To buy-to-let or not to buy-to-let

It’s no secret that Mrs Z and I will leave Chateau Zombie at some point.

But we are trying to figure out if it’s worth keeping Chateau Z as a rental property.  And it’s hurting my undead brain.

People in the UK tend to go a bit mental for property.  I’m convinced a lot of people actually view it as a risk free asset.

The “facts”
The ever volatile Zoopla values the Chateau at £200,000, and with a mortgage of £104,000 outstanding we have £96,000 in equity.

Zoopla also puts the property at a potential rental value of £950 a month.  A yield of 5.7% if the numbers are to be believed.  I have no idea if this is good or bad for a property, but it feels on the low side.

The first option – No BTL
If we just sold up and reinvested all the equity into a new place it, say the property was £350,000 (far more house than we would go for, but lets be prudent), less £96,000 equity and another £25,000 of savings to bring us below the 65% LTV at 64.41%.

This would leave a mortgage of £219,000.  Let’s say we went for the current Nationwide offer of 2.14% fixed for four years.  Over 20 years that would be £1,122 a month according to the MSE calculator.

The follow up option – With a BTL
What about if we tried to keep the place as a BTL and bought a new place.  Greedy little Mr Z.

If we bought the same place and released just enough equity to reduce the LTV of the residential property to 80%.  That would be £45,000 equity released, alongside the £25,000 of additional savings would mean a £280,000 mortgage would be needed.

Again with Nationwide there is a deal for 1.79%, cheaper than the first, but it is a tracker not fixed.  Anyway, over 20 years that would be £1,388 a month.  An extra £266 pounds a month being spent on servicing the mortgage.

The BTL would then need to be financed, with a mortgage for £149,000 at 75% LTV.  With RBS you can get a 2.74% tracker for 2 years.  This would mean a mortgage payment of £807 per month.

Off set against the rental income of £950 leaves a positive cashflow of £143 a month for the rental property.  Hardly ground breaking.  But overall leaving us paying £120 more a month.

Things are never simple
That’s a lot of numbers.  But what it boils down to is that having two properties will cost more, £120 more a month if my numbers are to be believed.

£120 doesn’t seem like much to end up with two properties at the end of the day.


– This is all on introductory rates, which would need refinancing.  Which costs money.
– Inevitable repairs will be needed.  Which will cost.
– Interest rates will (!) go up at some point.  Which will cost.
– There will be periods when it’s not occupied.  Which will cost.
– It would leave me horrendously in debt

On the other hand, it would provide a nice stream of income in 20 years.

These numbers don’t seem great given the risks involved.

So, my questions are thus.  How do you make a BTL work?  Anyone with any experience?  How passive or active is this income?

29 thoughts on “To buy-to-let or not to buy-to-let

  1. Cerridwen

    We have a small rental property but it wasn't a "buy-to-let" it was a "buy-for-son-to-live-in-for-a-year-and-then-let". From experience I would say that being a landlord costs more than you think it will and takes more up more of your time than you think it will. However you can reduce costs if you manage things yourselves rather than go through a letting agency (or at least by finding a competitive, competent one – ours bled us dry for 3 years – however, I know weenie's experience differs so hopefully she'll be along to add her comments).

    We knew we were going to be able to pay off the mortgage on the flat fairly promptly as we were expecting my husband's pension lump sum within a few years, but I'm not sure I would have wanted the pressure of relying on rent to pay it for a long period of time. Our studio flat is fairly easy to let as it's right at the bottom of the price range and in a good location but even so we have had periods of up to 3 weeks when it has been empty. You can only really assess your income on 10 months worth of rent (and that's taxable).

    It works for us now because we're in that situation that you say you would like to be in in 20 years time, we do have that steady stream of income, but in all honesty, I wouldn't have committed to it at your age. I know that others will disagree which is all to the good so that you get to hear differing opinions on this. So much depends on individual financial situation and aims and also the type of property you have. Lots to think about.

  2. Laura

    The yield is not that great and I would be extremely worried if interest rates went up by a few percent. This could potentially take away any profit, not to mention you have no idea how many repairs you are going to need. I guess if you can afford to cover increased mortgage charges through a rise in rates it may be worthwhile to keep the property on. Either that or sell it and buy a cheaper rental property at the lower end of the market.

    I have a buy to let property but it is at the cheaper end of the market and the mortgage is tiny so my rent payment covers my mortgage, management fee and rates (which the landlord needs to pay in N.Ireland). Interestingly my husband and I will be making a similar decision to yours this time next year when our new house is ready, the only difference is his is mortgage free but would only yield £500 pcm in rent. We could buy a cheaper property with the proceeds of the sale of our current marital home and still have some left to go towards the mortgage of our new home.

    I am interested to hear what you decide to do.

  3. weenie

    As you've been pre-warned by Cerridwen, here's my tuppence.. 🙂

    Those BTL numbers look a little tight, Mr Z.

    What if you have a couple of void months where you're in between tenants, no rental income of £950 (assuming you get this rate), will you be able to cover the BTL mortgage as well as your home mortgage? There are costs such as council tax and standing utility bills to pay too while there's no one living there – the costs add up.

    And is that RBS tracker mortgage at 2.74% a BTL mortgage because rates are often higher for BTL?

    My experience is different from Cerridwen's – I bought my apartment as a BTL. I paid a high deposit so my mortgage payments are extermely low and I pay for full property management as I don't have time/don't want to be a hands-on landlord. My gross yield is about 10% but I was fortunate to buy a very cheap property 'oop north'!

    At the moment, I'm using some of the rental income to top up my SIPP and ISA but it's in my plan as a future income stream for when I retire.

    Don't believe people who say that BTL/rental properties = passive income. It's not passive, although there's less to do if you have full property management. You still have to sort out insurance, ensure your property is in good repair/maintained.

    If I were in your position, I would sell your house and if you still want to go down the BTL route, buy a cheaper property specifically for BTL so you can get a better yield – this needs to be an investment decision, so you have to consider things like rental yields, location, type of property etc. I'm not saying your home isn't a nice home but is it a good rental property? Don't forget that you would have to convert the residential mortgage on your old home to a BTL one so you can rent it out = higher interest rate.

    If you've not seen it before, check out Moneysavingexpert's BTL info as it's very useful –

    As Cerridwen says, lots to think about – I did a ton of research before I took the plunge. You can check out my BTL experience on my blog if you have a few spare mins, which I hope you'll find useful.

  4. Huw

    Hi Mr Z,

    First of all I must state that I don't own a BTL property, so I can't speak from experience. I can speak as someone that looked into doing this as an ER gig before shares.

    I agree with Weenie's point above that the costs in your post might not have covered everything, but for me personally, the time associated with being a landlord was not worth the return it would provide, especially when compared to what else I could be getting for a reduced risk.

    A lot of Blogs talk about asset allocation, and spreading risk. I found it difficult to save up for a house deposit (approx £20k) in an easy access saving account earning me next to nothing, when I could be using that money to invest in shares and get an income right away. £20k is a lot of money for me, and if I used it to buy a house, I would have the vast majority of my portfolio in not just UK property, but in one house. It would HAVE to work for me. Instead, I can decide to buy a property investment fund, which holds 100's of properties and it's completely passive. Granted, the income returns are likely to be lower, but so will the associated time, hassle, and risk.

    There are a lot of people that do very well with property and nothing else. There are also many people that fall flat on their ass because they put everything they have into it, don't consider all the associated costs, and don't have a back up plan. I'm not sure where you are on that scale, but it looks like you've made a good start with reviewing your options. Take your time, keeping talking to people that are doing it (not people like me!), and I'm sure you'll get there.

    I've made the decision to continue investing the way I am for now, but I am still interested in property investing. I'm likely to give it a try once I have more money in other forms of investment.

    I wish you the best of luck with your decision!


  5. sparklebeeblog

    Hi Mr Z
    As Weenie said are these the true BTL costs as the interest rates seem low. Is this a repayment rather than interest only mortgage? My rental property was bought with spare redundancy cash as the deposit. It's fully managed and at the moment only makes about 6% , figures need to allow for insurance, void periods and tax. My main home is mortgage free so I don't have to worry about two mortgage payments and the rental easily covers the BTL one. I will probably sell the BTL in a few years, it's a small house, easy to rent to young couples/singles in a good rental area. What is the rental market like in your area? Is it possible to rent at £950? Only getting £143 doesn't sound a very good return to me.
    I was in your position when I was living with my ex partner. We decided to sell and buy the one home. We then concentrated on snowballing the main mortgage away then look at buying a BTL later when we were mortgage free on our main property.
    Good luck …let us all know what you decide…

  6. ermine

    > I'm convinced a lot of people actually view it as a risk free asset.

    That's cos the last time it wasn't was in the 1990s. Property is my own personal #1 worst investment ever. It's true that there's a structural shortage of property in the UK which supports prices, but it's also true that interest rates are at historical lows, and it's also probably true that fewer and fewer people are going to be able to afford high prices – either as tenants or as owners. And you are looking 20 years into the future. Two decades is a long time for some serious hurt to come up, and also for your life circumstances to change so you may have a greater need for the capital in liquid form (children tend to lead to a suckout in the 30-50 year old space of the parents, for example).

    The other thing is that if you want BTL does the place where you chose to live fortuitously happen to be a good place for a BTL? If not you may be batter of selling up and doing BTL in a format and place suited to likely tenant demand?

  7. Dividend Drive

    I agree. We go crazy for property in the UK. I have not seriously thought about buy-to-let as an option currently. Liquidity is my main concern as I need my assets to be as liquid as is possible at the moment as my work means I am not quite sure where I will be living in the near future.

    When this changes, who knows.

    However, in general, my gut feeling is along the same lines as Huw. Property investment funds, REITs or other property-related investments are–for me at least–a little more attractive even if a little less lucrative on the face of it.

    It strikes me that buying to let when the housing market is in the doldrums (as a few years ago) is pretty astute and would see pretty good total returns. However, it does seem the buy to let world is so well populated it will be a challenge to see your monthly return grow much.

    As a renter, I know that there is a huge amount of competition to get renters (especially in certain areas) which, obviously, gives them the upperhand if they are patient and trims back landlord margins. But that is just my experience from the other side of the fence!

  8. Mr Zombie

    Hi Cerridwen, thanks for your thoughts.

    IF we did go down the BTL route I would probably look to do it myself. That said I have no experience, and don't really know any one, who has tried BTL. Other than my parents and Mrs Z's parents who made a bit of hash of it.

    I was really surprised how tight the numbers are. Doesn't seem worth it, given the risks.

    I think people tend to glaze over the costs of BTL, but (at the moment) we could afford to pay if it wasn't rented. Still, not nice.

    But the potential amount of time involved does put me off…

    Mr Z

  9. Mr Zombie

    Hi Laura,

    You are right, and rates will surely go up fairly soon. And if they do the increases in the mortgage payments will out strip any increases in the rental income.

    The thing is, we know the area, and the properties rent within days. And it would involve any other transaction costs in buying another place.

    It wouldn't be for a little while yet anyway, we could save and take a huge chunk out the mortgage in a couple of years time. If the income covered the mortgage by a larger portion it would look more positive.

    Thanks for your thoughts!

    Mr Z

  10. Mr Zombie

    Hi Weenie,

    Yeah, I was surprised how tight the numbers were, given we could have a good chunk of equity in the house. TBH honest I didn't spend ages looking for the best deals, I was just trying to get an idea of what it would look like… and it's not great!

    We could cover the payments at the moment with us both working, but it would be a bit pants to carry on working just incase we needed to cover two mortgage payments!

    10% is more what I would have thought, perhaps a sign that property is over valued here at the minute as the rents wouldn't go much higher I don't think.

    I was quite keen to keep both properties, but after this just the one property looks safer.

    I'll have a look at the BTL on your blog :). I'm always a bit wary speaking to people at work etc as they always seem so bullish on rental properties, blinded by the bullshit perhaps, haha.

    Thanks for your thoughts

    Mr Z

  11. Underscored

    Please also be cogent of the fact that interest rates on BTL mortgages may well rise in the future independent of base rates. Carney is constantly banging on about it and is attempting to get the risk weighting of BTL mortgages increased in the next update to Basel banking rules. This is an aspect many don't consider, also be aware that BTL mortgages are not covered by consumer protection as the West Brom Mortgagees discovered. BTL lenders will also secure your lending against your OO house, so the stakes are high.

  12. Mr Zombie

    Hi Huw,

    I didn't include any repairs costs as I wanted to see just the 'facts' as a best case, knowing that reality was going to be worse. But it is the time as well that is putting me off.

    I too would be nervous with a huge chunk of my assets in UK residential property and debt linked to the base rate.

    One of the reasons we are thinking about it, is we picked up the house quite cheap at the bottom of the market and in a not so nice area. Since then there has been a fair amount of investment and the area is nice now, so it would definitely rent. Just a bit surprised by the low yield! And it makes me wonder how many people are set up like this at the moment, christ knows what that means if (when) rates go up again!

    Thanks for the comment

    Mr Z

  13. Mr Zombie

    Hi Sparklebee,

    Yeah it was based on a 20 year repayment mortgage. Is that 6% after all the costs?

    Our house would rent, its a small terraced 2 bed house. At the moment the area is pretty popular with professional couples and properties seem to be marketed for slightly more than £950 a month, but who knows what they actually go for.

    That approach sounds like the sensible option, and maybe the one we take 🙂

    Thanks for you thoughts

    Mr Z

  14. Underscored

    My take is that the current BTL game is truely Ponzi investment in the Minsky schema. For it to pay out well you need a bigger sucker to buy it for more later. Experienced BTL'rs always quote 10% as the mandatory minimum gross yield to make it work on a cash flow basis, whilst this obtainable oop North I would be worried about the Northern economy supporting rental payments, and in no way would I want to rely on the largess of the tax payer paying housing benefit over 25 years!

  15. Mr Zombie

    It does seem that way with property.

    Being that exposed to property would worry me. But we could potentially be in a position to make the step to having two properties 'relatively easily'.

    The thing is, we could probably pay off the mortgage on this place completely in 3-4 years at the rate we are saving, which would be nice. But it's not big enough if we have kids…although I guess that is relative as I am sure we could survive here with kids.

    It looks like the properties rent really quickly here from what we've seen, but perhaps people are playing with fire with prices so high at the moment.

    Wait for a crash, swoop in like a vulture for the next place at a reduced price and rent this place out? A bit too uncertain for me….

    Thanks for the comment

    Mr Z

  16. Mr Zombie

    Hi DD,

    Thanks for the input 🙂

    It does seem risky tying up so much capital in one asset type!

    Purely from a diversification point, I agree, I could get exposure that way. Albeit at more of an expense that some cheaper ETFs or mutuals.

    I did wonder about buying more house that we need if prices are depressed, then selling it when the mortgage is paid off to get some capital gains free growth (and so ignoring the BTL option). But again,it seems like a good way to tie up a lot of capital in one asset!

    Mr Z

  17. Mr Zombie

    Hi Underscored,

    Good point, I had been considering from the point of view as being more expensive debt that your residential mortgage, but the spread being relatively fixed.

    That is also worrying that they secure against your private property. Even the case if you were to set up a limited company? I'm guessing yes otherwise a pretty easy loophole…

    Mr Z

  18. Mr Zombie

    @ Underscored – 10% seems miles away from my numbers (admittedly done fairly swiftly). But it would seem near impossible to squeeze out another 4.3% from somewhere.

    Being lumbered with a property in negative equity would, of course, be pretty shite. 🙂

    Mr Z

  19. Anonymous


    I do like your blog so i thought i'd chip in with a couple of things that i haven't seen, and are worth mentioning.

    Tax – a BTL mortgage will likely be interest only, and as you are on PAYE you will want to keep the net profit from the rental place as LOW as possible. So put any money into the house you live in and not into the asset. Which is counterintuitive.

    Repairs – I factor in 100/mo per person in the house. It seems like a lot, and then you spend 2000 on a boiler one month.

    Capital gains – we are in a period of historically low interest rates so you should be making money every month. But over a longer timeframe (and property is a longer term investment) its nothing. The real benefit is capital gains, London prices went up by about 17% in 2014.

    All things worth adding into your calculations Mr Z.

  20. No More Waffles

    Mr. Z,

    Interesting conundrum you guys have!

    Before giving my point of view: did you factor in repairs and maintenance of both your rental home and your own house?

    Personally I'd be prudent and not keep your old house. To me the question boils down to if you're comfortable being so much in debt? I know the interest rate is low and it's relatively risk free, but it's still a lot of debt to pay off.

    Maybe sell your current home and invest the difference in a nice couple of REITs? You'll get much of the uspide potential of rental properties without the hassle and fewer risk.

    Just my two cents. Let us know what you decide on!


  21. Dividend Drive

    My pleasure. Thanks for the interesting post.

    The issue with buying more house than you need is the additional costs, of course. Higher council tax, higher energy bills, etc, etc. It makes it a lot harder to uncover whether it is profitable or not. I had started writing a post on that, but I doubt I will finish it for years until it becomes more relevant to my own circumstances!

    Also, how do you ascertain if prices are depressed or not! So hard unless it is like the post-financial crisis environment where it was all so terrifyingly depressed (and depressing)!

    That being said, property–whether BTL or not–is one of the few leveraged investments I would consider. So from that perspective it is a winner. But thinking of it that way reminds you it is always a risk!

    If you have the capital, it is probably worth considering though (hence why you wrote the post presumably)!

    Good luck with your decision.

  22. Zee

    I think a lot has to do with you. Personally I rent out 2 rooms in my house, I hate being a landlord when I have an eye over everything that's happening. I know this place would be treated a lot worse if I weren't here. That stress alone makes me never want to be a landlord. Yes you can hire a property manager to take over for you, but you would have to pay them to do it.

    I think another big thing is what market you are in. Where I am, San Francisco, there's only limited space, there's almost no where to build and it's even difficult for people to build upwards since so many people that live here now don't want new buildings ruining their views. So the limited space for growth means property values here will increase much better than other places.

    If you are in a market where property values and rent will increase heartily over time then keeping it as a rental will pay off eventually, maybe not in the first 3-4 years, but after that it will be like a little gold mine you won't want to go without. Right now I've been in my house for 8 years and if I move anywhere my rent increases 3x just because I've been able to do rent increases on roommates over the years to keep up with the rest of the housing in the market.

    I literally want to move badly but since I get such a steal of a deal now it's really really hard for me to choose to leave, even though it's not ideal for my sanity to have roommates at this point in my life 🙂

    I think you have a good problem though, there could be worse. Good luck with whatever you choose.


  23. Mr Zombie

    Hi there,

    Thanks for the thoughts. I had included the mortgage as a repayment mortgage, so that it would be owned in 20 years. Are you saying it's more common to have an interest only mortgage, which would make monthly cashflow more attractive?

    It is true that I didn't look at capital gains in my considerations, and they could be substantial (it certainly has been a nice boost since 2009 when we bought the place – not quite London gains mind you!)

    It does look like some more detailed calcs are in order…


    Mr Z

  24. Mr Zombie

    Hi NMW,

    No, I was only having a quick look at the 'hard cash flows', a sort of best case, so things would only get tighter as I started including repairs and void periods.

    I'm really not sure on the debt side of things, although I would prefer two assets rather than one huge residential one (at least then it's divisible to some degree).

    I quite like being in the situation of being able to cover the mortgage easily if things start to go a bit wrong. I guess maybe I am risk averse to leverage 😀

    Mr Z

  25. Mr Zombie

    Hi Zee,

    You have raised a good point. This has been our house for years now, and it would be tough to see someone else living here and not treating it as well as we have. But I guess this is part of it…?

    The market round here is still on the up. A house the same went for £250k a few weeks ago, we bought for £150k a few years ago. £100k gain… for doing what haha. I'll take it though.

    We are in a similar situation, with a low mortgage we are paying 3-4 times less than we would be if we moved, so that does make moving less attractive.

    It is definitely a first world problem!

    Thanks for your comment,

    Mr Z

  26. sparklebeeblog

    Hi Mr Z, the 6% is gross – which isn't good if 10% is the norm. once taxes are paid, the net return is 3%. This does include all expenses, inc maintenance. I am wondering if this was a good idea, once the fixed interest rate is up I will review and decide whether to sell. it may have been better to have just invested this deposit money straight into good dividend shares.

  27. sparklebeeblog

    As an extra. I was leafletted the other day. Someone is desperate to buy in the rental area and that's the second comment on wanting to buy in this area Ive received recently, which is a good sign.


    Hi Mr Z,

    No expert here but did briefly look into it when moving house, same as you thinking maybe we can keep the flat and rent it out.

    It turned out we wouldn't have had enough cash savings anyway to actually do it but also the yeild would have been shite so it totally wasn't worth it. I then looked at doing a BTL oop north as others have mentioned, the yeild up there is much better. Anyway as mentioned on the other thread I just commented on I decided it is way too much hassle. If we bought a rental property 400 miles away then it would have to be managed through a property manager and pretty much all repairs couldn't be DIY'd which would again be hassle and eat your yeild.

    About the interest only mortgage, again no expert but from what I gathered the idea is that you go for interest only as a double pronged attack – not only to improve cashflow but also because you can offset the interest payments against your profit for tax purposes, so it makes it a more tax efficient investment. You can then use that extra cash to purchase another property (admittedly increasing risk as even more leverage) or use it to invest in other areas like stocks (again, you are technically buying stocks on margin here I think? Which again is a bit risky – although you could argue if you have any kind of mortgage even a residential one, and then buy stocks instead of paying off the principle, you are doing exactly the same thing)

    There was a commenter on my blog called Nyul I think who warning against doing that and pretty much wiped himself out by taking on too many properties. It was an interesting story, have a search for it if you get time.

    One other positive to BTL which I am not sure I've seen mentioned is that generally you would expect rental prices to increase with inflation while your mortgage will only ever be a percentage of the price you have paid for it so cashflow *should* in theory increase over time.

    Even if interest rates go up (which is out of your control anyway) this still works to your favour as you are inflating away the principle debt on your properties even without making any principle payments on it.



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