Landlord or Car Collector?

Changes in the buy-to-let industry may well have made investing in certain cars even more lucrative. Property in the UK has generally been the go to asset where folk invest their extra hard earned cash, and simultaneously invest in a commitment to a lender should they need a mortgage – mortgage is the key word here.

Welcome to car vs the buy to let mortgage!

Before you deduce that my marbles have left me, let me elaborate with the remaining marbles. You see, I’m referring specifically to buying a property with a buy to let mortgage, holding the intent to rent it out, with aims of asset appreciation and recurring income integral parts of the plan.

Safe as houses. Can’t beat bricks and mortar. Housing shortage. People always need somewhere to live.

We are familiar with the above one-liners in support of putting money into an investment property.

However, rules have changed recently. And I have started to wonder if the tables have turned and we should be saying: “Can’t beat metal, plastic and rubber” – “They will never make another again” Or even… “safe as supercars”.

You see landlords, which is what you become once you delve into the rental market have taken a hammering over the last five years, with more bashing to come. Specific highlights of changes include landlords bearing all costs for tenants to move in that once upon a time were the tenants responsibility, along with stamp duty changes to buy the place in the first instance

And then there’s the real game changer, significantly new tax rules are almost fully phased in now, disallowing the off setting of tax due against certain borrowing financial elements. So being highly mortgaged can really be harmful.

Couple this with all the normal fees such as obligatory landlord insurance, licensing as of recent times and new energy certificate rules, a rental market that although “thriving” is actually pretty competitive when you are actually part of it. Competitive in the sense that it’s no walk in the park.

And to put it simply, costs went up, profit down and stress up.

Oh and don’t forget the letting agent fees, 10 to 12% plus vodka and tonic, or the cost you will incur to manage it yourself.

In my opinion, property investment is only truly profitable if you own outright now. It’s only real punt at producing recurring income.

So I say think twice before you burden yourself with the debt of a substantial buy to let mortgage, legal responsibilities and a duty of care to be on hand when you want to rest.

If you were thinking of using your hard earned cash as a down payment for a mortgage into a rental property, please do your numbers and research first.

How much will you pay in terms of interest on that mortgage? How much can you off set against tax? What tax bracket could it push you up into taking account your current income situation?

Understand HMRC’s rules inside out to check how much you tax you will pay. Remember payment on account exists too, so the time frame to settle a tax liability could be shorter than you expect.

What is the real rental income in that area? How easy is it to find tenants? How much is a landlord licence in that borough?

Fully comprehend the safe deposit scheme, right to rent rules, gas and electrical safety rules. And associated costs.

Is it likely the property in question will enjoy a rise in value? I feel generally it’s all been a bit stagnant of late; some areas even weakened in value a little over the last few years.

And remember being a landlord has running costs which are a lot less predictable than running a car.

Sounding like too much hassle? Are you bored just reading what I say?

Well, I’ve barely scratched the surface to be honest, it’s an expansive topic.

All of a sudden buying a car, insuring it online, taxing it online (assuming it’s not exempt) and a yearly MOT and service doesn’t doing so bad does it? Even with a few parts along the way. Especially if that car ends up sitting pretty value wise.

Mike

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