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Property Mentor BTL

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Hi,

I wonder if anyone out there knows about could offer me any mentorship / guidance on Buy to Let - particularly buying property with sitting tenants?

 

Anyone done this as a strategy over a number of years.

 

Thanks

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I do BTL, and for a few years, but I especially avoid buying properties with Tenants in-situ. I avoid this because I do not want to step into the existing Landlord's shoes and take on their AST, etc.. The existing Tenant is under no obligation to sign a new agreement with you as incoming Landlord (although you can obviously negotiate this) Also, I have concerns about deposit protection, that would obviously all come out during Conveyancing, but if I have an empty property and start again then at least I know where I am and that I am responsible for everything being done correctly. I would not be willing to mentor you - the possibilities of taking on blame from you when (if?) things go wrong is entirely too possible. Yet, guidance provided over a forum is another thing entirely - so please feel free to ask your questions more specifically and you might get answers... it's more likely you'll observe arguments, knowing this place, but you might as well try to crystallise your thoughts. There is plenty of reading out there, FoC.

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Thanks Hippo,

 

What I am looking at is a property with an assured (not shorthold assured) tenant. He has been in there since the 1950s inheriting the lease from his mother.

 

Yield is 14-15% gross - 12% after tax. He is on housing benefit, there is a small shortfall I think he is willing to pay.

 

Issues are:

Property has no central heating. Hasnt been modernised at all since the 1950s. The tenant is responsible for decoration and isnt too keen on central heating. If my tenant dies it will need complete renovation or to be sold on an unrenovated basis.

 

Property is in a former mining village. Lots of quite expensive new builds going up. Village has increased substantially in size. I am concerned as all former miners die off who will buy the 1950s ex coal board houses ? I actually think they are decent enough houses and if I lived there would prefer to pay 1/3rd the cost vs a modern house. Not everyone thinks like me.

 

Tenant is in poor health so could die at any time. Seemed OK (ish) to me when I met him. So might go on for years.

 

No work needs doing to the property. Others in the village are well maintained - this isnt the sort of place where properties are abandoned / boarded up - it's in commuting distance to local centres like Barnsley.

 

There are lots of other tenanted properties in the area and I wonder with tax changes to BTL and people having large portfolios they may sell out. As I am a cash buyer to some degree I can wait, pick and choose.

 

I will emphasise this point - it has a 14% yield so in 8 years will have paid for itself.

 

Any thoughts ?

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Does T have any other family members sharing the house? Some might have succession rights, if the Rent Act 1977 applies.

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No surviving family so no inheritance issues, thanks.

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Having had experience of BTL my advice would be DONT !!!

All the laws are in the tenants favour.

I've sold up as it turned out to be an expensive mistake.

That said, plenty of people make a decent living from BTL properties but its not for me.

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I have done BTL on a flat in Middlesbrough since 2012 with few problems - only issue I had was a woman who filled the place with fish / terapins then complained about damp !

 

I served notice on her then she left.

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What I am looking at is a property with an assured (not shorthold assured) tenant. He has been in there since the 1950s inheriting the lease from his mother.

 

Normally I would walk quickly in the other direction. I prefer ASTs and I prefer fixed terms of the minimum six months. If, after that time, all is going swimmingly then the Tenants can stay as long as they want, I have no issues with that - I'm not going to move into the properties I let, and I keep them long-term, but I would not want go into the type of tenancy you are talking about with my eyes open.

 

Property has no central heating. Hasnt been modernised at all since the 1950s. The tenant is responsible for decoration and isnt too keen on central heating. If my tenant dies it will need complete renovation or to be sold on an unrenovated basis.

 

Central heating is not decoration. Nor is roof repair.

 

Tenant is in poor health so could die at any time. Seemed OK (ish) to me when I met him. So might go on for years.

 

Yes, I thought you'd implied long-term Tenant at the outset... this could be, it could not. If not, then you'll just need to sell it on or do an expensive refurb.. Just be circumspect. I'd be thinking - why does the current Landlord want to offload this if it's such a tempting proposition?

 

No work needs doing to the property. Others in the village are well maintained - this isnt the sort of place where properties are abandoned / boarded up - it's in commuting distance to local centres like Barnsley.

 

It's not really relevant now. What other properties are like isn't relevant at all. The locality is only relevant when you're looking for new Tenants.

 

I will emphasise this point - it has a 14% yield so in 8 years will have paid for itself.

 

Wow. Gross or net? That's not how it works. A yield calculation is a [very] blunt tool for making investors feel better about themselves and their investments. It's theoretical in nature. The only thing that matters is whether you have made a profit at the end of the year. Whether the incoming rent has been greater than all of your expenses. If the roof needs to be replaced that's down to you and it will blow a hole in your pocket.

 

So, let's assume you'll buy this property for something like £50,000 and you're pulling in around £580 per month for your 14% [gross]. It won't pay for itself in 8 years, will it? You're taxed on the income. You will have some expenditure in those 8 years, it's inevitable... no GSC, of course, but you'll still insure it, of course... ;) There'll be other expenses.

 

If that was me... then it'd probably be more like £400 being brought in per month, assuming no major outlays, and an expectation of it "paying for itself" in a more realistic 11 years.

 

There are so many reasons that I, myself, would not be giving this a sniff.

 

I would not be comfortable letting out a property with no central heating. I would want to let out something good for a fair price. I am generally happy with a yield of over 7%, but I very rarely calculate them (because it does not mean much to me)... it's my tax return (and my tax bill) at year end that tells me how I've done.

 

But every person has their own approach, and - also - their own learning curve. Good luck.

 

---------- Post added 13-02-2018 at 12:32 ----------

 

Having had experience of BTL my advice would be DONT !!!

All the laws are in the tenants favour.

I've sold up as it turned out to be an expensive mistake.

That said, plenty of people make a decent living from BTL properties but its not for me.

 

The law is very equally balanced in favour of Landlord and Tenant, honestly. I think when Landlords cry about how the law is in favour of Tenants they're all thinking "wouldn't it be nice if I could just [il]legally evict this bleepard?"!!

 

If you do things by the book you should be OK, but anyone can run into a real nightmare Tenant (or Landlord)... it's a people business... it's not really about bricks and mortar.

 

I make modest profit each year, and I pay my tax each year... but if I have any kind of mortgage on a let property I ensure it's a repayment mortgage. So I am still making a profit after paying down some equity and building up my capital. That is slow-and-steady. I worry about Landlords who are only making a dribble of profit when they're on interest-only mortgages and are just banking on capital appreciation.

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Thanks for your reply Hippo,

You make some very good points.

 

14% yield is gross - but the difference between gross and net for me is ambiguous. I might shortly be leaving work - so my only 'income' will be at or around tax free allowance. As I own my own place and have very little mortgage debt and a modest lifestyle with other money coming in from a couple of other btls / capital gains from the markets I hope this can be enough for me.

 

I checked the roof as best I could when I was there and it looked fine. Tenant says there are no problems - but no guarantees. You are right to raise it though.

 

I am not comfortable letting out a place with no central heating - I am happy actually to put it in, there are grants available and it makes the place much more sellable. Not sure if the guy that lives there will let me - and due to his tenancy he has every right to stop me.

 

As to why the current landlord wants to offload - could be any number of reasons. I suspect properties will be offloaded as leveraged investors move ahead of a rise in rates / individuals try to avoid reduction of mortgage interest deductability. If the guy sells it for what I expect it to go for he will have made a 35-40% loss since just september 2016 - he really overpaid.

 

I did imply long term tenant - he has been there since the 1950s / 60s. How much longer he is there is highly ambigous.

 

On the locality - I disagree with you - places round Middlesbrough / Newcastle where I am from every other property is boarded up - it does affect the area / locality when you are bottom fishing like this... I dont want to have my money in a place which is going to be like this in 10 years time...

 

Why do you prefer short hold tenants ? Surely those on long leases - giving you a higher yield (possibly even after expenses) are a better bet. When/if they move out you could also benefit from a capital uplift ?

 

I am going to have a pop at the auction but I doubt I will win - my ideal value is now below guide price - basically I have found the value of the property as a shell and if I can pay that or thereabouts I will almost certainly make money.

 

I will hold fire and wait for other properties in the area where hopefully both the property and tenant will be in better condition!

 

Thanks for the help.

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Don't be too sure that any income difference will be ambiguous. Consider if Labour get into power and go after Landlords like they've implied - the whole tax free allowance could disappear specifically for second properties. Don't think it cannot happen. The extra 3% SDLT kicker proves that special cases can be made, when it suits.

 

I wasn't raising the roof (sic) as a concrete example - just saying over a period of 11 years there absolutely will be maintenance effort and cost required from you. I have several new build properties that I let out and these came with Developer warranties and NHBC guarantees (worthless anyway) but you still have costs - I have not a single property that has ever gone a year without incurring any cost at all.

 

There's a difference between a long-term Tenant (everyone likes those) and those on tenancies that [can] prove difficult for Landlords. ASTs all the way - it's the only sensible option. I would walk swiftly in the other direction away from a tenancy that has protections in place like what you're considering. I would also be incredibly suspicious of why someone would be selling such a gem, and at auction to boot. It all smells wrong, to me.

 

I think you have made the correct choice to move on from this. To be blunt - I did not realise you were so far away (unless you mean originally from the North East?) and I firmly believe that the world does not need more 'absent' Landlords.

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True - I see your point about tax changes under Labour - equally longer leases could make these long leases relatively more attractive.

 

I know for a fact investors in this area have made very good returns.

 

Although I am from far away I live in Sheffield. Lots of absent landlords in this area...

 

Out of interest property is here - sold for £35k and not to me.

 

http://www.rightmove.co.uk/property-for-sale/property-71162138.html

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I do BTL, and for a few years, but I especially avoid buying properties with Tenants in-situ. I avoid this because I do not want to step into the existing Landlord's shoes and take on their AST, etc.. The existing Tenant is under no obligation to sign a new agreement with you as incoming Landlord (although you can obviously negotiate this).

 

But if the existing tenant is under no obligation to sign a new agreement, when their AST comes to an end,you will have what you want and can seek new tenants of your choosing. What problems do you envisage if you take on another landlord's AST tenants when the AST will finish in just six months?

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