at the end of the tenancy
- Arrange deposit resolution and release
In 20 years I've never seen one of my tenants, everything goes through the Agent.
If any maintenance issues arise costing more than the pre-approved limit I get a phone call from the Agent asking if I want them to proceed or if I want to arrange the work myself.
11% might sound a lot, but if you don't want to be "hand on" IMO it's worth it.
bogie said:
Dont you pay any tax on profits ?
Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
Absolutely, taxable like any other income.Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
Welcome to the world of being a BTL landlord!
I've had my own small portfolio for the last 10 + years and here are a few nuggets based on my experiences:
Manage the property yourself, drop the agents (just pay for a let only arrangement)
It sounds like you've been hands on in the refurbishment of the property, so why wouldn't you carry that on with the maintenance and running?
You will build up a relationship with your tenant, which I believe is very important. It really isn't much of an inconvenience these days having a phone call, text message or email if they have an issue. If they speak to the young girl at the agents who forgets to call the plumber about the one cold radiator they have in the house and they're chasing every few days it will leave a bitter taste in their mouth. Whats more, in this situation it could be something as simple as bleeding the radiator. Personally, I'd rather take that call, have a quick visit, bleed the radiator and save myself the cost of a plumber visiting.
Never underestimate how green tenants can be with regards to basic household tasks (changing smoke alarm batteries, light bulbs, topping up boiler pressure etc) this can escalate costs as your agents will not be interested in trying to save you a few quid.
No agent will look after the property as well as you can.
Be a nice fair landlord, but don't be a walk over.
If you've painted magnolia throughout and the tenant wants to add a bit of colour, you might be inclined to let them do so - on the agreement that they put it back before they leave. They will never put it back to the same standard you did. It is much easier for you to come in and touch up magnolia than deal with the purple paint runs they've put all over the skirting board and carpet.
Being a nice landlord can bring the piss takers "could you change the carpet in the hallway, can you fit this light fitting for us" the quickest way to stop this asking them to put their money where there mouth is "Yes of course, I can fit that but it will cost £xxx"
Look for a 12 month AST rather than 6 month. I find that tenants who are willing to stay 12 months are more likely to stay much longer, someone committed to only 6 months more often than not leave not long after.
Voids are where you will lose most money, once tenant gives their notice get it on the market immediately, make sure that it's in their contract that you can arrange viewings with 24/48hrs notice. You want one tenant walking in as one is walking out!
Don't let them leave 'that cupboard' that they bought because they don't need it at their new house. You'd be surprised how much time/cost it is to get rid of stuff they can't be arsed to move.
It's fantastic journey and you'll have some great stories to tell over the years of what you've had to deal with, I've got loads!
I've had my own small portfolio for the last 10 + years and here are a few nuggets based on my experiences:
Manage the property yourself, drop the agents (just pay for a let only arrangement)
It sounds like you've been hands on in the refurbishment of the property, so why wouldn't you carry that on with the maintenance and running?
You will build up a relationship with your tenant, which I believe is very important. It really isn't much of an inconvenience these days having a phone call, text message or email if they have an issue. If they speak to the young girl at the agents who forgets to call the plumber about the one cold radiator they have in the house and they're chasing every few days it will leave a bitter taste in their mouth. Whats more, in this situation it could be something as simple as bleeding the radiator. Personally, I'd rather take that call, have a quick visit, bleed the radiator and save myself the cost of a plumber visiting.
Never underestimate how green tenants can be with regards to basic household tasks (changing smoke alarm batteries, light bulbs, topping up boiler pressure etc) this can escalate costs as your agents will not be interested in trying to save you a few quid.
No agent will look after the property as well as you can.
Be a nice fair landlord, but don't be a walk over.
If you've painted magnolia throughout and the tenant wants to add a bit of colour, you might be inclined to let them do so - on the agreement that they put it back before they leave. They will never put it back to the same standard you did. It is much easier for you to come in and touch up magnolia than deal with the purple paint runs they've put all over the skirting board and carpet.
Being a nice landlord can bring the piss takers "could you change the carpet in the hallway, can you fit this light fitting for us" the quickest way to stop this asking them to put their money where there mouth is "Yes of course, I can fit that but it will cost £xxx"
Look for a 12 month AST rather than 6 month. I find that tenants who are willing to stay 12 months are more likely to stay much longer, someone committed to only 6 months more often than not leave not long after.
Voids are where you will lose most money, once tenant gives their notice get it on the market immediately, make sure that it's in their contract that you can arrange viewings with 24/48hrs notice. You want one tenant walking in as one is walking out!
Don't let them leave 'that cupboard' that they bought because they don't need it at their new house. You'd be surprised how much time/cost it is to get rid of stuff they can't be arsed to move.
It's fantastic journey and you'll have some great stories to tell over the years of what you've had to deal with, I've got loads!
bogie said:
Dont you pay any tax on profits ?
Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
You used to pay tax on the profits but now you pay tax on the income. It's a crazy law that only applies to BTL and no other asset classes that came in over the past couple of years. It is the main one of many reasons why I'm currently selling all my BTLs.Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
So in the OPs case, he'd be taxed 40% of the £550 rent, not the £320 profit. Meaning he's left with closer to £150 at the end of the month (assuming he's a higher rate tax payer). So the net yield is tiny.
Dick Dastardly said:
bogie said:
Dont you pay any tax on profits ?
Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
You used to pay tax on the profits but now you pay tax on the income. It's a crazy law that only applies to BTL and no other asset classes that came in over the past couple of years. It is the main one of many reasons why I'm currently selling all my BTLs.Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.
So in the OPs case, he'd be taxed 40% of the £550 rent, not the £320 profit. Meaning he's left with closer to £150 at the end of the month (assuming he's a higher rate tax payer). So the net yield is tiny.
randlemarcus said:
Buy2Let PJ said:
Unfortunately the letting agent did see me coming and while I was busy negotiating the monthly fee down he was adding stuff to the setup charges and I didn’t realise what was going on.
Well, you created your backstory about being an experienced landlord B2B can be harsh when compared to the nice fluffy world of B2C.Interesting though. Out of curiousity, why Buy to Let, and not stocks and shares? I would have thought the easy money left the market a while back?
Edited by randlemarcus on Tuesday 15th September 07:51
Property 2
A small one bedroom property with a nice garden in need of some attention. It was running in the background while I was purchasing the previous property.
After the getting done over a bit by the previous agent I decided I was going to rent this one myself. I had some time while doing the refurb to find a tenant so chanced my arm a bit and advertised it.
I was contacted by an agent and after some discussion about my plans to grow the business I decided to market the property with them. I negotiated an actual good deal this time and the agent has demonstrated themselves to be a real asset. More about the agent in later posts.
I used the same broker for the mortgage and also the same solicitor. I liked the solicitor, they were responsive and efficient, the mortgage broke not so much but they did come highly recommended.
It’s funny I ended up really liking this little place.
£95,000 asking price
Agreed the deal at £87,000
£30,450 deposit (35%)
£3,825 fees
£5,000 refurb (driveway, kitchen, emersion heater flooring )
Tennanted after 3 months and rented monthly for £510
Rent £510pm
Mortgage £132pm
Agent’s fees £37pm
£341pm Net (10.5% ROI)
Some pictures of the refurb.
A small one bedroom property with a nice garden in need of some attention. It was running in the background while I was purchasing the previous property.
After the getting done over a bit by the previous agent I decided I was going to rent this one myself. I had some time while doing the refurb to find a tenant so chanced my arm a bit and advertised it.
I was contacted by an agent and after some discussion about my plans to grow the business I decided to market the property with them. I negotiated an actual good deal this time and the agent has demonstrated themselves to be a real asset. More about the agent in later posts.
I used the same broker for the mortgage and also the same solicitor. I liked the solicitor, they were responsive and efficient, the mortgage broke not so much but they did come highly recommended.
It’s funny I ended up really liking this little place.
£95,000 asking price
Agreed the deal at £87,000
£30,450 deposit (35%)
£3,825 fees
£5,000 refurb (driveway, kitchen, emersion heater flooring )
Tennanted after 3 months and rented monthly for £510
Rent £510pm
Mortgage £132pm
Agent’s fees £37pm
£341pm Net (10.5% ROI)
Some pictures of the refurb.
Dick Dastardly said:
You used to pay tax on the profits but now you pay tax on the income. It's a crazy law that only applies to BTL and no other asset classes that came in over the past couple of years. It is the main one of many reasons why I'm currently selling all my BTLs.
So in the OPs case, he'd be taxed 40% of the £550 rent, not the £320 profit. Meaning he's left with closer to £150 at the end of the month (assuming he's a higher rate tax payer). So the net yield is tiny.
That is absolutely not the case.So in the OPs case, he'd be taxed 40% of the £550 rent, not the £320 profit. Meaning he's left with closer to £150 at the end of the month (assuming he's a higher rate tax payer). So the net yield is tiny.
Buy2Let PJ said:
I'm not a higher rate tax payer but I thought you just couldn't offset the mortgage costs now but other cost you could.
Deduction of mortgage interest cost was phased out between 2017 and 2020 as the new 20% tax credit was phased in.For a non higher rate tax payer there is no difference in net tax payable, but it hits higher rate tax payers (relatively) hard.
Dick Dastardly said:
sgrimshaw said:
That is absolutely not the case.
What did I get wrong?Unlike mortgage repayments or interest expense - which you are correct that they are not deductible.
sgrimshaw said:
Deduction of mortgage interest cost was phased out between 2017 and 2020 as the new 20% tax credit was phased in.
For a non higher rate tax payer there is no difference in net tax payable, but it hits higher rate tax payers (relatively) hard.
The trick being keep under 40% limit. Our BTL’s are owned jointly so we each pay half keeping below the 40% tax bracket each. Or put the property in your wife’s name if you earn more than the 40%. For a non higher rate tax payer there is no difference in net tax payable, but it hits higher rate tax payers (relatively) hard.
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