A quick perusal of companies promoting investment in buy-to-let properties (and managing them for you) shows up plenty suggesting anything up to 9% net yields.
I have a buy-to-let property, and I can tell you I don’t get anywhere near that.
I acquired it nearly 30 years ago, and it was specifically intended for letting to students, which at the time worked well — especially as my parents did the same thing and managed it for me. But the student market where I live dried up after a lot of dedicated new accommodation was built, and for years now I’ve relied on the general rental market.
So why am I not getting the kind of yields I’m seeing bandied about, and why would I not recommend getting into the buy-to-let market now? My Foolish colleague Royston Wild has explained why a many buy-to-let landlords are getting cold feet these days, and a lot of it is to do with tax and regulatory changes.
But even without those worries, for me the biggest problem has been voids and unexpected costs.
Right now I have a good tenant, but I’m still only getting an annual yield of around 4%. And if you have to pay a manager, you could get even less.
And one earlier tenant in particular was a nightmare. They started off well enough, but started getting later and later with the rent… and only paid up, usually short and with a promise to catch up, after lots of chasing.
And do you know how I discovered when they’d moved out? By getting a council tax bill! I called to point out that the tenant is responsible for that, to be told nobody lived there. I went round and found the place deserted. And to make matters worse, everything removable had been taken — even all the lightbulbs had gone. I found a pile of bills left behind, including thousands owed for gas and electricity.
The gas meter had been capped, and I left it like that for the summer while I got the cash together and fixed the place up. And when I wanted gas on again, they insisted I had to pay the accumulated standing charge for the months it wasn’t used. Thankfully that was cancelled by the engineer who knew they weren’t supposed to charge when a meter was capped, and he reset the amount on the meter — but having to fight that would have been another obstacle.
I made a loss that year.
And I’ve had other bad times too, with the house empty for nearly two years. I had no rent, and I still had to pay council tax, insurance, minimum energy charges. And I don’t like to even think about the dry rot in the cellar.
It’s hard to compare, but if I’d put my money into the FTSE 100 all those years ago and gone for high-yield shares, I estimate I’d have ended up with around the same overall return — but without all the work.
That includes the very good early years and I’d expect to do nowhere near as well starting today. But it still has to be shares in top quality UK companies for me now.
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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.