Confessions Of A (Former) Accidental Landlord

As I may have mentioned in the past, when I started the business I knew money was going to be a bit tight for a while.

So I took the decision to move out of my flat, move in with my partner and rent out my place to give myself a little more breathing space financially. And also, you know, to move in together. That too.

Well, it has been a high octane week in the Henry household - for I have been putting together my tax return, and that exercise necessitates reconciling the numbers from my year as a landlord.

So, here they are. Depending on the state of our relationship, I share these so that you may either commiserate with me or enjoy a bout of schadenfreude at my expense.

Gross Rent: £36,000

Management Fees: £5,064

Repairs/Maintenance: £2,882

Insurance: £834

Mortgage Interest: £27,823

Yep, the whole exercise actually cost me money.

Now there are a couple of things to say here. First off, I could have managed the property myself and saved the £5k. But a) I am practically useless and b) I had a few other things going on. Didn’t really want to be worrying about fixing leaky taps.

The other thing to say is that it may not have been the smartest idea in the world to refinance onto a floating rate mortgage in April 2023.

Source: The Bank of England & The Money Den

Now, I do benefit from a 20% tax credit on the mortgage interest paid. That helps.

But tax is charged on net income after expenses (excluding mortgage interest) have been deducted, so income tax is due on a sum of £27,220. As a higher rate taxpayer, the tax position is net negative as well.

And it gets even worse, because what I haven’t included in the above are the fees I incurred for storing all of my furniture in a storage locker for the year. This added a further £2,286 in cost. I chose not to include this, as many buy to let landlords won’t have to do this.

My experience can’t be an isolated incident. The flat is a decent property, in a nice area of London offering a 5% yield on the surface. But dig under the surface, and the picture becomes somewhat uglier.

For the vast, vast majority of individuals in the UK becoming a landlord is just a total waste of time and money.

The government don’t want you to do it, the regulatory and tax regime stink - and the equity market offers a magical alternative. (Historically) superior returns, with little to no effort required.

In the early days of the blog I wrote a fairly balanced (I thought) summary of the upsides and downsides of property investment here.

For a brutally forensic (and altogether better) assessment of the merits of property investing - check out Tom Redmayne’s excellent post.

Despite this car crash of a financial outcome, I promise I am not moaning.

Even knowing what I know now, I would still do what I did because it allowed me to keep hold of the asset, and get through the first eighteen months of setting up the business without worrying about how to pay the mortgage.

Sometimes, it isn’t really about the money.