Mortgage interest is no longer fully deductible. So you will pay tax on the rental income, and pay the mortgage with the money left over. If you structure ownership as a company, you can still deduct the interest (I believe - check with your accountant), however you would then pay double taxation (ie tax when you remit the money from the company to you, the shareholderpowerful arguments there, thank you.
gearing / leverage : £350K 2 bedroom house. 25% deposit = 87,500. Mortgage at 5% interest x 25 years : £1500 per month. Rent is around the same. Ignoring other costs for the moment.
Let us say : Property goes up 7% a year as it often does in southeast. Thats 24,500 profit. Thats 28% return on your deposit of 87500. Take away the 5% interest you would have got on the deposit and you are still way ahead. I am sure you all know how leverage / gearing works but just trying to do the maths myself here to see if the numbers work.
So, one small good house in a great location (UK southeast : Berkshire Surrey etc) as a diversifier ?
Buy To Let mortgages pay higher rates than ordinary home mortgages. You will get less coverage (60%?) and you will pay 1-2% pa higher rate, I believe.
If your yield (= Cap Rate = net Operating Income/ Value) is higher than your mortgage rate, you will earn a positive return. For Prime Central London, that's never true, and so you have to be on rises in property values.
Economics of BTL in Britain are quite tricky now. Most properties probably don't wash their faces (if bought at today's prices). Mortgage rates have risen, and so have property prices.
Equities have higher expected returns than property. Property is 1). tax privileged if it is your principal residence (but you will pay 5%+ Stamp Duty !) 2). returns to equity are driven by the amount of leverage you can use - but the Chancellors have made that harder.
One bad tenant and your life turns into hell. A good tenant you won't drive the rent up as much as the market - because good, no trouble, tenants are worth gold.
If I didn't live in a country, I wouldn't want to be a rental landlord in that country. But I am quite risk averse. And if you owned a bolthole and no one lives there, it could decay quite fast - better to be in a well-maintained block.
Statistics: Posted by Valuethinker — Fri Nov 22, 2024 3:33 am — Replies 30 — Views 2805