The joy of being a landlord

[MikeTheNative]

To play a bit of devil's advocate (this seems be changing now though) landlords were making modest returns on the rent but house prices have gone up so much past few years that even if they were spending more than they got back on rent in a year I bet they would have decent ROI over those years.
I appreciate sometimes it's not easy for the smaller landlords but at the end of the day it's an investment so should be treated like one. While a few may be burned I'd wager the majority of landlords if they have bought that house the past 5/10 years would be coming out with profit overall if they sold now.

 

[ci_newman]

Just to expand on this due to something I recently found out which is a good example of the stress landlords are going though and might be useful for this thread. It might also help some of the people who incorrectly think being a landlord is a golden goose and easy life.

My understanding is the mortgages are no longer offset against tax so Landlords are no longer able to deduct any mortgage expenses from their rental income causing a large increase to tax rates. Furthermore the government wants energy efficiency levels to improve which I am not against in principle, but they are going about it the wrong way. So landlords are expected to get all properties up to a energy grade C by 2025 which means doing things like spending upwards of £15,000+ on things like a £6000 solar panel water heater to save £32 a year. Which just does not make financial sense. Sure some of the fixes are reasonable like making sure all bulbs are LED but things like fitting a solar water heater to get the energy grading up are just silly.

In this thread we seem to be running off rent at £200 above mortgage which is £2400 "profit" a year unless your one of the delusional posters that think landlords are immoral and should be renting at cost! The problem is the tax bill is now £2600 ish before expenses for a typical property so we are on -£200 from that £2400 profit. Then we have all the services and expenses the landlord has to cover which can push that to -£1000 a year. Then the landlord is now expected to find and fund what is many cases is £15,000+ worth of work on -£1000 yearly loss. This doesn't even cover building up a pot of money for repairs, refurbishment e.c.t

I posted this not aimed at you. Someone in this thread a few days back asked why are landlords are selling up even if they are on a fixed low interest mortgage rates and have a easy time of things. This is why. Its not as easy life and this is why a large amount of landlords are trying to get out before 2025. Its looking like many Landlords will be running at up to a -£16.000 loss in 1 year if they try to meet the new rules.

You don't need solar to reach an EPC rating of C and above, that is sensationism from the Landlord "agency", not real life. To get a C rating you basically need a modern condensing boiler, modern double glazing and roof insulation. If a landlord had been keeping up with house renovations and updates over the last 20 years, almost all properties should be able to achieve that easily.

[Edit] and on top of that, there have been numerous Government grants over the last 20 years to cover all of those options in homes too. There's little excuse for homes not to have those three basic things today.

[Edit 2] On the mortgage / tax incentives, it used to be the case that landlord could deduct mortgage interest as a "cost" against their profits. So landlords would take out an interest only mortgage, then declare those mortgage costs as a deduction against their profits and thus pay no tax on it.

e.g. rental income £1000 which would be taxed at 40% - so £400 tax. The old loophole was that mortgage interest payments were deductible, so the landlord would actually declare rental income £1000 minus mortgage interest £500 (interest only mortgage) leaving tax on profits of only £500, so £200 tax instead.

 

[Freakbro]

My understanding is the mortgages are no longer offset against tax so Landlords are no longer able to deduct any mortgage expenses from their rental income causing a large increase to tax rates.

That's not correct. Mortgage interest (the capital payment of mortgages has never been deductable) used to be claimed as a direct expense. Since 2017 this has slowly changed until now that the mortgage interest is given a 20% tax credit.

For a Landlord who is only in the 20% tax band then this has made no difference, for Landlords who are in the 40% band and higher, yes it has led to higher tax bills on their profits.

Furthermore the government wants energy efficiency levels to improve which I am not against in principle, but they are going about it the wrong way. So landlords are expected to get all properties up to a energy grade C by 2025 which means doing things like spending upwards of £15,000+ on things like a £6000 solar panel water heater to save £32 a year. Which just does not make financial sense. Sure some of the fixes are reasonable like making sure all bulbs are LED but things like fitting a solar water heater to get the energy grading up are just silly.

It's by 2025 for new rentals or 2028 for exisiting rentals. And yep, this one is going to hit me with my one house, as it has a multifuel (coal or wood) backboiler as the heating system, there is no mains gas available and electric immersion heater. So the only option is oil, which are being phased out anyway iirc, or heat pump thingy which are lol money.

In this thread we seem to be running off rent at £200 above mortgage which is £2400 "profit" a year unless your one of the delusional posters that think landlords are immoral and should be renting at cost! The problem is the tax bill is now £2600 ish before expenses for a typical property so we are on -£200 from that £2400 profit. Then we have all the services and expenses the landlord has to cover which can push that to -£1000 a year. Then the landlord is now expected to find and fund what is many cases is £15,000+ worth of work on -£1000 yearly loss. This doesn't even cover building up a pot of money for repairs, refurbishment e.c.t

I posted this not aimed at you. Someone in this thread a few days back asked why are landlords are selling up even if they are on a fixed low interest mortgage rates and have a easy time of things. This is why. Its not as easy life and this is why a large amount of landlords are trying to get out before 2025. Its looking like many Landlords will be running at up to a -£16.000 loss in 1 year if they try to meet the new rules.

As a counter, you are not looking at the rise in asset value of the house from the improvements and the general appreciation the house will have over that time. You can't really look at a capital investment of that size and say "look, it makes a loss" that year, as either it'll be capitalized and claimed over time as a write down allowance or (as i haven't looked into it yet) it won't be an expensible cost anyway and will be claimed against the CGT when you come to sell the property. Capital expenses on houses get treated slightly differently than in normal businesses.

 

[cheesyboy]

In this thread we seem to be running off rent at £200 above mortgage which is £2400 "profit" a year unless your one of the delusional posters that think landlords are immoral and should be renting at cost! The problem is the tax bill is now £2600 ish before expenses for a typical property so we are on -£200 from that £2400 profit.

You're conveniently not including the mortgage repayments as profit.

Besides, partaking in an immoral venture is immoral, regardless of whether you do it nicely or not.

 

[Freakbro]

You don't need solar to reach an EPC rating of C and above, that is sensationism from the Landlord "agency", not real life. To get a C rating you basically need a modern condensing boiler, modern double glazing and roof insulation. If a landlord had been keeping up with house renovations and updates over the last 20 years, almost all properties should be able to achieve that easily.

I'm going to be a bit stuffed with my old house, it's never had an EPC, but looking at the ones in the same row they are usually around D and that's with all the LED lights, double glazing and roof insulation, because they are multifuel (coal/wood) backboilers as the cetral heating and electric immersion, no gas on site.

Solar and/or heat exchanger seem the only way to get them up to a C or above.

 

[ci_newman]

I'm going to be a bit stuffed with my old house, it's never had an EPC, but looking at the ones in the same row they are usually around D and that's with all the LED lights, double glazing and roof insulation, because they are multifuel (coal/wood) backboilers as the cetral heating and electric immersion, no gas on site.

Solar and/or heat exchanger seem the only way to get them up to a C or above.

Of course, there are some exceptions around 2million houses use "alternative fuels", I'm not sure what proportion of those are rentals versus private ownership though.

To be fair, it is the homeowner who should be responsible for modernising homes and making them more energy efficient. There have been alternatives in the past (e.g. stored LPG), but they make less sense now with the pending ban on gas boilers.

 

[Freakbro]

Of course, there are some exceptions

It wouldn't be a rule if there weren't exceptions! But yea, not looking for sympathy, it is what it is.

around 2million houses use "alternative fuels", I'm not sure what proportion of those are rentals versus private ownership though.

To be fair, it is the homeowner who should be responsible for modernising homes and making them more energy efficient. There have been alternatives in the past (e.g. stored LPG), but they make less sense now with the pending ban on gas boilers.

The main alternative for our estate was oil, and people who did that have got a C, but with those being banned after 2026 that's not really an option now either. So my options will be to invest a lot to keep the house as a rental or sell up. I'll have to make the decision at the time, depends if my current tenants stay which gives me till 2028 to save up!

 

[Quartz]

My understanding is the mortgages are no longer offset against tax so Landlords are no longer able to deduct any mortgage expenses from their rental income causing a large increase to tax rates. Furthermore the government wants energy efficiency levels to improve which I am not against in principle, but they are going about it the wrong way.

Correct. However if you are a company you do get to pay the mortgage gross.

at the end of the day it's an investment so should be treated like one.

This is often not the case. For example, if you're going to be out of the country for an extended period of time, what else do you do with your house?

 

[Scam]

This is often not the case. For example, if you're going to be out of the country for an extended period of time, what else do you do with your house?

Uh, leave it empty and continue to pay the mortgage you signed up for?

 

[NVP]

...or let it out to someone who needs/wants to pay ypu to live there. Which is the no brainer?

 

[JonRGV250]

That would be logical, but there seems to be quite a lack of it in this thread.

 

[adidan]

Uh, leave it empty and continue to pay the mortgage you signed up for?

And what about all the people looking for somewhere to rent?

Not everyone wants to buy you know, businesses need places to rent for staff on secondment and so on. If it had happened sooner I would have gone down the NHS route, they're looking for houses to rent for overseas Doctors up this way.

 

[bigmike20vt]

Uh, leave it empty and continue to pay the mortgage you signed up for?

seriously? that is your solution to help renters find accomodation.? it's certainly an unusual idea
that sounds to me like you are more annoyed at other people making money than you are people finding places to live. very strange!

 

[Scam]

seriously? that is your solution to help renters find accomodation.? it's certainly an unusual idea
that sounds to me like you are more annoyed at other people making money than you are people finding places to live. very strange!

It was a flippant reply to a rather silly post. Sounded like Quartz was saying "omg house will be empty for 3 weeks, but money must be made!!11".

For sure, rent it out if you want but if the owner is intending on coming back after 6 weeks, 6 months or whatever then you're not exactly making a long-term home available anyway so the point is rather moot. Renters don't need short-term lets at a landlords will, they need long-term stable homes.

 

[volt9291]

There already exists many ways for people to generate an income without depriving others of the chance to own a home.

Where else can someone invest £260,000 for a guaranteed £1,000 monthly income?

 

[Pottsey]

You don't need solar to reach an EPC rating of C and above, that is sensationism from the Landlord "agency", not real life. To get a C rating you basically need a modern condensing boiler, modern double glazing and roof insulation. If a landlord had been keeping up with house renovations and updates over the last 20 years, almost all properties should be able to achieve that easily.

[Edit] and on top of that, there have been numerous Government grants over the last 20 years to cover all of those options in homes too. There's little excuse for homes not to have those three basic things today.

Not sure it is sensationism from what I can gather none of that counts as rating C. Modern condensing boiler, modern double glazing, roof insulation, LED lights that's all to get up to a rating D. Going up to a C seems to be solar panels, solar heating, heat pumps e.c.t which is not the basic things landlords have been fitting for the past 20 years. If I look at my own home energy report I have everything you listed even a modern condensing boiler and I am only Energy D with a recommendation to go solar heating, solar panels to be energy C and B. I can take photos of the report if you like.

You're conveniently not including the mortgage repayments as profit.

That's because its not profit when looking at annual income with cash flow outgoings v income. It might be a profit in 25+years at the point of sale if you manage to survive that long time which many current day landlords are not. With the £100k+ outgoing cost a landlord will be spending over a 25+ year mortgage to provide the service of being a landlord its not even as much profit as you would think at the point of sale. Don't get me wrong there are times it turns into a profit but people forget to factor in the running costs of being a landlord which massively reduces or removes the profit. Its not a free ride to easy money. Then you have the interest only mortgages which seems popular with landlords for some reason. They used to be good in the past but these days they tend to be even worse off making very little or losing money even at the point of sale. If you run the math the profit is not in the fantasy realms that the anti lord people like to pretend it is at at least for the landlords with mortgages.

Besides, partaking in an immoral venture is immoral, regardless of whether you do it nicely or not.

That's true but its a good job landlords are not an immoral venture, as for the immoral anti landlord posters in this thread there isn't much we can do but post facts and show how they are detached from reality.

 

[NVP]

Renters don't need short-term lets at a landlords will, they need long-term stable homes.

What about all the short term renters out there?

Your views are quite blinkered.

 

[cheesyboy]

That's true but its a good job landlords are not an immoral venture, as for the immoral anti landlord posters in this thread there isn't much we can do but post facts and show how they are detached from reality.

Like being so not-detached from reality that you refuse to include tenants paying down your mortgage as profit?

 

[JonRGV250]

The only thing rent free here is the landlords living in cheesyboy's head.

 

[Pottsey]

Like being so not-detached from reality that you refuse to include tenants paying down your mortgage as profit?

That's not a profit when looking at annual figures. I don't refuse to count it as a profit at the point it is a profit if it makes it that far because after the £100k free's and costs it might not be a profit at any point. You do know that many landlords are not setup in the same way as your home mortgage right? The rent is not paying the mortgage directly as many landlords have the rent paying the interest on the mortgage only not the actually cost of the house like your home mortgage. If the house costs £200k the rent money is not going toward paying that 200k. The rent is only used to pay the interest on the 200k not the original 200k itself. When the typical landlord comes to sell he doesn't get to pocket the 200k. That is not how your typical interest only mortgage landlord is setup.