Is it a good idea, to buy a flat with a loan, whilst using the rent to pay it off?

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I have been thinking about taking a loan to buy a flat which I would rent out. My reasoning is that the loan would be paid off over time by the renters. After perhaps 30 years, I'd be left with a free flat.



Obviously this sounds too good to actually work as easily as described because if it did then everyone would do it. What I'm looking for are the reasons why this idea is unrealistic in real life.










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  • 1




    The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
    – Dheer
    10 hours ago






  • 18




    Being a landlord entails more than cashing a check every month.
    – Nuclear Wang
    4 hours ago






  • 5




    For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
    – WannabeCoder
    4 hours ago






  • 2




    Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
    – Dilip Sarwate
    2 hours ago






  • 2




    Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
    – Michael
    1 hour ago
















up vote
13
down vote

favorite
2












I have been thinking about taking a loan to buy a flat which I would rent out. My reasoning is that the loan would be paid off over time by the renters. After perhaps 30 years, I'd be left with a free flat.



Obviously this sounds too good to actually work as easily as described because if it did then everyone would do it. What I'm looking for are the reasons why this idea is unrealistic in real life.










share|improve this question









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RotV is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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  • 1




    The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
    – Dheer
    10 hours ago






  • 18




    Being a landlord entails more than cashing a check every month.
    – Nuclear Wang
    4 hours ago






  • 5




    For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
    – WannabeCoder
    4 hours ago






  • 2




    Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
    – Dilip Sarwate
    2 hours ago






  • 2




    Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
    – Michael
    1 hour ago












up vote
13
down vote

favorite
2









up vote
13
down vote

favorite
2






2





I have been thinking about taking a loan to buy a flat which I would rent out. My reasoning is that the loan would be paid off over time by the renters. After perhaps 30 years, I'd be left with a free flat.



Obviously this sounds too good to actually work as easily as described because if it did then everyone would do it. What I'm looking for are the reasons why this idea is unrealistic in real life.










share|improve this question









New contributor




RotV is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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I have been thinking about taking a loan to buy a flat which I would rent out. My reasoning is that the loan would be paid off over time by the renters. After perhaps 30 years, I'd be left with a free flat.



Obviously this sounds too good to actually work as easily as described because if it did then everyone would do it. What I'm looking for are the reasons why this idea is unrealistic in real life.







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edited 19 mins ago









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  • 1




    The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
    – Dheer
    10 hours ago






  • 18




    Being a landlord entails more than cashing a check every month.
    – Nuclear Wang
    4 hours ago






  • 5




    For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
    – WannabeCoder
    4 hours ago






  • 2




    Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
    – Dilip Sarwate
    2 hours ago






  • 2




    Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
    – Michael
    1 hour ago












  • 1




    The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
    – Dheer
    10 hours ago






  • 18




    Being a landlord entails more than cashing a check every month.
    – Nuclear Wang
    4 hours ago






  • 5




    For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
    – WannabeCoder
    4 hours ago






  • 2




    Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
    – Dilip Sarwate
    2 hours ago






  • 2




    Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
    – Michael
    1 hour ago







1




1




The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
– Dheer
10 hours ago




The way this is asked is too broad. This depends on the interest rates, tax breaks as applicable, projected rental income, potential appreciation, property taxes, property management, etc of the property, some of these vary widely. This needs to be done for a specific property to arrive at the decission.
– Dheer
10 hours ago




18




18




Being a landlord entails more than cashing a check every month.
– Nuclear Wang
4 hours ago




Being a landlord entails more than cashing a check every month.
– Nuclear Wang
4 hours ago




5




5




For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
– WannabeCoder
4 hours ago




For what it's worth, people do do this. Generally it's houses, not apartments/flats, but it can and is done with both. Some people will start renting out their first home, which is purchased through a mortgage (a special kind of loan.) More generally, using debt to finance business plans with higher rates of return than the debt's interest rate is standard practice from the smallest single proprietorship to the largest corporation.
– WannabeCoder
4 hours ago




2




2




Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
– Dilip Sarwate
2 hours ago




Renters don't pay off your mortgage, you do, from whatever money is left over from the rent payment after you have paid the property taxes and the property insurance and any necessary repairs. If the renters are late with the rent check, you are still on the hook for the mortgage payment to the bank: the bank will not accept the excuse that the mortgage payment is late because the renter is late with the rent check.
– Dilip Sarwate
2 hours ago




2




2




Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
– Michael
1 hour ago




Might consider rewording the title, I came here thinking you were asking about borrowing money to rent a flat for yourself.
– Michael
1 hour ago










5 Answers
5






active

oldest

votes

















up vote
24
down vote













It is certainly possible and people have done it before.



However, I can think of a few risks/problems:



  • Market fluctuations: It might just happen that you buy when the market is up, and over time it goes down (both the price for buying and for renting). So you cannot cover your mortgage any more with the rent and have to chip in yourself, effectively overpaying for a property that is not worth much any more. If you are unable to cover the difference between mortgage and rent yourself, then the property might even get foreclosed and you are left with a loss.

  • People tend to underestimate renting- and property-related costs/risks. This can leave you with a non-viable operation (having to subsidize the operation with more than you can afford), be it because it is unsustainable in general or because you get into liquidity issues because of the unplanned costs. Examples of costs/risks:

    • Vacancies

    • Repairs

    • Tax payments

    • Non-payment/eviction of tenants

    • Legal issues and administration costs


  • You have to come up with a reasonable down-payment (depending on your own income situation, credit situation, etc.) yourself.

  • Building standards and styles change over time: The "free" flat you get after several decades might not be so desirable any more because the way it is built is sub-standard or out of fashion at that point.

  • Overpaying: The people who are actually successful at doing what you describe have experience and a sense for the market and the opportunities it represents. Not everyone has that.

Doable? Certainly. But it's not free money. You will have to put in effort to learn (outsourcing everything is expensive), to manage things yourself and to solve critical problems in a creative way. The chances of success also highly depend on the state and development of the market we are talking about, on taxes and regulations in your country, on your personal skills and on the effort you are ready to put in.






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  • 5




    A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
    – Martin Bonner
    3 hours ago










  • @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
    – Baldrickk
    2 hours ago










  • @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
    – chrylis
    1 hour ago










  • @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
    – Tim B
    1 hour ago






  • 4




    @TimB That's some impressively dishonest regulatory capture.
    – chrylis
    1 hour ago

















up vote
6
down vote













I love this question on a few different levels. This is exactly how the majority of rental properties become available in many markets. If your landlord is a person rather than a property management company the chances are quite high that your rent pays their mortgage.



Why isn't everyone doing this?



  • There is a high cost of entry: rules around home loans are often much more favorable when purchasing your primary residence than rental properties. In Canada you can get a mortgage for 5% down on your primary residence but need to put 20% down for rental properties.

  • Vacancy is a major long run risk: how long can you float your property without a tenant. In the 5-20 year time frame the fortunes of a community can change drastically. If there is a glut of new flats built or if a major local industry dries up you may have a hard time finding renters leaving you to pay the bills out of pocket.

  • Major repairs: You need to have enough of an emergency fund available to handle a major unexpected repair. If you are unlucky that repair may come along with a vacancy and an unrentable unit. One of my good friends purchased his first rental house and in the third month drove past to find it abandoned and all of the windows broken out. He didn't have the money to immediately bring it back to rentable condition and so it sat boarded up for three months until he was able to scratch up enough cash to replace the broken windows.

  • Inconvenience: Being a landlord is different from other types of investments in that there is a very active component to it. Either you are paying someone to collect rent and do minor repairs which cuts into the profitability of your investment or you are doing it yourself which cuts into your free time.

It's a fairly common and successful investment strategy but don't oversimplify it. It's easy to get wrong and a lot of people have gone broke trying it.






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    up vote
    3
    down vote













    Actuall a LOT of people can do it and depending when you do it people made millions with it. Problem obviously is that you will not rent it out for 30 years most likely, so you need interim repairs, upgrades, downtime searching for renters.



    But yes, this is how many people make money and make their retirement. Once you hit 5+ appartments thigns get more smoothly.






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      up vote
      2
      down vote













      People do, in fact, do exactly this. The reason why "everyone" doesn't do it, is that (generally speaking, in the UK) you can only get a buy to let mortgage for 75% of the value of the property. So if the property you are buying costs £300,000, then you could only borrow £225,000 - and would home to come up with an additional £75,000 yourself. Most people simply don't have that much cash available.






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        up vote
        2
        down vote













        Here's a real life example: My tenant just gave their notice. We needed to redo the house completely after they moved out. Repainting, new carpets, various fixing up etc.



        Even doing a lot of the work ourselves it still cost nearly £3000. In addition we couldn't start advertising for new tenants until that work was done which took a couple of weeks so it's now been empty for a month. Which means no income for that month. And no I couldn't take most of that from the deposit (we kept a bit back) as most of it was just wear and tear. After a few years things need replacing.



        There's no guarantee as to when a new tenant will be found (we had one accepted offer but they never signed the paperwork and just ghosted the agency so we assume they went elsewhere) so it could potentially be sat there for any amount of time, but with me still paying the mortgage.



        So it's costing me X per month. I'm getting no income. And I just had to splash out thousands of pounds to get it ready in the hope of finding a new tenant.



        In addition to all that in order to get a decent mortgage I actually paid half the cost of the house myself. So I've invested thousands of pounds up front.



        The return on investment for all that is actually reasonable over time. You need to be able to take the rough with the smooth though - it's certainly neither "free money" nor risk free.






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          5 Answers
          5






          active

          oldest

          votes








          5 Answers
          5






          active

          oldest

          votes









          active

          oldest

          votes






          active

          oldest

          votes








          up vote
          24
          down vote













          It is certainly possible and people have done it before.



          However, I can think of a few risks/problems:



          • Market fluctuations: It might just happen that you buy when the market is up, and over time it goes down (both the price for buying and for renting). So you cannot cover your mortgage any more with the rent and have to chip in yourself, effectively overpaying for a property that is not worth much any more. If you are unable to cover the difference between mortgage and rent yourself, then the property might even get foreclosed and you are left with a loss.

          • People tend to underestimate renting- and property-related costs/risks. This can leave you with a non-viable operation (having to subsidize the operation with more than you can afford), be it because it is unsustainable in general or because you get into liquidity issues because of the unplanned costs. Examples of costs/risks:

            • Vacancies

            • Repairs

            • Tax payments

            • Non-payment/eviction of tenants

            • Legal issues and administration costs


          • You have to come up with a reasonable down-payment (depending on your own income situation, credit situation, etc.) yourself.

          • Building standards and styles change over time: The "free" flat you get after several decades might not be so desirable any more because the way it is built is sub-standard or out of fashion at that point.

          • Overpaying: The people who are actually successful at doing what you describe have experience and a sense for the market and the opportunities it represents. Not everyone has that.

          Doable? Certainly. But it's not free money. You will have to put in effort to learn (outsourcing everything is expensive), to manage things yourself and to solve critical problems in a creative way. The chances of success also highly depend on the state and development of the market we are talking about, on taxes and regulations in your country, on your personal skills and on the effort you are ready to put in.






          share|improve this answer










          New contributor




          Weirdo is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
          Check out our Code of Conduct.













          • 5




            A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
            – Martin Bonner
            3 hours ago










          • @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
            – Baldrickk
            2 hours ago










          • @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
            – chrylis
            1 hour ago










          • @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
            – Tim B
            1 hour ago






          • 4




            @TimB That's some impressively dishonest regulatory capture.
            – chrylis
            1 hour ago














          up vote
          24
          down vote













          It is certainly possible and people have done it before.



          However, I can think of a few risks/problems:



          • Market fluctuations: It might just happen that you buy when the market is up, and over time it goes down (both the price for buying and for renting). So you cannot cover your mortgage any more with the rent and have to chip in yourself, effectively overpaying for a property that is not worth much any more. If you are unable to cover the difference between mortgage and rent yourself, then the property might even get foreclosed and you are left with a loss.

          • People tend to underestimate renting- and property-related costs/risks. This can leave you with a non-viable operation (having to subsidize the operation with more than you can afford), be it because it is unsustainable in general or because you get into liquidity issues because of the unplanned costs. Examples of costs/risks:

            • Vacancies

            • Repairs

            • Tax payments

            • Non-payment/eviction of tenants

            • Legal issues and administration costs


          • You have to come up with a reasonable down-payment (depending on your own income situation, credit situation, etc.) yourself.

          • Building standards and styles change over time: The "free" flat you get after several decades might not be so desirable any more because the way it is built is sub-standard or out of fashion at that point.

          • Overpaying: The people who are actually successful at doing what you describe have experience and a sense for the market and the opportunities it represents. Not everyone has that.

          Doable? Certainly. But it's not free money. You will have to put in effort to learn (outsourcing everything is expensive), to manage things yourself and to solve critical problems in a creative way. The chances of success also highly depend on the state and development of the market we are talking about, on taxes and regulations in your country, on your personal skills and on the effort you are ready to put in.






          share|improve this answer










          New contributor




          Weirdo is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
          Check out our Code of Conduct.













          • 5




            A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
            – Martin Bonner
            3 hours ago










          • @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
            – Baldrickk
            2 hours ago










          • @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
            – chrylis
            1 hour ago










          • @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
            – Tim B
            1 hour ago






          • 4




            @TimB That's some impressively dishonest regulatory capture.
            – chrylis
            1 hour ago












          up vote
          24
          down vote










          up vote
          24
          down vote









          It is certainly possible and people have done it before.



          However, I can think of a few risks/problems:



          • Market fluctuations: It might just happen that you buy when the market is up, and over time it goes down (both the price for buying and for renting). So you cannot cover your mortgage any more with the rent and have to chip in yourself, effectively overpaying for a property that is not worth much any more. If you are unable to cover the difference between mortgage and rent yourself, then the property might even get foreclosed and you are left with a loss.

          • People tend to underestimate renting- and property-related costs/risks. This can leave you with a non-viable operation (having to subsidize the operation with more than you can afford), be it because it is unsustainable in general or because you get into liquidity issues because of the unplanned costs. Examples of costs/risks:

            • Vacancies

            • Repairs

            • Tax payments

            • Non-payment/eviction of tenants

            • Legal issues and administration costs


          • You have to come up with a reasonable down-payment (depending on your own income situation, credit situation, etc.) yourself.

          • Building standards and styles change over time: The "free" flat you get after several decades might not be so desirable any more because the way it is built is sub-standard or out of fashion at that point.

          • Overpaying: The people who are actually successful at doing what you describe have experience and a sense for the market and the opportunities it represents. Not everyone has that.

          Doable? Certainly. But it's not free money. You will have to put in effort to learn (outsourcing everything is expensive), to manage things yourself and to solve critical problems in a creative way. The chances of success also highly depend on the state and development of the market we are talking about, on taxes and regulations in your country, on your personal skills and on the effort you are ready to put in.






          share|improve this answer










          New contributor




          Weirdo is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
          Check out our Code of Conduct.









          It is certainly possible and people have done it before.



          However, I can think of a few risks/problems:



          • Market fluctuations: It might just happen that you buy when the market is up, and over time it goes down (both the price for buying and for renting). So you cannot cover your mortgage any more with the rent and have to chip in yourself, effectively overpaying for a property that is not worth much any more. If you are unable to cover the difference between mortgage and rent yourself, then the property might even get foreclosed and you are left with a loss.

          • People tend to underestimate renting- and property-related costs/risks. This can leave you with a non-viable operation (having to subsidize the operation with more than you can afford), be it because it is unsustainable in general or because you get into liquidity issues because of the unplanned costs. Examples of costs/risks:

            • Vacancies

            • Repairs

            • Tax payments

            • Non-payment/eviction of tenants

            • Legal issues and administration costs


          • You have to come up with a reasonable down-payment (depending on your own income situation, credit situation, etc.) yourself.

          • Building standards and styles change over time: The "free" flat you get after several decades might not be so desirable any more because the way it is built is sub-standard or out of fashion at that point.

          • Overpaying: The people who are actually successful at doing what you describe have experience and a sense for the market and the opportunities it represents. Not everyone has that.

          Doable? Certainly. But it's not free money. You will have to put in effort to learn (outsourcing everything is expensive), to manage things yourself and to solve critical problems in a creative way. The chances of success also highly depend on the state and development of the market we are talking about, on taxes and regulations in your country, on your personal skills and on the effort you are ready to put in.







          share|improve this answer










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          share|improve this answer








          edited 2 hours ago





















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          answered 8 hours ago









          Weirdo

          50218




          50218




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          New contributor





          Weirdo is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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          Weirdo is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
          Check out our Code of Conduct.







          • 5




            A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
            – Martin Bonner
            3 hours ago










          • @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
            – Baldrickk
            2 hours ago










          • @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
            – chrylis
            1 hour ago










          • @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
            – Tim B
            1 hour ago






          • 4




            @TimB That's some impressively dishonest regulatory capture.
            – chrylis
            1 hour ago












          • 5




            A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
            – Martin Bonner
            3 hours ago










          • @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
            – Baldrickk
            2 hours ago










          • @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
            – chrylis
            1 hour ago










          • @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
            – Tim B
            1 hour ago






          • 4




            @TimB That's some impressively dishonest regulatory capture.
            – chrylis
            1 hour ago







          5




          5




          A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
          – Martin Bonner
          3 hours ago




          A specific example of "taxes and regulations" is that until recently in the UK one could count the interest one paid on a mortgage as an allowable expense for tax purposes. That has changed, and individuals can no longer do that (though companies can). This also highlights another risk: the rules of the game can change.
          – Martin Bonner
          3 hours ago












          @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
          – Baldrickk
          2 hours ago




          @MartinBonner so if you are going to do it, set up your own company for management of your property(ies)?
          – Baldrickk
          2 hours ago












          @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
          – chrylis
          1 hour ago




          @MartinBonner Is that a rule that applies to individuals vs. companies or residences vs. investment properties? In the United States, interest paid on rental property that I own individually is deductible as a business expense for that property, just like management fees.
          – chrylis
          1 hour ago












          @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
          – Tim B
          1 hour ago




          @chrylis If you as an individual own a property you used to be able to offset mortgage interest (but not capital repayment) payments against the income and only pay tax on the profit. They changed that rule a few years ago but only hitting small landlords. The government's buddies with vast portfolios of rental properties owned through companies weren't touched but the rest of us are now paying tax on "income" that only goes to cover the mortgage interest.
          – Tim B
          1 hour ago




          4




          4




          @TimB That's some impressively dishonest regulatory capture.
          – chrylis
          1 hour ago




          @TimB That's some impressively dishonest regulatory capture.
          – chrylis
          1 hour ago












          up vote
          6
          down vote













          I love this question on a few different levels. This is exactly how the majority of rental properties become available in many markets. If your landlord is a person rather than a property management company the chances are quite high that your rent pays their mortgage.



          Why isn't everyone doing this?



          • There is a high cost of entry: rules around home loans are often much more favorable when purchasing your primary residence than rental properties. In Canada you can get a mortgage for 5% down on your primary residence but need to put 20% down for rental properties.

          • Vacancy is a major long run risk: how long can you float your property without a tenant. In the 5-20 year time frame the fortunes of a community can change drastically. If there is a glut of new flats built or if a major local industry dries up you may have a hard time finding renters leaving you to pay the bills out of pocket.

          • Major repairs: You need to have enough of an emergency fund available to handle a major unexpected repair. If you are unlucky that repair may come along with a vacancy and an unrentable unit. One of my good friends purchased his first rental house and in the third month drove past to find it abandoned and all of the windows broken out. He didn't have the money to immediately bring it back to rentable condition and so it sat boarded up for three months until he was able to scratch up enough cash to replace the broken windows.

          • Inconvenience: Being a landlord is different from other types of investments in that there is a very active component to it. Either you are paying someone to collect rent and do minor repairs which cuts into the profitability of your investment or you are doing it yourself which cuts into your free time.

          It's a fairly common and successful investment strategy but don't oversimplify it. It's easy to get wrong and a lot of people have gone broke trying it.






          share|improve this answer
























            up vote
            6
            down vote













            I love this question on a few different levels. This is exactly how the majority of rental properties become available in many markets. If your landlord is a person rather than a property management company the chances are quite high that your rent pays their mortgage.



            Why isn't everyone doing this?



            • There is a high cost of entry: rules around home loans are often much more favorable when purchasing your primary residence than rental properties. In Canada you can get a mortgage for 5% down on your primary residence but need to put 20% down for rental properties.

            • Vacancy is a major long run risk: how long can you float your property without a tenant. In the 5-20 year time frame the fortunes of a community can change drastically. If there is a glut of new flats built or if a major local industry dries up you may have a hard time finding renters leaving you to pay the bills out of pocket.

            • Major repairs: You need to have enough of an emergency fund available to handle a major unexpected repair. If you are unlucky that repair may come along with a vacancy and an unrentable unit. One of my good friends purchased his first rental house and in the third month drove past to find it abandoned and all of the windows broken out. He didn't have the money to immediately bring it back to rentable condition and so it sat boarded up for three months until he was able to scratch up enough cash to replace the broken windows.

            • Inconvenience: Being a landlord is different from other types of investments in that there is a very active component to it. Either you are paying someone to collect rent and do minor repairs which cuts into the profitability of your investment or you are doing it yourself which cuts into your free time.

            It's a fairly common and successful investment strategy but don't oversimplify it. It's easy to get wrong and a lot of people have gone broke trying it.






            share|improve this answer






















              up vote
              6
              down vote










              up vote
              6
              down vote









              I love this question on a few different levels. This is exactly how the majority of rental properties become available in many markets. If your landlord is a person rather than a property management company the chances are quite high that your rent pays their mortgage.



              Why isn't everyone doing this?



              • There is a high cost of entry: rules around home loans are often much more favorable when purchasing your primary residence than rental properties. In Canada you can get a mortgage for 5% down on your primary residence but need to put 20% down for rental properties.

              • Vacancy is a major long run risk: how long can you float your property without a tenant. In the 5-20 year time frame the fortunes of a community can change drastically. If there is a glut of new flats built or if a major local industry dries up you may have a hard time finding renters leaving you to pay the bills out of pocket.

              • Major repairs: You need to have enough of an emergency fund available to handle a major unexpected repair. If you are unlucky that repair may come along with a vacancy and an unrentable unit. One of my good friends purchased his first rental house and in the third month drove past to find it abandoned and all of the windows broken out. He didn't have the money to immediately bring it back to rentable condition and so it sat boarded up for three months until he was able to scratch up enough cash to replace the broken windows.

              • Inconvenience: Being a landlord is different from other types of investments in that there is a very active component to it. Either you are paying someone to collect rent and do minor repairs which cuts into the profitability of your investment or you are doing it yourself which cuts into your free time.

              It's a fairly common and successful investment strategy but don't oversimplify it. It's easy to get wrong and a lot of people have gone broke trying it.






              share|improve this answer












              I love this question on a few different levels. This is exactly how the majority of rental properties become available in many markets. If your landlord is a person rather than a property management company the chances are quite high that your rent pays their mortgage.



              Why isn't everyone doing this?



              • There is a high cost of entry: rules around home loans are often much more favorable when purchasing your primary residence than rental properties. In Canada you can get a mortgage for 5% down on your primary residence but need to put 20% down for rental properties.

              • Vacancy is a major long run risk: how long can you float your property without a tenant. In the 5-20 year time frame the fortunes of a community can change drastically. If there is a glut of new flats built or if a major local industry dries up you may have a hard time finding renters leaving you to pay the bills out of pocket.

              • Major repairs: You need to have enough of an emergency fund available to handle a major unexpected repair. If you are unlucky that repair may come along with a vacancy and an unrentable unit. One of my good friends purchased his first rental house and in the third month drove past to find it abandoned and all of the windows broken out. He didn't have the money to immediately bring it back to rentable condition and so it sat boarded up for three months until he was able to scratch up enough cash to replace the broken windows.

              • Inconvenience: Being a landlord is different from other types of investments in that there is a very active component to it. Either you are paying someone to collect rent and do minor repairs which cuts into the profitability of your investment or you are doing it yourself which cuts into your free time.

              It's a fairly common and successful investment strategy but don't oversimplify it. It's easy to get wrong and a lot of people have gone broke trying it.







              share|improve this answer












              share|improve this answer



              share|improve this answer










              answered 2 hours ago









              Myles

              572211




              572211




















                  up vote
                  3
                  down vote













                  Actuall a LOT of people can do it and depending when you do it people made millions with it. Problem obviously is that you will not rent it out for 30 years most likely, so you need interim repairs, upgrades, downtime searching for renters.



                  But yes, this is how many people make money and make their retirement. Once you hit 5+ appartments thigns get more smoothly.






                  share|improve this answer
























                    up vote
                    3
                    down vote













                    Actuall a LOT of people can do it and depending when you do it people made millions with it. Problem obviously is that you will not rent it out for 30 years most likely, so you need interim repairs, upgrades, downtime searching for renters.



                    But yes, this is how many people make money and make their retirement. Once you hit 5+ appartments thigns get more smoothly.






                    share|improve this answer






















                      up vote
                      3
                      down vote










                      up vote
                      3
                      down vote









                      Actuall a LOT of people can do it and depending when you do it people made millions with it. Problem obviously is that you will not rent it out for 30 years most likely, so you need interim repairs, upgrades, downtime searching for renters.



                      But yes, this is how many people make money and make their retirement. Once you hit 5+ appartments thigns get more smoothly.






                      share|improve this answer












                      Actuall a LOT of people can do it and depending when you do it people made millions with it. Problem obviously is that you will not rent it out for 30 years most likely, so you need interim repairs, upgrades, downtime searching for renters.



                      But yes, this is how many people make money and make their retirement. Once you hit 5+ appartments thigns get more smoothly.







                      share|improve this answer












                      share|improve this answer



                      share|improve this answer










                      answered 10 hours ago









                      TomTom

                      1,6771013




                      1,6771013




















                          up vote
                          2
                          down vote













                          People do, in fact, do exactly this. The reason why "everyone" doesn't do it, is that (generally speaking, in the UK) you can only get a buy to let mortgage for 75% of the value of the property. So if the property you are buying costs £300,000, then you could only borrow £225,000 - and would home to come up with an additional £75,000 yourself. Most people simply don't have that much cash available.






                          share|improve this answer
























                            up vote
                            2
                            down vote













                            People do, in fact, do exactly this. The reason why "everyone" doesn't do it, is that (generally speaking, in the UK) you can only get a buy to let mortgage for 75% of the value of the property. So if the property you are buying costs £300,000, then you could only borrow £225,000 - and would home to come up with an additional £75,000 yourself. Most people simply don't have that much cash available.






                            share|improve this answer






















                              up vote
                              2
                              down vote










                              up vote
                              2
                              down vote









                              People do, in fact, do exactly this. The reason why "everyone" doesn't do it, is that (generally speaking, in the UK) you can only get a buy to let mortgage for 75% of the value of the property. So if the property you are buying costs £300,000, then you could only borrow £225,000 - and would home to come up with an additional £75,000 yourself. Most people simply don't have that much cash available.






                              share|improve this answer












                              People do, in fact, do exactly this. The reason why "everyone" doesn't do it, is that (generally speaking, in the UK) you can only get a buy to let mortgage for 75% of the value of the property. So if the property you are buying costs £300,000, then you could only borrow £225,000 - and would home to come up with an additional £75,000 yourself. Most people simply don't have that much cash available.







                              share|improve this answer












                              share|improve this answer



                              share|improve this answer










                              answered 2 hours ago









                              Benubird

                              415147




                              415147




















                                  up vote
                                  2
                                  down vote













                                  Here's a real life example: My tenant just gave their notice. We needed to redo the house completely after they moved out. Repainting, new carpets, various fixing up etc.



                                  Even doing a lot of the work ourselves it still cost nearly £3000. In addition we couldn't start advertising for new tenants until that work was done which took a couple of weeks so it's now been empty for a month. Which means no income for that month. And no I couldn't take most of that from the deposit (we kept a bit back) as most of it was just wear and tear. After a few years things need replacing.



                                  There's no guarantee as to when a new tenant will be found (we had one accepted offer but they never signed the paperwork and just ghosted the agency so we assume they went elsewhere) so it could potentially be sat there for any amount of time, but with me still paying the mortgage.



                                  So it's costing me X per month. I'm getting no income. And I just had to splash out thousands of pounds to get it ready in the hope of finding a new tenant.



                                  In addition to all that in order to get a decent mortgage I actually paid half the cost of the house myself. So I've invested thousands of pounds up front.



                                  The return on investment for all that is actually reasonable over time. You need to be able to take the rough with the smooth though - it's certainly neither "free money" nor risk free.






                                  share|improve this answer
























                                    up vote
                                    2
                                    down vote













                                    Here's a real life example: My tenant just gave their notice. We needed to redo the house completely after they moved out. Repainting, new carpets, various fixing up etc.



                                    Even doing a lot of the work ourselves it still cost nearly £3000. In addition we couldn't start advertising for new tenants until that work was done which took a couple of weeks so it's now been empty for a month. Which means no income for that month. And no I couldn't take most of that from the deposit (we kept a bit back) as most of it was just wear and tear. After a few years things need replacing.



                                    There's no guarantee as to when a new tenant will be found (we had one accepted offer but they never signed the paperwork and just ghosted the agency so we assume they went elsewhere) so it could potentially be sat there for any amount of time, but with me still paying the mortgage.



                                    So it's costing me X per month. I'm getting no income. And I just had to splash out thousands of pounds to get it ready in the hope of finding a new tenant.



                                    In addition to all that in order to get a decent mortgage I actually paid half the cost of the house myself. So I've invested thousands of pounds up front.



                                    The return on investment for all that is actually reasonable over time. You need to be able to take the rough with the smooth though - it's certainly neither "free money" nor risk free.






                                    share|improve this answer






















                                      up vote
                                      2
                                      down vote










                                      up vote
                                      2
                                      down vote









                                      Here's a real life example: My tenant just gave their notice. We needed to redo the house completely after they moved out. Repainting, new carpets, various fixing up etc.



                                      Even doing a lot of the work ourselves it still cost nearly £3000. In addition we couldn't start advertising for new tenants until that work was done which took a couple of weeks so it's now been empty for a month. Which means no income for that month. And no I couldn't take most of that from the deposit (we kept a bit back) as most of it was just wear and tear. After a few years things need replacing.



                                      There's no guarantee as to when a new tenant will be found (we had one accepted offer but they never signed the paperwork and just ghosted the agency so we assume they went elsewhere) so it could potentially be sat there for any amount of time, but with me still paying the mortgage.



                                      So it's costing me X per month. I'm getting no income. And I just had to splash out thousands of pounds to get it ready in the hope of finding a new tenant.



                                      In addition to all that in order to get a decent mortgage I actually paid half the cost of the house myself. So I've invested thousands of pounds up front.



                                      The return on investment for all that is actually reasonable over time. You need to be able to take the rough with the smooth though - it's certainly neither "free money" nor risk free.






                                      share|improve this answer












                                      Here's a real life example: My tenant just gave their notice. We needed to redo the house completely after they moved out. Repainting, new carpets, various fixing up etc.



                                      Even doing a lot of the work ourselves it still cost nearly £3000. In addition we couldn't start advertising for new tenants until that work was done which took a couple of weeks so it's now been empty for a month. Which means no income for that month. And no I couldn't take most of that from the deposit (we kept a bit back) as most of it was just wear and tear. After a few years things need replacing.



                                      There's no guarantee as to when a new tenant will be found (we had one accepted offer but they never signed the paperwork and just ghosted the agency so we assume they went elsewhere) so it could potentially be sat there for any amount of time, but with me still paying the mortgage.



                                      So it's costing me X per month. I'm getting no income. And I just had to splash out thousands of pounds to get it ready in the hope of finding a new tenant.



                                      In addition to all that in order to get a decent mortgage I actually paid half the cost of the house myself. So I've invested thousands of pounds up front.



                                      The return on investment for all that is actually reasonable over time. You need to be able to take the rough with the smooth though - it's certainly neither "free money" nor risk free.







                                      share|improve this answer












                                      share|improve this answer



                                      share|improve this answer










                                      answered 1 hour ago









                                      Tim B

                                      1635




                                      1635




















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