In simple terms as I understand it, in my area in SE England gross property yields are about 5% or 6% on 1 or 2 bed flats. If I took the plunge, I’d then have to:
ensure boiler and electric certification are done annually
risk non-payment from tenants especially if their circumstances change or pay for insurance
risk damage to the property or pay for insurance
risk not being able to get the property back after a few years if I want/need it
pay for EA fees or deal with every last ongoing maintenance problem myself
spend lots of time reading up about the law as it relates to landlords
some more downsides I’ve forgotten about
Or I could put the cash in the bank (or a few banks if I wanted to be 100% re FSCS protection) and get close to 5%.
I genuinely don’t understand why anyone would do it or have I missed something important? Perhaps yields are actually much higher as sale prices are so much lower? Even so, surely you’d want 7% or 8% or more to really make it worth it with all the hassle of being a LL.
I have a feeling some people might reply saying “its not worth it” or “don’t do it” but presumably some people are doing it right now. Why are they ?
I started about 40 years ago. Only on first property, a shop did I get a loan. then the rest I saved up and bought outright . more commercials and a few flats . Made money , All property now worth a lot more , Best years are past. Now I can sell to give money to the children to buy their own places. However I have lived a good life, but worked as a builder as well. Want to be a landlord now? Do not do it
It makes sense for cash buyers as part of broader portfolio. Obviously you can’t just buy and sell real estate like shares, but it’s a stable return and the capital value will always appreciate above inflation thanks to immigration. If you might need the cash then it’s a bad choice. Interest rates will fall again but rental yields won’t fall as much. When interest rates are 2% (0% real) and you are getting 6% or 4% real then it’s a nice stable base monthly income. However you have to think in 5-10 year cycles not the next 6 months or 2 years.
prices may be falling in some areas but I have confidence in checking around that I should get a 40% increase on what I paid. The main thing is to get money for my daughter to buy a place of her own
Those are only a fraction of the risks for landlords and I’m afraid its likely to get worse as regulation, EPC requirements and other costs increase. None of the political parties want small landlords any more. We’re too hard to control. They want big investors and build to rent. I wouldn’t recommend anyone to become a landlord now. Quite apart from the risks, its not a hands-off investment. To reduce the risks even a little you would need to learn a new complex business, (even if you use a fully managing agent); invest a great deal of your time ongoingly to stay on top of things and the costs will reduce that yield to closer to 3% - 4%, (and that’s without borrowing cost fluctuations that can wipe out your profit). In my view, this is no longer a sensible investment.
The benefit of buy to let relative to cash is protection against inflation. It is reasonable to expect rising income and capital growth which MAY provide returns of circa 7% but given housing affordability issues this is far from certain and you could easily have large losses.
The vast majority of people would be better off with a suitably diversified investment portfolio. I am keeping my rentals but stopped investing more 7 years ago as given tax and regulations the potential rewards doesn’t justify the risks.
I chose to become a LL only 18 months ago. I wanted an investment to supplement my pension and being a LL is something I always wanted to do.
I got two 5yr fixes at 2.79% and the rent covers all the expenditure and gives me a small income.This was just before the crash caused by Liz Truss. At the time the banks were offering savers between 1 and 2% for savings accounts and bonds. Now the best savings accounts are giving a guaranteed 5% without the hassle of being a LL. If I was buying today, then I would give banks serious consideration. Obviously there are potentially greater gains from shares but I guess I prefer property because it is a tangible asset.
The good times for LLs are gone with s24, selective licensing, renters reform bill etc etc. As a basic rate tax payer, I am still hopeful that I can tick over as a LL.
Its all down to individual circumstances. At the moment unless you have a lot of capital to put down mortgages are too expensive. The last property we bought was towards the end of 2022 on a 2.7% loan in a company. We put down about 1/3. We are getting about 5% return on the purchase price however with leverage (ie because we are using borrowed money) it is more than 5% of our original investment. I haven’t worked it out but probably 7% plus hopefully capital growth. This is in London, other areas of the country returns are higher but maybe capital growth lower?
Renting is a much harder job than putting money in the bank though so unless you are up for that I wouldn’t bother. You need to be committed and think you will enjoy the hassle! I don’t think relying on agents to do the repairs and management is a great idea.
all depends on whether you have cash, or have to borrow money to make money . Can you manage the repairs yourself, find the tenants yourself, have another job? Getting a pension? In good health? I bought so long ago that some places have paid for themselves many times over, but I would not start again doing it. All costs are so much greater now
5 properties all bought between 2008 and 2016 for cash so no mortgages. I was working overseas on good salaries and this was where I parked my surplus cash. I became an accredited LL with what was the NRLA back in the day so that I knew how to manage the letting agents. Then I took them all on myself when I repatriated. They currently provide us with half our young family’s annual expenses and I spend a reasonable amount of time managing them for the income they provide.
If I sold them all today for current market value, I’d have ROIs ranging from 22% to 53% (less any capital gains of course). I balance the risk in the property portfolio with just slightly more of the capital value in cash distributed across a very wide range of investments. I don’t plan to sell any until I run out of cash which, at current projections and considering neither of us can work full time due to my children’s needs, might be in around 15 to 20 years time.
I say that to illustrate these points:
it’s a long term game and like any game, you need a strategy if you want to win
you can’t rely solely on property (either for income or capital)
taking on mortgages greatly increases your exposure to risk
you should know in detail the legal obligations of both yourself as LL and that of your Ts