Retirement: Buying to Let

In my last post here I mentioned that Rockall had had a bumper year. Rather than squander all this unexpected cash on fancy holidays (that's "awesome vacations" in American) I wanted to do something sensible with it before the good times ended.

What better than buying an "investment property"? This week we had an offer accepted on a Buy-to-Let property and it's now in the hands of the conveyancors to make it ours.

The aim of doing this is long-term. Being self employed and 37, my retirement isn't something I can take lightly. I have a private pension plan that I've paid in to for years (~15) but it's worth depressingly little at this time. I can't rely on it alone.

I remember my pension advisor telling me that, realistically, for a comfortable retirement you need to have a lump sum of about GBP 500,000 by the time you retire. I was in my early twenties at the time and this seemed an astronomical figure. It's only now that I'm (slightly) more mature that I realise it's not as crazy as it first sounded and it's now my aim, somehow, to have that much "cash" by the time I'm in my early sixties. There seems no better way to achieve this than buying houses.

My retirement will happen (all being well) in about 25 years, which happens to be how long a mortgage lasts. So, any houses I buy now will be paid for by the time I retire. Paid for by my tenants! I then get the choice whether to sell them in 25 years or keep them and live off the rental income.

It seems a no-brainer to me. Effectively, somebody else is paying in to my pension pot for me. What could go wrong? (that's semi-rhetorical).

I'm interested to see if any of you guys are landlords with similar plans? I bought a couple of "Landlord's handbook" books but never got round to reading them, deciding instead to take the plunge and learn as I go (same approach I take to programming).

Any advice gratefully received. Easy on the tenant horror stories though please!


  1. Good idea, bricks & mortars are usually better than stocks. It's what we've done, but I decided to spread the risk by buying in another country. This way if things go South in one country you still have a surviving chance.

    Having a house that you rent out if great, since it means a steady income from rent, but don't forget that there also cost associated to it, since you'll need to spend money of house repairs not covered by the rentees. But worth it...

      • avatar
      • Jake Howlett
      • Thu 15 Nov 2012 07:49 AM

      A different country? You're brave. Kept mine local. It's within walking distance (and there's a large DIY store on the way) so I can easily fix anything that goes wrong.

    • avatar
    • Brian Miller
    • Thu 15 Nov 2012 09:37 AM

    My advice:

    Hire a laywer for an hour - one who specializes in housing issues. Ask him to spend that time to go over all the things that can go really, really wrong for you as a landlord, and how to prevent them. It's an investment in knowledge that can literally save your retirement.

  2. Take at least 7 percent of the rent money and put it aside for maintenance. Take another 10 percent for those times the house is not rented so you can pay the mortgage.

    Hopefully, any money you put into maintenance and costs associated with the mortgage is tax deductible as a business expense where you live.

    Remember there is normal wear and tear that you will be responsible for fixing. And of course there is the time you spend as a landlord on top of your day job. Hope you don't get a tenant that decides not to pay rent. Here in California, it can take 3 to 6 months to remove a non-paying tenant.

    It's like mass production, a small amount from a large number of rental properties adds up to a decent wage. It will still take a lot of your personal time, but should be worth it in the long run.

    • avatar
    • Keith
    • Thu 15 Nov 2012 11:06 AM

    We own a rental home and hired a property manager to run it. I would rather not pay the fees, but since I really don't want to get calls about a leaky roof at 3 in the morning, it seemed the best option.

    Good luck!

      • avatar
      • Jake Howlett
      • Thu 15 Nov 2012 03:17 PM

      We're in two minds at the moment about whether to go it alone or use an agency. Not heard particularly good things about letting agents (here in the UK at least). Consensus seems to be that all they do is call you when things go wrong and expect you to deal with it.

      I might try it alone at first and move to an agency if I can't deal with it.

    • avatar
    • Philip King
    • Thu 15 Nov 2012 11:38 AM

    You still got Iain's details? He's done this, (some time ago now), drop him a mail.

  3. Best of luck, Jake. I think it's the right move and second the advise to hire a lawyer to clue you in to the pitfalls and preps you should take. Otherwise, enjoy your raised stature in the community, you're now a baron. ;-)

      • avatar
      • Jake Howlett
      • Thu 15 Nov 2012 03:12 PM

      Baron von Howlett? I like. Sounds better than being a "landlord" and all the negativity that comes with that label.

    • avatar
    • DG
    • Thu 15 Nov 2012 02:11 PM

    Hi Jake, good to hear you're doing this - I've often thought about doing the same...

    Are you doing it within a SIPP or just normally? Properties are soooo expensive down here near London, I think I could only get the deposit for a flat as part of my pension pot... and in a few years time....

    Also I assume you think it will be rented out easily? That would be my main concern - having effectively two mortgages - it would be interesting to hear what you think the market is like, and if it gets let quickly (fingers crossed!).

      • avatar
      • Jake Howlett
      • Thu 15 Nov 2012 03:11 PM

      Just doing a normal BTL. No SIPP.

      Have you considered buying outside London. What's stopping you buy a house on the same road I did (in Nottingham). If you use an agency it could be anywhere, no?

      Up here you can get houses for the price of a London broom cupboard.

      Yes, I'm hoping it will rent easily. Certainly seems to be case based on what I've heard and seen recently.

    • avatar
    • ursus
    • Fri 16 Nov 2012 04:00 AM

    One of the problems here in Austria is that any money received from rental is added to your income e.g. Mortgage for a unit is 800 €, rent is 800 € -> the government adds the 800 to your wage (effectively taking about 50% of the income) which leaves me a gap of 400 € that I need to pay out of my pocket. It still is good in the long run (as for every 400 € I pay I get 100 % added to it for the rent) but with maintaince etc. not such a clear cut deal...

    1. That is certainly true here in the USA. If you think about it, it is also fair.

      The part of the 800 € you pay on the mortgage, the principal, is capitol (an asset) that didn't just disappear. When you sell the property you'll get it back, minus the mortgage interested and expenses, plus the rent and any appreciation of the property's value.

      What you're talking about is negative cash flow. That's okay as long as you have other income to offset it. Then, if you invested wisely, you'll make a profit when you sell, and you will have used Other People's Money (OPM) to make a bigger profit than if you had paid cash for the property and had no mortgage at all.

    • avatar
    • Michael
    • Fri 16 Nov 2012 05:20 AM

    Some good advice given, I would confirm the importance of putting aside a fund for maintenance and risk, especially in the 1st few years, (7% and 10%) over 20 years important, crucial to your retirement.

    Experience with 2 rental properties: not convinced that the renter pays all. In France, (50% population still rent), the Barons work on renter covering management, taxes, maintenance/repairs, risk, property upkeep and the owner only pays the capital over the term.

    Those I know in the UK have indicated that property investment is a 0 to 5% return, but then he was selling me something else ;_).

    So, if you put the equivalent in the bank as savings, get a 4% risk free return, that is what you can look for in property, based on buy price. The reward comes from the resell value in 20 years, assuming at that time you are not in a position to have to sell, so have another "thing" to ensure you are not caught needing to sell and can wait a few years extra.

  4. I would find that kind of investment dangerous. You would be putting all your eggs in one single basket. I would diversify across a range of assets. Take different pension plans with different companies. Try offers from life insurers as well (in case you die prematurely, does your family have enough to live on comfortably).

    Also, you effectively have a second job as landlord and are responsible for repairs and maintenance, which can also be risky. I know you are a dab hand at DIY but a botched job here or there can be a huge financial burden (I'm thinking plumbing, fire through bad electrical installation, etc). You will need to be able to respond immediately to problems, which is probably what you need to do for Rockall too. Imagine your tenant calling about a broken pipe and your largest client calling about a broken website which needs immediate repairs - on the same day. Where do your priorities lie?

    You will also need to calculate the cost of refurbishing the house back to a level where people would want to buy it. Think about it. In Switzerland this would mean a shiny brand new kitchen, new baths, everything painted afresh.

    The one possible argument for a house is that it essentially forces you to save, but since you don't seem to have self-discipline issues, I would vote against it.

    Sorry for being a party pooper.

  5. Get a landlord contract with British Gas or similar, then the tenants will call them at 3am with an issue and you can sleep easy. And I bet that BG contract will get more done than a contract with a letting agency who don't necessarily use the best maintenance guys at 3am...

      • avatar
      • Jake Howlett
      • Tue 20 Nov 2012 05:26 AM

      Thanks Caroline! I knew I needed a gas safety certificate (CP12) and it looks like British Gas do that for free if you take their monthly repair insurance out. Bookmarked!

    • avatar
    • Lee
    • Tue 20 Nov 2012 07:05 AM

    I've had a rental property for the last 5 years or so.

    My advice would be to do everything yourself, from organising putting the deposit into a deposit protection scheme, the property inventory, the contract, the management etc.

    The only thing I use agencies for is actually finding the tenants. They have the benefit of being able to advertise on Rightmove and they have the time to show people round. However I avoid them for everything else. Obviously you could find someone yourself too but I personally don't enjoy showing people around houses so I leave that part to the agent.

    They will try and talk you into some kind of management scheme for 10-15% of the rental fee but in reality they'll charge you through the nose for something which you can quite easily do yourself.

    The truth of the matter is, if the property is in a decent state then the management fee is a huge rip off because there is no actual management taking place 90% of the time. And even if they do take calls from your tenants now and again, they can't make any decisions without speaking to you anyway so they just become a middle man and charge you a fee for the privilege.

    Familiarise yourself with the following:


    There's loads of information on there ranging from general landlord advice (specific to the UK) to full document templates which you can use (AST, Inventory, Reference forms etc). For example an agent will try and charge you a small fortune to organise the contract (the first time I rented my place out I was charged £200 just for by the agent just for the contract), when you can get an equivalent from the RLA for free if you're a member or £9.95 if not.

    Get to know your tenants a little too. If they think you're a nice friendly bloke then they're more likely to look after the place in my experience.

    I'm sure you'll be fine.



      • avatar
      • Jake Howlett
      • Tue 20 Nov 2012 07:12 AM

      Hi Lee,

      Thanks for the advice. Much appreciated. I wasn't aware of the RLA. Will look to join that and get any documents from there.

      At the moment I'm leaning towards your suggestion of using the professionals to let the place initially and then manage it myself.


    • avatar
    • Anura
    • Thu 29 Nov 2012 04:52 AM

    Have you checked your sums?

    Here in Australia, this is quite popular. If your expenses (fees, maintenance, depreciation etc) is more than the income (rent), then the net loss is deducted from your other income and reduces the tax you have to pay. However, you actually have to be able to afford the net cash outflow. People then rely on the capital gain over many years to more than offset the cash flow for all of those years. Also, we have to pay capital gains tax on the increase in value of any property apart from the family home.

    As I say, lots of sums. Frankly, I prefer quality shares as I don't have to get my hands dirty, pay fees to anyone etc.

    But good to be planning this far ahead. Whatever you choose to do, so long as you keep it for the long term you will be able to ride out the ups and downs in the market.

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