Author Topic: Thoughts on rental property in the UK  (Read 2366 times)

skip207

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Thoughts on rental property in the UK
« on: August 29, 2017, 07:25:58 AM »
We currently have 1 rental.  Its got a small CTL mortgage on it (c.25% LTV) and will be paid off in next few years.  200k value, returns 1k PCM.  House value not really changed much last couple of years, maybe +10k.  So total annual return of c.8.5% before tax.

We are considering adding another property.  Would be a cash purchase.
What are peoples thoughts on this?  I would be taking cash out of savings, c.100k.

My thought is extra SDLT is a bit of a pain but on such a small purchase not a big issue.  We would hope for 450-550 PCM.  This time we would buy in an area that might be a bit more "up and coming". 

Worth the gamble? 

MmatoO

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Re: Thoughts on rental property in the UK
« Reply #1 on: August 29, 2017, 08:47:16 AM »
My opinion: yes.
But I'd put other 'inflation hedge' assets in the same basket and I'd prioritise a diversified portfolio.

Spoiler: show
My opinion is that even with the 50% rule, 4.25% return post tax is decent to say the least. I also believe that currently shares/index funds are overpriced (PE ratios are completely out of whack with QE and all). In addition to that, while might fall further and you might have further gains on your overseas portfolio, I am convinced the current exchange rate is volatile due to markets not economic analysis, which in my mind means 'I might as well cash in the gains' = if my portfolio was hedged in favour of overseas investments, this would be the opportunity to sell them high and buy UK stocks/property cheap.


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frugledoc

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Re: Thoughts on rental property in the UK
« Reply #2 on: August 29, 2017, 11:31:07 AM »
This will be controversial.

I think it is far too undiversified to put so much money into one property.

My preference is to diversify widely through a website like property partner.  Zero stress, decent liquidity and you can diversify all over the country.


shelivesthedream

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Re: Thoughts on rental property in the UK
« Reply #3 on: August 29, 2017, 12:53:41 PM »
This will be controversial.

I think it is far too undiversified to put so much money into one property.

My preference is to diversify widely through a website like property partner.  Zero stress, decent liquidity and you can diversify all over the country.

Does it not depend on what percentage of total NW it is? 100k out of 1m is a different kettle of fish from 100k out of 200k.

dreams_and_discoveries

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Re: Thoughts on rental property in the UK
« Reply #4 on: August 29, 2017, 01:46:52 PM »
Doesn't seem like a horrendous idea, as long as you can cope with the hassle factor and cover any voids easily.

daverobev

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Re: Thoughts on rental property in the UK
« Reply #5 on: August 29, 2017, 03:03:00 PM »
How much have you got in your ISAs?

Fill them first.

How much other investments have you got? Do you REALLY want multiples of your investments in two indivisible, immovable (etc) pieces of property, vs thousands - tens of thousands - of companies worldwide?

I'd say you want to have more in the stock market than in BTLs. If you already do, cool, go ahead. If your ISAs are full, go ahead. Otherwise... no.
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skip207

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Re: Thoughts on rental property in the UK
« Reply #6 on: August 30, 2017, 01:29:49 AM »
I am not sure ISAs are for me, I want to retire in my early / mid 40s.  So I need a decent income.
A normal ISA does not return enough.  S&S ISA might return enough but its more exposure to the markets. 
About 30% NW is in my SIPP which is already heavily exposed.  Yes globally but its not comfortable for me to put more.
Plus the down side I cant really touch the SIPP till 55 (or more like 60 probably!)

If I am not understanding ISAs then correct me because I am genuinely trying to make the best move.  Like you say once you buy a property its pretty fixed you cant really spend a brick.  That said rental income in my area is very good.









daverobev

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Re: Thoughts on rental property in the UK
« Reply #7 on: August 30, 2017, 06:22:31 AM »
I am not sure ISAs are for me, I want to retire in my early / mid 40s.  So I need a decent income.
A normal ISA does not return enough.  S&S ISA might return enough but its more exposure to the markets. 
About 30% NW is in my SIPP which is already heavily exposed.  Yes globally but its not comfortable for me to put more.
Plus the down side I cant really touch the SIPP till 55 (or more like 60 probably!)

If I am not understanding ISAs then correct me because I am genuinely trying to make the best move.  Like you say once you buy a property its pretty fixed you cant really spend a brick.  That said rental income in my area is very good.

I am only talking about stocks and shares. Savings ISAs are fine if you can't fill the S&S bit and you're saving a downpayment or whatever, but for Mustachians they are nothing.

Money in an ISA is tax free forever. No tax on dividends, no cap gains, no nothing.

When you sell your 100k rental house in 10 years for 150k, how much tax will you pay? When you sell 5k of ETFs in an ISA and withdraw the money how much tax will you pay?

30% in SIPP, heavily exposed... which is a fuck ton more diverse than ONE house in ONE town in ONE country where house prices are generally high.

The ISA is ab-so-fucking-lutely amazing; it is such a large pot to shield from everything forever, every year, it blows my mind that people aren't using it.
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Father Dougal

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Re: Thoughts on rental property in the UK
« Reply #8 on: August 30, 2017, 06:40:35 AM »
I am not sure ISAs are for me, I want to retire in my early / mid 40s.  So I need a decent income.
A normal ISA does not return enough.  S&S ISA might return enough but its more exposure to the markets. 
About 30% NW is in my SIPP which is already heavily exposed.  Yes globally but its not comfortable for me to put more.
Plus the down side I cant really touch the SIPP till 55 (or more like 60 probably!)

If I am not understanding ISAs then correct me because I am genuinely trying to make the best move.  Like you say once you buy a property its pretty fixed you cant really spend a brick.  That said rental income in my area is very good.

Hello, former landlord here.  I sold my rental flat last year.  It seems to me that you are uncomfortable with the stock market.  I would urge you reconsider that.  It also seems to me that you are underestimating the risk associated with owning property.  You really need to look at how diversified you are.  If you are happy concentrating all your risk in one asset class, and with the additional risk of having a major problem with one of the properties, then fair enough.  Your 6.6% gross return would be too low for me - you've still got tax and expenses to pay out of that.  The Government has also seen landlords as a cash cow recently.  Not allowing landlords to deduct the full loan interest as an expense (for higher-rate taxpayers) is a good example, as is the new stamp duty.  (Of course, the landlords owning through a company would not have the interest problem, so you might want to think about how you structure your ownership.)  This, coupled with capital gains tax too if you ever sell, made it, for me, a less attractive investment.

A lot of people swear by property as a great asset class.  In many cases that's because it's the only geared investment they have (ie, they put 5% down, borrow the rest, and if prices go up they make a lot of money).  But the problem with a geared investment is that if prices go down you can lose a lot of money.  Which is kind of what risk is all about.  This is not the case for you as a cash buyer, but it means the potential returns for you (as well as the risk) are lower.

If I compare the headaches of being a landlord (and paltry rental yield) to the pleasure of watching hassle-free dividends rolling in, I know which one suits me best.  And it's amazing how good the property market is until you need to sell!  If you put shares in an ISA, you don't even have to worry about capital gains tax.

dreams_and_discoveries

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Re: Thoughts on rental property in the UK
« Reply #9 on: August 30, 2017, 01:10:58 PM »
I am not sure ISAs are for me, I want to retire in my early / mid 40s.  So I need a decent income.
A normal ISA does not return enough.  S&S ISA might return enough but its more exposure to the markets. 
About 30% NW is in my SIPP which is already heavily exposed.  Yes globally but its not comfortable for me to put more.
Plus the down side I cant really touch the SIPP till 55 (or more like 60 probably!)

If I am not understanding ISAs then correct me because I am genuinely trying to make the best move.  Like you say once you buy a property its pretty fixed you cant really spend a brick.  That said rental income in my area is very good.

In these parts, a normal ISA is a S&S ISA!

I think you need to get more comfortable with the stock market, a diverse tracker is much less risky than one single property.... you never need to put more money into the stock market, unlike a rental house, and using an ISA it is much more tax efficient.

shelivesthedream

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Re: Thoughts on rental property in the UK
« Reply #10 on: August 31, 2017, 02:25:59 AM »
+1 that you do not understand what an ISA is. The ISA itself does not return anything. It's just a wrapper. So it's like having a present and complaining that the wrapping paper wasn't what you wanted. You can invest in any kind of shares or funds or whatever inside the ISA. A cash ISA is not normal! Moneysavingexpert has some good explanations of what an ISA is.

skip207

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Re: Thoughts on rental property in the UK
« Reply #11 on: August 31, 2017, 03:33:32 AM »
My FIRE date is 2022.  Does that make any difference to peoples opinions?

I am not looking for long term investment I am looking for something that's going to generate fairly solid income from 2022 onwards.

Perhaps I would be better buying 2 properties!  50% LTV, 2 different areas?

I had a look round at ISAs last night and whilst I can see the advantage IF it makes good gains the issue is if there is no performance its pointless.  My pension is locked down for another 20 years so it can ride the waves but this is more short term investment for long term income.

If that makes any sense.

SpreadsheetMan

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Re: Thoughts on rental property in the UK
« Reply #12 on: August 31, 2017, 06:18:16 AM »
+1 that you do not understand what an ISA is. The ISA itself does not return anything. It's just a wrapper. So it's like having a present and complaining that the wrapping paper wasn't what you wanted. You can invest in any kind of shares or funds or whatever inside the ISA. A cash ISA is not normal! Moneysavingexpert has some good explanations of what an ISA is.

Quite right - a cash ISA is currently pointless due to the very low returns.

"Stocks & Shares" ISAs are very important in my long term planning, all my taxable investments will eventually find their way in to there (when I retire and no-longer pump earnings in) by using capital gains tax allowances to sell and defuse the taxable gain and re-buy "similar" funds inside the ISA wrapper where further growth is tax-free.

cerat0n1a

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Re: Thoughts on rental property in the UK
« Reply #13 on: August 31, 2017, 06:23:17 AM »
My FIRE date is 2022.  Does that make any difference to peoples opinions?

No.

To put it another way, I'm also in my 40s, plan to RE next year and I have almost everything in ISA or pension wrappers. I don't have any rental property and don't intend to get any.

I can go out and buy shares in Shell which currently give a dividend yield of 6.6% - and pay no tax on that in an ISA. There's no work involved whatsoever, other than a couple of clicks in an online account. That money will just get deposited into my account a couple of times per year. I think there's a reasonably good chance that the value of Shell as a company will be higher in a few decades time than it is now, should I eventually choose to sell. Even if the company doesn't grow, its value will probably at least keep pace with inflation. Either way, no CGT to pay when those shares sold, if they're inside an ISA.

However,  maybe (hopefully) the world economy will reduce its dependence on oil and it becomes unprofitable, maybe the countries where Shell operates will demand more tax, maybe Shell will be responsible for a huge spill. Things could go wrong. So I don't just buy shares in Shell, I put tiny amounts in lots of companies. I don't just restrict myself to UK companies, because I can buy a tracker fund which invests in potentially every country with a stock market (and in every large company in those countries.) So a shares ISA is far more diversified and less risky than a single property in which you might get the tenants from hell, you might have some development take place in that location that affects property prices etc etc. Not forgetting that you can't easily shelter the profits (income tax on the rent, CGT on any eventual profit on the sale) from property, and that you have to be available to fix problems at short notice etc etc.

As Father Dougal pointed out, the big reason that property has been so popular in the UK is that you can make a leveraged investment (you put down 5-10% of the money, the bank provides the rest) and in a rising market, you can make very significant gains when you sell up. I'm sceptical that UK property prices can continue to rise at anything like the rate that they have done for the last 20 years, but maybe I'm wrong. Even if they do, that doesn't help your income situation - your income is coming from a fairly low gross yield, and you can't sell a %age of the house to take advantage of the capital gain.

dreams_and_discoveries

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Re: Thoughts on rental property in the UK
« Reply #14 on: August 31, 2017, 06:23:52 AM »
Mmmm - I think you are blinkered on rental property as the only yielding investment, and are completely ignoring all the risks and downsides. The FTSE pays out 3.8% dividends.

Here is a pretty graphic of historical returns: https://novelinvestor.com/asset-class-returns/.

Sheltering income and capital gains from the taxman is not pointless IMHO.


daverobev

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Re: Thoughts on rental property in the UK
« Reply #15 on: August 31, 2017, 06:38:03 AM »
My FIRE date is 2022.  Does that make any difference to peoples opinions?

I am not looking for long term investment I am looking for something that's going to generate fairly solid income from 2022 onwards.

Perhaps I would be better buying 2 properties!  50% LTV, 2 different areas?

I had a look round at ISAs last night and whilst I can see the advantage IF it makes good gains the issue is if there is no performance its pointless.  My pension is locked down for another 20 years so it can ride the waves but this is more short term investment for long term income.

If that makes any sense.

You really need to go and read the 4% SWR stuff. Investing in shares *does* provide long term income - you can either just live off the dividends, or more likely sell a small fraction AND use the dividends. The general idea is that the price of the businesses you own will go up enough that 4% will last at least 30 years and probably will go up in value.

So every 100k GBP you invest, you can safely spend 4k a year.

Leveraging up close to retirement is silly. What if the housing market drops? You have no employment income to smooth things out. What if you get bad tenants? You have no other investments.

I mean, you can totally do it on real estate. Get a number of houses, ideally in different areas of the country or even better different countries, and you end up with a basket - some will give you issues and some will be star performers, and over a long enough period they will all be all of those things.

But one or two or three houses as your only income? Meh. It'll be fine, most likely. But vs thousands of companies all over the globe, no thanks. Headache tenants, no thanks. Fires, floods, mould, no thanks. Anti-BTL governments, no thanks.

20 (+?) k GBP per year sheltered from taxation forever, and you want to pass that up?!

Madness.
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MmatoO

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Re: Thoughts on rental property in the UK
« Reply #16 on: August 31, 2017, 06:43:58 AM »
Apparently I'm the lonely voice here, so might as well chip in here again.

As long as this makes it a !balanced portfolio! (looking only at your post-FIRE income, forget your home as an asset), I don't see a problem with it.
To put a figure on it, I don't look at rental income representing more than 20%, but with owning a property you are normally at least temporarily over-exposed (% of assets wise). This figure will depend on your local market, mine comes from SE Greater London; I wouldn't really consider it as a rookie investor, index funds are much simpler to analyze and hassle-free.

Inflation proof income, no foreign currency risk, it's possible to shelter it tax wise & if you know the area well, massive opportunities for asset appreciation (but you don't care about that since you're investing for income, right? RIGHT?) ... Never forget the 50% rule when looking at post-FIRE income (and whether or not it's more hassle than it's worth).

This was also interesting to listen: http://www.bbc.co.uk/programmes/w3cstx0j
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skip207

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Re: Thoughts on rental property in the UK
« Reply #17 on: August 31, 2017, 10:34:15 AM »
OK so lets say I put 20k in the ISA now. 

What do I do with the other 80k? 


skip207

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Re: Thoughts on rental property in the UK
« Reply #18 on: August 31, 2017, 10:58:05 AM »
Just typed out a big reply and pressed post and my IE crashed WTF.

It went along the lines of:

ISA @ 6% = 27k over 5 years.
100k house at 400pcm = 24k over 5 years but excluding any house price growth.

Looks close, if my maths is correct.  That's assuming I put 40+40+20 in the ISA. 
Also 400pcm is low but would easily cover tax and voids at that rate.

What are peoples thoughts on VLS80 and the vanguard ISA platform?

UKMustache

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Re: Thoughts on rental property in the UK
« Reply #19 on: August 31, 2017, 11:37:51 AM »
Just typed out a big reply and pressed post and my IE crashed WTF.

It went along the lines of:

ISA @ 6% = 27k over 5 years.
100k house at 400pcm = 24k over 5 years but excluding any house price growth.

Looks close, if my maths is correct.  That's assuming I put 40+40+20 in the ISA. 
Also 400pcm is low but would easily cover tax and voids at that rate.

What are peoples thoughts on VLS80 and the vanguard ISA platform?

I think you're looking at this a little simplistically. 

What assumptions have you made in terms of void periods, maintenance (repairs), mortgage fees and tax rates?

You need a gas safety certificate, landlord insurance, EPC, legionnaires disease (if it has a boiler tank), electrical safety certificate (optional currently, probably not forever), letting agents fee (or advertising money if you're finding tenants yourself), deposit protection fee, emergency fund for repairs and then a contingency for voids and decorating between tenancies.

Realistically if you're buying a 100k house with 50k down, the figures are going to be more like this.

550 PCM rent is about 6,600 annually.  That would be a good yielding property IMHO.

660 agent fees (10% is fairly standard for a managed property, expect to pay a months rent if you just want them to find and vet tenants).
1,500 mortgage (50k @ 3% interest only is 125 per month).
220 landlords insurance
60 gas safety certificate
60 electrical safety certificate
60 energy performance certificate
30 legionnaires disease risk assessment (rollseyes, government red tape)
20 tenant deposit protection

The above can be set against your tax (mortgage interest only to 20%), so your tax would be about 800.  Unless you're higher rate, then it's 1,600.
Oh and if you've got a student loan, that's another 360 too.

Then you want to put away another 10% for repairs and 10% for void periods (to pay the mortgage).

Of your 6,600 rent, you've got 2,500 left each year if you are a basic rate taxpayer with no student loans.  After 5 years, you've got 12.5k not 27k.

I'd also add that stocks and shares don't ring you in the middle of the night because a radiator valve has sprung a leak, tenants do.


I've only used the vanguard platform briefly while setting a co-worker up.  I found it very simple to use.
Likewise the lifestrategy funds are about as easy as it gets, I use them myself and I've set up several friends and family members with them too.

I just re-read the OP
You've already got one property, so you should know about all these costs already?
« Last Edit: August 31, 2017, 11:50:54 AM by UKMustache »

UKMustache

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Re: Thoughts on rental property in the UK
« Reply #20 on: August 31, 2017, 11:47:44 AM »
I should add that I am not anti-property, in fact property income will play a significant part in my early retirement but you really need other sources of income too.

I've just wiped out a years profit on my rental (which brings in 900PCM) because of a problem with the central heating.  It was a new property (to me) so I haven't had time to build a repairs fund and had to take it from my stash.

If I was retired and I was living on that income, I'd have been fucked. 
I don't mean to piss on your chips, before I started landlording I thought the streets were paved with gold too.

skip207

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Re: Thoughts on rental property in the UK
« Reply #21 on: August 31, 2017, 01:39:27 PM »
There would be no mortgage its a 100k cash purchase.

My maths were based on worst case of tax, 1 month void, R&M = 1800.

Any comments on VLS?


daverobev

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Re: Thoughts on rental property in the UK
« Reply #22 on: August 31, 2017, 03:17:54 PM »
There would be no mortgage its a 100k cash purchase.

My maths were based on worst case of tax, 1 month void, R&M = 1800.

Any comments on VLS?

100k cash to invest.

In stocks & shares it'd be 100% tax free in less than 5 years.

Vs say 500 gross a month; 6k gross a year. Less vacancy (say 10%). Less maintenance (say 1% of purchase price). Less admin if someone is letting it for you (say 10%). Less startup costs in first year. Less tax. Less insurance (say 100).

So 6k - 600 - 100 - 600 - 100 - 20% of the remainder = 4600 - 900 rounded = 3700. Excluding appreciation.

3.7% ROI. Assume the price stays exactly with inflation, which is what housing does, traditionally.

That's less than the 4% SWR stocks get you. The 4% is, I think, before tax though.

I did have a (forced) rental in the UK for a while. It was fine, though my numbers were worse (not good rent to price ratio, because I bought it as a home!). Get a good tenant, yeah. It's ok.
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shelivesthedream

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Re: Thoughts on rental property in the UK
« Reply #23 on: September 01, 2017, 03:06:08 AM »
My FIRE date is 2022.  Does that make any difference to peoples opinions?

Yes. You should not buy another rental property.

Read this, especially the first three parts: http://jlcollinsnh.com/stock-series/

Playing with Fire UK

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Re: Thoughts on rental property in the UK
« Reply #24 on: September 02, 2017, 12:23:35 AM »
There would be no mortgage its a 100k cash purchase.

My maths were based on worst case of tax, 1 month void, R&M = 1800.

Any comments on VLS?

VLS is fantastic. Which one are you thinking of? 80 is a good starter if you know that you don't know much, 60 is good if you are more cautious, 100 if you are punchy and can sit on your hands and not check the news if there is a bump in the markets. Whatever happens, do not sell until FIRE: minor fluctuations will bounce right back, the market has recovered from major fluctuations many times before and even if the worst case happens and zombies take over, money won't help you.

IMO, the only reason to go into real estate is that you can use leverage (which can cause massive losses too). I'd stay well away from investing 100k on one property without a mortgage and then have the cash flow entirely dependent on one tenant's continued employment.

Don't be afraid of taxable accounts, you can earn 5k (may reduce to 2k) of dividends before you pay tax, and can harvest capital gains as you go (don't worry about the technicalities of this now, just that you will get 11k of growth per year before you pay tax, and you can milk this every year).

skip207

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Re: Thoughts on rental property in the UK
« Reply #25 on: September 04, 2017, 02:05:52 AM »
Ok so I set up an ISA based on the advice above, went for VLS80 for now.  I am still thinking I might go for a second property as well but will be thinking about that over the next couple of months also watching the market for something suitable. 

LateStarter

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Re: Thoughts on rental property in the UK
« Reply #26 on: September 08, 2017, 07:16:11 PM »
Apologies if I'm hijacking, but this seems to fit pretty well here.

I'm looking to retire in 2018, slow-travel for 10 years or so, and then probably settle down again. I own a house I no longer need as I have no plans to return to this area. House is worth around 375k and local ads suggest it would bring in around 1200pm rental - a measly 4% gross. The decision to be made is whether to sell the house and invest for 10 years, or rent out for 10 years and then sell. It seems like a very easy decision, ie. sell up and put the money in Vanguard.

I might add that I have no other properties, no experience of property rental, and no interest in property rental - in fact it generally looks like a major pita to me.

Am I missing anything ?

Playing with Fire UK

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Re: Thoughts on rental property in the UK
« Reply #27 on: September 08, 2017, 11:37:40 PM »
In your position LateStarter, I'd sell the house. It isn't a great return and you don't want to be a landlord. Some houses are great to live in and terrible rentals.

One thing to consider: there is a cohort of people who moved out of the UK (the people I know went to Spain), some sold up and some rented. People who sold up and watched the value of their former house soar now can't afford to buy it back. I don't think this is a problem for you as you are not tied to the area, and if you are excited about slow travelling, probably have some flexibility about where you settle down?

If you know or strongly suspect that you will be coming back to the UK, consider putting some of the funds in a REIT. It should track the UK housing market more closely (for better or worse) and reduces the likelihood of you being priced out of the UK. [I don't invest in REITs, I'm overweight in actual property, so very much DYOR.]

dreams_and_discoveries

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Re: Thoughts on rental property in the UK
« Reply #28 on: September 09, 2017, 06:29:01 AM »
Apologies if I'm hijacking, but this seems to fit pretty well here.

I'm looking to retire in 2018, slow-travel for 10 years or so, and then probably settle down again. I own a house I no longer need as I have no plans to return to this area. House is worth around 375k and local ads suggest it would bring in around 1200pm rental - a measly 4% gross. The decision to be made is whether to sell the house and invest for 10 years, or rent out for 10 years and then sell. It seems like a very easy decision, ie. sell up and put the money in Vanguard.

I might add that I have no other properties, no experience of property rental, and no interest in property rental - in fact it generally looks like a major pita to me.

Am I missing anything ?

I envision having the exact same issue a few years later...planning to FIRE and slow travel, was originally thinking of renting the house out, but there isn't a great rental market here. Now thinking I want to sell up, but the idea of being priced out if I return does worry me a little. But a REIT/ UK property fund could solve some of that.

Father Dougal

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Re: Thoughts on rental property in the UK
« Reply #29 on: September 09, 2017, 10:01:43 AM »
Apologies if I'm hijacking, but this seems to fit pretty well here.

I'm looking to retire in 2018, slow-travel for 10 years or so, and then probably settle down again. I own a house I no longer need as I have no plans to return to this area. House is worth around 375k and local ads suggest it would bring in around 1200pm rental - a measly 4% gross. The decision to be made is whether to sell the house and invest for 10 years, or rent out for 10 years and then sell. It seems like a very easy decision, ie. sell up and put the money in Vanguard.

I might add that I have no other properties, no experience of property rental, and no interest in property rental - in fact it generally looks like a major pita to me.

Am I missing anything ?

I envision having the exact same issue a few years later...planning to FIRE and slow travel, was originally thinking of renting the house out, but there isn't a great rental market here. Now thinking I want to sell up, but the idea of being priced out if I return does worry me a little. But a REIT/ UK property fund could solve some of that.

Having been a landlord for many years, I think the "hassle factor" is a big consideration, plus the fact that an ETF would be more diversified.  I'm out of it now, and enjoying much lower blood pressure.

However, comparing the 375k to the 1200 pcm income might not be the right measure.  If you have a mortgage, then you have a geared investment, which you will probably not get with shares or an ETF.  If you had a mortgage of, say, 275k, then you have 100k of equity and this would be the investment with Vanguard, ignoring sales costs.  So a 10% increase in the value of you house would give you 37.5k profit (assuming the rent gives you no profit), but a 10% increase in the Vanguard fund would give you 10k.  That's the advantage of gearing, but of course the risk and hassle are much higher.

Watch out if assuming REITs are the answer.  A lot of them are in commercial property or invest in housebuilders, so might not track house prices if that is what you are aiming for.

Taxes are also a big factor.  There are pros and cons on both sides.  Oh, and don't forget you would have to change your mortgage to a buy-to-let, so interest rate will probably go up.


LateStarter

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Re: Thoughts on rental property in the UK
« Reply #30 on: September 09, 2017, 07:15:32 PM »
Thanks for the helpful replies.

Yes, I think the main risk with selling/investing is not keeping up with property prices. It is a near certainty that I will want to return to the UK.

Regardless, it seem pretty clear that selling is the right choice for my circumstances. The mortgage is done so there's no gearing that might add weight to the rental choice.

I have considered REITs but don't know much about them. I'll do some research and see what's around. Any pointers/advice gratefully received. Thanks for the tip re. commercial/housebuilders REITs.

Playing with Fire UK

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Re: Thoughts on rental property in the UK
« Reply #31 on: September 09, 2017, 11:47:43 PM »
Agreed that REITs are not the silver bullet Father Dougal, they are the least-worst option I've found. Some people like Landbay and Housecrowd (peer to peer property loans), they aren't for me.

skip207

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Re: Thoughts on rental property in the UK
« Reply #32 on: September 10, 2017, 03:00:03 PM »
Property can have pros as well as cons.
The main pro is if you get a good tenant in and they stay for a long period with little R&M and rent increasing with inflation. 
Secondly if the property market booms the gains can be great.

Yes there can be voids, big repair bills etc but a lot of that can be reduced with some duedil.

The markets are all well and good but when that rent payment lands every month, month in month out its a good feeling.  The markets might be up and down and the bottom line is you never really know what your returns will be.  With property its pretty fixed if you can get someone to stay long term.

That's my take on it anyway.



edgema

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Re: Thoughts on rental property in the UK
« Reply #33 on: September 13, 2017, 06:10:57 AM »
For what it is worth we decided to go for property to give some certainty of income as we are close to FIRE. The gross yield we bought at was 7.5% so considerably more than any kind of dividend yield available. However, my SIPP is highly exposed to equity and hopefully should be in good shape when I can get to it in 15 years. Overall investment portfolio is roughly 2/3 property and 1/3 equity.

My fire date is relatively soon and I believe that people are overconfident in their ability to look through volatility and be comfortable with the 4% rule when their portfolio might be down 30%. Perhaps fine if you are still in accumulation phase but if you have FIRED and cannot take advantage of the 30% drops then you are in a tight spot. I wont spend time pointing out that equities are not exactly cheap right now either. Furthermore, it seems to ignore human nature as you are probably freaking out at -30% along with others, otherwise the market wouldn't be down that much. It was just as true in 2008 that markets always rebounded from catastrophe but you can count very few people who had the guts to double down at that point even if they could. It is from the comfort of an 8 year bull market that people pretend that they would have no trouble buying the crash, in my opinion.

We are concentrated in one location (Plymouth) property wise which is some concern but value the relative certainty and consistency of rental income. Also, post FIRE we can also convert some sweat (do up and sell the properties) into income if needed, which I like as an option that is obviously not available to you in equities.

cerat0n1a

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Re: Thoughts on rental property in the UK
« Reply #34 on: September 13, 2017, 07:19:47 AM »
My fire date is relatively soon and I believe that people are overconfident in their ability to look through volatility and be comfortable with the 4% rule when their portfolio might be down 30%. Perhaps fine if you are still in accumulation phase but if you have FIRED and cannot take advantage of the 30% drops then you are in a tight spot. I wont spend time pointing out that equities are not exactly cheap right now either. Furthermore, it seems to ignore human nature as you are probably freaking out at -30% along with others, otherwise the market wouldn't be down that much.

I would expect share and UK residential property prices to be correlated to some extent. It's hard to imagine that a drop of 30% in the FTSE would not be accompanied by a significant house price crash. It seems to me that the same arguments about "not exactly cheap" and "cannot take advantage of a 30% drop" apply even more to property than to shares.

Quote
We are concentrated in one location (Plymouth) property wise which is some concern but value the relative certainty and consistency of rental income. Also, post FIRE we can also convert some sweat (do up and sell the properties) into income if needed, which I like as an option that is obviously not available to you in equities.

I would have said that certainty and consistency of income were more the hallmarks of shares than property. You cannot possibly know when you will have a void, repair costs, legal bills etc etc, whereas I can be pretty certain that even if some companies cut their dividend, most of them won't. I can predict my month by month dividend income with a good deal of certainty - and that was true even through the 2000 and 2007 crashes.  Your point about scope for improving properties is a good one, but you can't sell a small %age of your house to provide an income in the way that you can with equities.

Having said all that, a 7.5% gross yield is well worth having. If I were to buy a rental property locally, I could not achieve anything like that much and it would be a speculative punt on house prices continuing to rise, whereas you have a genuinely worthwhile investment return regardless of the direction of house prices. And it may well be that there is indeed a premium return to be had for investing in something that is illiquid, relatively tax inefficient and which requires time & effort versus the ease and convenience of shares & bonds.

skip207

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Re: Thoughts on rental property in the UK
« Reply #35 on: September 13, 2017, 07:38:42 AM »
I have very similar feelings edgema.

Personally I think good quality high spec but affordable property is the place to invest now when it comes to rentals.
I also think a bit of duedil can go a long way to preventing issues with tenants.  Also making them feel at home and comfortable is a good idea.
My tenants are very friendly and I speak to them on a regular basis, socially rather than as a landlord.