Playing monopoly (buying houses to rent out)

[sunny darko]

My idea is, buy a house, rent out the house and live off the money. Its an old idea but also a good one as far as I can see. At the moment I don't have the £150,000 to buy a house but one day I will.

My question is does it actually work as a business idea?

I ask because I have been told by 1 person that it doesn't work because all the money you make from renting the property you have to put back into it on building maintenance, insurance etc etc

I don't think that is true. I think if you are getting £700 a month income from renting to someone that at most you would be putting £100 a month back out on things the landlord has to pay for.

Can anyone clarify?

 

[accountancyextra]

They were probably talking about also deducting mortgage costs etc. You also need to work out whether £700 a month is achievable from a £150k property. A good local letting agent will help you with that.

Don't know how much you need to live off, but most of our landlord clients have multiple properties. That way, they are also covered for periods of non occupancy

 

[Richie N]

There is no way you can live off the money.
A house worth approx £150k would get you rental income of around £600-£650 a month, then your mortgage at the moment would be around £400 depending on your deposit.
On top of that is ground rent (usually £150-200 a year), service charge (some do require this for houses with secured car parks etc), maintenance repairs - which believes me can add up.
Then there is insurance, gas safety checks, maybe take out boiler cover etc. Also bear in mind if you go through a lettings agency, they usually charge about 10% of the monthly rent as their fee.

 

[Steve p]

When buying a house on the hopes of living off it then I would not recommend it, not in todays climate any way. Say you buy a house for 100k ( with a mortgage) you will have these things to consider, the mortgage repayments getting people to live in it without any lenght of time being unhabbited and tax implecations. I bought my 1st house back in 05, back then it was worth about 126k, got it for 110k, its now worth about the same but with 20k off the morgage. The repayments are about £450 pcm and rent gives me £500, after all tax and repayments insurance etc i make about £20pcm. Dont know about you but I can't live on £20 pcm. Even if I had 10 houses like this still £200.00 pcm wont be enough.

Hope this helps.

 

[benjamin_c]

I think property rental is more of a long term financial solution to be honnest, for example, I know someone who owns 4 rental propertys, and the total rents just about cover the mortages/insurances ect, he's worked out that it will take 25 years before all propertys are paid off then he will be close to being 60 so then he will have a reasonable income for the rest of his life and then his children will have 4 houses to inherit (maybe more by then) in his opinion it's better than a pension plan. as for maintenance and repairs of the property, he's an electrician by trade and has contacts in other trades such as plummers ect so can get reasonable rates so he doens't have to worry about that, but until the propertys are paid for he will still be working 6 days a week

 

[sunny darko]

Im talking about buying the house outright.

I wouldn't have a mortgage. I would be traveling around the UK in a motorhome so my living costs are not a factor as they are minimal.

 

[sunny darko]

There is no way you can live off the money.

I think you mean "theres no way I can live off that money" not me.

 

[Richie N]

I think you mean "theres no way I can live off that money" not me.

Yes if you want to nit pick, I was trying to help you....

Anyways, even if you don't have a mortgage, it's still not enough money to live on.

 

[sunny darko]

Why not?

I can rent a flat for £300 a month here

 

[Mpg]

Start saving and when you've managed to buy a £150k house from savings you can come back and say "I told you so".

However if you manage to save £150k say in 4-5 yrs then keep doing what your doing as its bringing in a damn site more money than the rent will.

 

[What If]

Well 'one day' when you have the money you may get a gross return around 5%. Is this enough for you to live off? It wouldn't be for me.

Where are you expecting this £150k to appear from? You in someones will!? because it doesn't grow on trees (apparently)

 

[MASSEY]

Double posted

 

[MASSEY]

Its a good plan if you do it long term. 20-25 years.

You have to get a property tart it up and rent it out, You then equity release the profit on that property and move on to the next one.

If you have interest only mortgages then your rent will clear the mortgages.

As long as you have good earning power then you can not really fail. If you have a low earning power when properties become empty for periods of time you can over stretch yourself.

You dont pay cash for a house, thats not a good business model. Unless you have millions to start with.

There are lots of costs involved maintenance etc. You have to keep tennants happy. Last year we had 40k to update 4 houses in Birmingham.

Unless you have good earning power and access to large amounts of cash it's not the best thing to attempt.

You are better to buy one property renovate and sell to try and build up a pot of cash.

The downside for people these days is tradesmen aren't cheap and having to pay for tidying the property up makes it not worth while.

If you recall the sarah beeny shows 5 years back people were buying property paying tradesmen to renovate and making a loss an actual loss, the only reason they profited was the monthly rise in property.

 

Im talking about buying the house outright.

I wouldn't have a mortgage. I would be traveling around the UK in a motorhome so my living costs are not a factor as they are minimal.

Oh in that case I would live off the 150k.

buying one property to let in the present climate would seem to be a very poor return on capital right now unless you can add substantial value to the property or there is another housing boom.

about as likely as the Titanic arriving in New York.

Earl

 

[tony84]

I bought a house to rent out a few years back.

I ended up moving into it myself. If your planning on buying one house - its probably not worth the hassle. I used to earn about £40 a month, £90 if i had a tennant who paid the full asking price.

Interest rates have come down drastically since (on my existing moretgage) i would be earning about £200 maybe £250.

My advice, unless you can do this on a scale big enough to have about 3-4 houses - dont bother. I never had a bad tennant but if i did any legal costs would have eaten up any profits in no time.

 

[crossdaz]

If you recall the sarah beeny shows 5 years back people were buying property paying tradesmen to renovate and making a loss an actual loss, the only reason they profited was the monthly rise in property.

If they did nothing at all they would have made more money in most cases. The only person really making money was Ms Beeny herself.

That woman has a lot to answer for.

 

[crossdaz]

My advice, unless you can do this on a scale big enough to have about 3-4 houses - dont bother. I never had a bad tennant but if i did any legal costs would have eaten up any profits in no time.

The people making money from renting out houses are the people that bought ten years or more ago.

 

[tony84]

I disagree, you can make money - im no expert. I was making money, not a huge amount but its still possible.

 

[Matt1959]

I disagree, you can make money - im no expert. I was making money, not a huge amount but its still possible.

what about when interest rates go up from their all time current low:|

 

[Esk247]

i've looked in to this, there were a few very tidy cottages that became available at less than 100k so i thought, hey up, i'll put 10% down on that and then rent them out as holiday lets..bingo.

not so simple it seems, 90% mortgages don't exist or are rare, they won't give you a big mortgage if you plan to rent the property out so you're looking at more around 50% up front and with all of the other things that come in to play it can work out expensive in todays climate.

you either needed to buy a property in the 90s and be renting it out today or you need to own a portfolio of properties with most as long term rents and holiday lets to boost earnings during the summer months.

 

[tony84]

I was earning money when the interest rates were prior to their all time low.

 

[gibby]

Ive got several friends who do this & they now live off the money but they all worked a business or two to buy them.

There are some good books on this - such as the rich dad poor dad books.

What they did was save money from their biz until they had a 20% deposit plus costs. They usually only bought bargains, house that needed selling fast or had been repossed. This means they would make alot of offers to get house below market value.

They would take out a 80% buy to let mortgage & price the rent so that it just covered the mortgage & expenses with a modest amount to cover anything else.

Once the value rose they would remortgage & pull out as much as they could toward a deposit on another property & keep saving for new deposits.

They would just keep repeating this over & over.
The idea is that the bank is taking most of the risk & that when property increases they may sell one off to pay of a mortgage or two which then increases the profits.

They prefer to have several properties = several incomes to act as a cushion.

they have all told me over time that some of the house just never work & the hardest part is finding good tenants.

Getting to the stage of being able to live off it takes work & time.
They also dont like the idea of owing houses outright to begin with as it means all the capital is tied up in that property.
Its OK to have mortgages as long as that debt is making you money.

At the moment there are lots of bargains out there as repossessions are high & mortgages are not as easy to get.

You may want to start on a smaller scale to begin with.
A mate does really well out of garages. he buys them for a few grand each & rents them out for £150 a month upwards depending in the area.

I also know someone who makes a killing out of storage containers.
He buys/rents sites on industrial estates & put on as many storage containers as he can. He offers security & charges £100 a unit per month.
He was shocked at how many small builders etc wanted the units & is also moving into buying large industrial units, splitting them into nice small units with security & charging £400 a month for them.

Its worth checking into as there is money but it needs to be done right.

G

 

[Esk247]

try buying a garage here. the one at the end of the road sold for 35k in the summer

 

[Lee Jones Jnr]

Renting out property is not a get rich quick scheme. You can make worthwhile ROI and if you are careful 10% per annum is easy enough to achieve.
To the OP - the rental income from one £150k property will not be enough to live off, especially whilst fueling a motor home. For this purpose as Earl says you will be better living off the money..... but you don't have it.....

 

[sunny darko]

I don't have it yet ;-)

Assuming I get £600 a month and put £100 by for potential maintenance costs that leaves £500 a month to buy food and fuel. Simples.

 

[Esk247]

insurance, maintenance, any loan repayments if there are any, a reserve fund for a disaster (roof caving in) property repairs before you start, any company registration costs, solicitors costs for contracts.

that would cost more than a few hundred i'm sure.

 

[MASSEY]

Yeah he's cutting it close. A bit of damp will see the budget gone in one or a few loose tiles that cause water to get into the property. Then there is the yeary boiler service, letting fee's, power cuts / electrician fee's etc

And after about 5-6 years you will have to change the kitchen and bathroom because they will be a mess and the tennants could go else where for better.

That will be 8k.

So that will be 1 and a bit years of rent you have to re-invest. Oh and the carpets will be a state by then so they will need changing aswell. Oh and the walls will have black marks all over them so they will need a few coats of paint.

You have to keep the property attractive or the tennants move on to something nicer for the same money, and you waste your time.

 

[sunny darko]

Fair points thanks

 

[gibby]

There is a monopoly style computer game by rich dad called Cashflow 101 which educates us on exactly this subject

Everyone I know who has played it always goes bust very quickly the first few times.

Just like monopoly you go around the board & different opportunities come your way.
The key to success is working out if an opportunity will give you +ve cashflow. This is not easy to do from the start as yes you get hit with repairs & other unexpected expensives.

The aim of the game is to have enough positive positive cashflow do that you can retire or move into bigger/better deals.

The whole Rich Dad theme is to only touch things that gve you postive cashflow & make a profit when you purchase the property. (get it cheaper than its worth)

Almost every landlord I know really struggles in finding properties that give a good +ve cashflow. Often they make only a small amount per month but as mentioned expenses can really wipe that out.

Some claim they can only break even on the rental or make a small loss but depend on the property going up in price in the future to sell it.

There is a theory that on average property doubles in value every 7 years.
It is realistic that some decades are worse than other but historically (Im told) it evens out & the time to take advantage is in a recession, as bigger gain s will be made when things get better.

Also in the Rich Dad books they did predict this downturn & claim an even bigger one is about to hit in the near future.
Being prepared is the way to beneift from all of this.

G

 

[MASSEY]

I might buy that game sounds fun

The reality is property developers / people with more than one property are in it for the long term. Anyone with a property now will on average lost 40k in the last 3 years.

The property i live in now was bought 50 years ago for £1500.00

It rose in 50 years to £220k

Its now worth 180k give or take.

In 20 years it will be worth £400k easy, i would say thats a worst case figure.

You dont really get any better than that. Property always rises more than anything else, its a cashflow is king situation, if you find your low on cash and have thousands of pounds in mortgages to pay then you very quickly stand to lose it all.

 

[directmarketingadvice]

I don't think that is true. I think if you are getting £700 a month income from renting to someone that at most you would be putting £100 a month back out on things the landlord has to pay for.

Can anyone clarify?

I think you're right. If you have no mortgage and a tenant, the rent should more than cover the cost of maintenance.

Steve

 

[directmarketingadvice]

Its now worth 180k give or take.

In 20 years it will be worth £400k easy, i would say thats a worst case figure.

I'd say the worst case scenario would be that it would be worth around £90,000 5 years from now, then go up by £20,000-30,000 for the next 15 years. (Adjusting for inflation.)

Steve

 

[Esk247]

if the property is 150k you're going to need a considerable amount more than that to even consider buy to let options.

mortgage free is the only way to go from what i've heard, so if you can get a property at 100k a nice chunky 50k budget should see you through the worst of your problems.

i'm not sure about holiday cottages, they charge more during the week (500 upwards weekly) but then you have dead months, usually the rainy autumn season.

 

[virtuallysorted]

My dad does this and has done for over 30 years... So the properties he bought in the 60s/70s for £3,000 are now worth quite a bit more and don't have mortgages on them. But I'll tell you what: he's not buying at today's prices.

When he first started there were a lot of people who would always be renting because they would never be able to buy their own home. We have a similar scenario now with bank's asking for 25% minimum cash deposit, so perhaps there is some mileage even now.

But it is twinned with all the people who bought at vastly inflated prices and now can't afford to sell at less than those inflated prices. The cost equation just doesn't add up past a certain point.

And don't forget that even if you are using an agent, there will still be unexpected blips like the boiler needing replaced or some eejit upstairs letting their windows rot and then claiming the essential repair to the fabric of the building back from all the owners. It's one of the reasons I moved out of a shared tenement with mostly buy to let flats - the owners really don't care about the condition of the property as long as it is still mortgagable!

 

[MASSEY]

I'd say the worst case scenario would be that it would be worth around £90,000 5 years from now, then go up by £20,000-30,000 for the next 15 years. (Adjusting for inflation.)

Steve

Dont forget this country has experienced recession before. If you take the long overview the only way is up.

I like to look at it from the glass is half full perspective anyway.

 

[directmarketingadvice]

Dont forget this country has experienced recession before. If you take the long overview the only way is up.

I like to look at it from the glass is half full perspective anyway.

I agree. I expect the human race to survive this...

(Or, at least, many of the human race - we all have a shelf life.)

However, owning assets at the top doesn't mean you'll still own them when they're re-gaining value after the bottom.

There are a lot of people who think they're homeowners who, if the market collapses, will find out who really owns their home.

Steve

 

[Lee Jones Jnr]

And after about 5-6 years you will have to change the kitchen and bathroom because they will be a mess and the tennants could go else where for better.

That will be 8k.

Nope, not for anybody with a brain in their head.

 

[Vintage06]

i'm suprised no-ones mentioned this, (not that i've noticed anyway) but instead of buying a house to rent out for say £700 a month. Why not buy a house with about 6 bedrooms in a city centre for the purpose of student accomodation. That way you have 6 separate tennants at about £55 each a week (that's what i was paying. some its more. some less.) So with 6 tennants that is more than £700.

Plus the maintenance isn't really an issue until the end of the year etc.

 

[laguna]

If you buy a house on a interest only mortgage (you need minimum 30% deposit) your repayments will "usually" be less than what you get in rent but..

It should be a long term investment and you will owe exactly the amount you borrowed in the first place but when you eventually sell (10 years for example) - it should have increased in value.

Sounds good on paper dont it?

image in my mind conjuring up all sorts of problems......

NIGHTMARE TENANTS!!!!!!!!!!!!!!!

 

[Medicol]

Its a long term investment.

I have a friend who bought a house a few years back when he had some spare cash each month.

He looks at it as his pension fund. it costs him approx £40 per month avg over the years. Taking into account repairs and unoccupied time.

still £40 per month for a £300k pension aint so bad.