Five Reasons Why Buy-to-Lets are BAD Idea


I’M a landlord and I know that people love property. For most their home is their No1 asset and the one which they’re most proud of.

But that doesn’t mean you should buy another property and rent it out.

You probably think houses are great investments because they increase in value and will provide an income well into retirement.

Unfortunately, there are five big downsides to this plan…

1. You Won’t Make Loads of Money

Rental yields can be pitiful (especially in the UK). I know this for a fact because my wife and I have two small properties which we rent out.

However, these weren’t purchased as buy-to-lets, rather they were our individual flats/apartments before we bought our family home in 2013.

So we are accidental landlords because it wouldn’t have made financial sense to sell up at that point when prices were in the toilet.

The yield on both these properties is around 4%. So every £100,000 of bricks and mortar only pulls in £4,000 a year.

That just isn’t good enough when other investments are better options. You could expect a greater return than 4% in the stockmarket, with less work.

2. It’s Too Much Hassle

Buy-to-lets are not passive investments. If you think you can just snap up a property, get a tenant and then count the money as it rolls in, you’d be sadly mistaken.

Being a landlord is hard work, it’s a job – even if you hire a management firm to look after the heavy lifting.

Things always go wrong, even with well-maintained properties. And if you’re not doing repairs and replacing broken appliances yourself, the costs can rocket.

Then there’s the stress. Can you cope with the void periods without a tenant as the bills start to pour in?

Will you dread the phone calls telling you the tenant is reporting yet another problem which is going to cost you time and money?

Even if you’re lucky and you find a good tenant, they won’t look after the property as well as you, because they don’t own it.

3. Hefty Fees

If you’re still dreaming of rentals, don’t forget the all the cash you’ll have to pay out before you even get your hands on the keys.

Stamp duty, lawyer fees and surveyor costs can run into the thousands.

Then if you need a mortgage, there are set-up fees and interest payments. Plus insurance, etc.

Once you actually own the property the outgoings don’t stop.

I had pay to register as a landlord and then spend more to make sure my place met health and safety requirements.

Plus, I hired a rental agency to find me a tenant and that involved advertising costs. The agency also manage the property for me. They pocket half of the first month’s rent, as well as 10% of the other rental income.

If I were retired I would find tenants myself and look after things, but at the moment I don’t have the time. There would still be costs but I’d save 10%.

But we’re not done with expenses yet. There are repair bills and you’ll need to redecorate and replace carpets, more often than you’d think.

All in all, if you bank 9 months of rental income every year, you’ll be very lucky.

4. All Your Eggs are in One Basket

Any personal finance expert will tell you that diversification is vital in an investment portfolio.

Well, if you’ve sunk all your money into a buy-to-let that’s risky – very risky.

Don’t forget you’ve probably got a lot of your wealth in property already (your home). Piling more into this asset class could leave you dangerously underweight in other areas such as stocks and bonds.

It’s a gamble – a straight bet that the housing market will outperform all other investments.

5. No Easy Access to Your Cash

This is always the worst.

Say you need money quickly – it could take months, even years, to sell up and get the cash back in your bank account. And don’t forget the taxes and fees you’ll need to pay before you see a penny.

It’s never sensible to tie up so much of your net worth.

Compare this to a stockmarket portfolio which can be liquidated instantly, with the proceeds available within a couple of days.

So What is My Plan?

Circumstances forced me into becoming a landlord and now that I’ve tried it for a few years, I don’t like it.

It costs too much, the returns are rubbish and it causes far too many headaches.

When the property prices where I live get to what I consider “fair value” I’ll be selling up.

All the money will then go into a diversified global portfolio of index-linked stocks and bonds.

It’s a much easier option.

Now have your say…
What do you think? Do you own a buy-to-let or dream of a property empire for your retirement? Are you an accidental landlord like me? Whatever your opinions, I’d love to hear them.

Simon Saves

I'm a national newspaper journalist for hire who has a passion for personal finance. Currently saving and investing towards my first million. All comments welcome. Follow me on Twitter: @MyRichFuturecom

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7 Responses

  1. weenie says:

    Funny, I’ve just started to draft a post about my BTL.

    Unlike you, I’m not an accidental landlord, I bought my flat as a BTL and only did so because otherwise I would have ended up spending the money that was sitting in my bank account. I had no idea about investing at the time so that wasn’t really an option so my family persuaded me to put it in property.

    The 4% yield you mention – is that net or gross? My gross yield is just under 11%, net is around 6%. BTL I think suits landlords up North who are able to get hold of cheap properties but who can also get decent rents.

    By far the biggest cost that eats into my rental income is not my letting agent but the service charges for my flat.

    Funnily enough, if I were retired, I would still have the property managed – I don’t want to replace work stress with another kind of stress! Yes, the agents’ fees eat into the profits, but I’d rather pay for an easy life.

    The capital on my property is unlikely to increase in the same way as property does in London, so I’m counting on my rental yield to go towards my retirement income.

    Would I get another property? Perhaps, if the opportunity presented itself.

    • Simon, Editor in Chief says:

      Hi Weenie,

      Yes that is net. Would probably be higher if I had selected a property for buy-to-let, rather than having to rent out my old flat. If you could buy cheaply in a good area then that would make a difference.

  2. Hi Simon,

    Great post, I looked fairly in depth at BTL a year or so ago when coming up to selling our flat and decided on much the same conclusions as your good self!

    Keeping our flat and renting it out would have resulted in a Net yeild even lower than 4% at rates around my area, and looking at buying a single property up North didn’t really appeal due to the distance aspect, I would like to be able to nip round the corner and fix something if it went wrong and not rely on service man call out fees all the time.

    If you want to hold property as part of your portfolio then REITs or crowd sourcing (The House Crowd etc…) may be a low hassle way of doing so.

    • Simon, Editor in Chief says:

      Hello FIREstarter, nice to hear from you.

      I agree that property should be part of a balanced portfolio. My choice would be BlackRock Global Property Class D fund. It’s well diversified and costs are low.

  3. Underscored says:

    #6 The New Government hates you and wants capital to be invested in the real economy:

    “Mark Garnier, Conservative MP for Wyre Forest, said the Chancellor’s changes should bring private landlords’ tax relief more in line with the rates of relief companies could claim, currently 20 per cent.

    He added: ‘Buy-to-let has massively distorted the property market, resulting in rises in prices. We also don’t particularly want the nation’s working capital in non-productive assets. When you have a buy-to-let you don’t employ people to create widgets or manufacture aircraft engines.’”

  4. cintrapark says:

    Interesting piece. I myself am an accidental landlord having kept my London property when moving abroad 5 years ago. My current rental yield is terrible, however I’m banking on the appreciation in value providing a nice return in the future. Having said that, I’m also considering selling it for the reasons stated above. The mortgage is large and I’m earning next to nothing…..

    • Simon, Editor in Chief says:

      Hi Cintrapark, thanks for dropping by. If you are still abroad, believe it or not, I would keep the property. Might seem an odd bit of advice given the article above, but it’s always good to have a base back in your home country. Especially if you decide to come back to London in a hurry.

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