[Barcli]

I am looking at a modest 2 bed flat with a view to buy to let - there are two choices that I have shortlisted. They are the same size and both return 6% in rent - but which to chose ??

Flat A is leasehold - 125 years remaining. Very modern ( ground floor), perhaps could need a new kitchen in a few years. Secure underground parking. Attractive to a younger couple

Flat B is freehold and dictates that the tenant must be over 55 yrs ( retirement flat) with communal gardens - security - emergency alarm system etc. Parking space outside

My thoughts are that :
Flat A would have a high turnover of couples as they move on to bigger and better and am unsure about buying a leasehold. Although I feel with some modernisation ( Hive / smart appliances) it could be ,nice attractive, modern and sought after.

Flat B would probably have the same tenants until they passed, so a low turnover. It is freehold ( better ?) Doesnt need any modernisation. Could be difficult to sell at a later date as is only really attractive to an investor as the tenants are never going to buy it

Which would you choose ?

[PaulB]

... are they in the same area or an area where you would get reasonable tenants?

[LowNSlow1]

A few important questions:
What are the service charges?
What do the service charges include?
Are you buying cash or using a BTL mortgage?
If you are going to use a mortgage then be aware that the mortgage interest is not an allowable business expense (thank you ex-Chancellor Gideon (yes that was his birth name) Osborne you ****) because BTL isn't really a business is it...….. also if your rental income take you over the basic tax rate then the tax allowance which is a replacement for the lost interest relief does not cover the difference (thanks again Gideon).

[Bill McCarthy]

Now you’ve done it - the left will be along in a minute to berate you for gobbling up property and denying a first time buyer a chance !

[Barcli]

A few important questions:
What are the service charges?
What do the service charges include?
Are you buying cash or using a BTL mortgage?
If you are going to use a mortgage then be aware that the mortgage interest is not an allowable business expense (thank you ex-Chancellor Gideon (yes that was his birth name) Osborne you ****) because BTL isn't really a business is it...….. also if your rental income take you over the basic tax rate then the tax allowance which is a replacement for the lost interest relief does not cover the difference (thanks again Gideon).

Service charges pretty much the same in both
Buying cash

[Barcli]

... are they in the same area or an area where you would get reasonable tenants?

Same town - both good areas - easy access shops/doctors/hospital/market town/ both on bus routes - just that one , I fear would be a high turnover of younger tenants ( and is leasehold) - the other a retirement flat, which may be difficult to sell at a later date, but is freehold and ( one hopes the tenants wont be " moving" quite so often......

[eltonioni]

Neither, not at 6% gross yield, unless there's a realistic expectation of capital growth.

If they pass that sniff test, Flat B is a non starter unless you intend to live in it one day.

[Flyingfemme]

Run. Run fast in the other direction. The goal posts on private letting are being moved so fast it makes your head spin. The tax situation is not great - it is, after all, just a pastime that you are engaging in.........
Younger tenants do not, necessarily, move on faster. I have had tenants stay for 5 years and more.

[LowNSlow1]

Flyingfemme has a good point. I've currently got a tenant asking to buy the flat they are living in.

Eltonioni also has a good point. Private BTL is turning into a nightmare. I would suggest that if you are going to make a business out of BTL then do it through a Ltd company. I realise you are buying cash but should you then chose to use one of the very competitive lenders who have expanded into the Ltd Co market the interest on the mortgage IS then allowable as a business expense. Take that Gideon! Bitter and twisted? Moi?

[cockney steve]

Tenants can be very demanding on the repair and decoration front. broken appliances, electrical fittings, door locks,plumbing, toilets..... not to mention the "voids" (attempting to re let)
A close acquaintance renovated a complete derelict block , 4 shops and about 15 flats, from basement floor to chimney-pots....he owned a high class joinery-business and standards reflected this.- A retirement income for himself and wife and a good living for his daughter.

A couple of tenants left with debts and flats needing expensive refurbishment. another refused to pay her rent, point blank. (The rows of law-books should have warned him when he repossessed the flat) Yes, he was arrested, had to give her the keys for the changed locks and a long and expensive Court-case, compensation and then due process to lawfully evict. Unfortunately, he died prematurely (cancer) wife and daughter sold the lot to a property company.

Since then, - no tax-relief on BTL's and even more protection to all tenants, good or bad.

I'd move to a better, larger house if the "rent -a -room " scheme was a good fit for me.....that, at least, is totally tax-free!

The BTL business is scuppered, Osborne simply forced rent-rises by removing tax-relief and at the lower end, tenants simply can't afford to buy, often due to the Building- Societies' insistence they can't afford the repayments, despite the ability to pay a rent which is higher! This leaves Local Authorities (mostly inept ) and Housing Associations- Over- administered by fat-cats looking to early-retirement and a gold-plated pension. RUN! (forgot to add, Commercial and industrial lets can be worse! )

[Popeye]

If you can stretch to it go for a small freehold house. We started off with a flat and had our fingers severely burned by service charges, etc. Management companies are largely licensed bandits.

We also had poor agents who didn't properly vet the first tenants who discovered, after just a few months, that they couldn't actually afford the rent, thankfully our landlord's insurance covered non payment Luckily the second tenants liked the flat so much that they bought it. We then changed agents and bought a house which was let virtually the next day and all have been happy for the past three years or more.

[Sooty25]

I speak as a landlord of over 20 years. Don't do it.

6% gross isn't enough.

1 property isn't enough.

I could spend all evening recounting stories.

If you've got £150k to invest, you'd get a better return buying £10k of shares in the top 15 FTSE companies.

[Bill McCarthy]

I can see a tenants’ “right to buy” coming.

[rikur_]

Depending where you are, holiday lets can be a better return with fewer of the 'tenants rights' issues, and with the agency giving you income net of cost so you're not paying tax on costs.

[Flyingfemme]

I know several people who have moved to the Air BnB model; they report that rents are higher, properties treated with more respect and returns are higher with far less occupancy. And sale prices have only just struggled back to where they were 10 years ago - so the long term capital gains aren’t there either.