7 Buy To Let Disadvantages You Should Know About
Anyone that knows me knows that I’m a BIG fan of property investing. I’ll talk your ear off about all the advantages of buy-to-let, and why there’s never been a better time to invest in property.
But every investment has its drawbacks and buy-to-let is no different. In fact, BTL has some unique disadvantages, and some investors are best avoiding it.
I never like to talk-down my favourite investment, but let’s keep it real and discuss all the disadvantages of buy-to-let.
1. Illiquid Investment
Property is illiquid an asset as you can get. It can take months (even years!) from the point that you call an estate agent to when you have the sale proceeds in your account.
Even communication between all the parties involved in a sale – buyer, seller, estate agent, valuer, bank, solicitor – can take weeks.
The quickest sale you could hope for would be six weeks – and that’s if everything is plain sailing.
You could find yourself in trouble if you ever need to sell a property fast, which is why you should only invest in property for the long-term.
2. High Starting Costs
Buy-to-let requires you to save a fair amount to get started. Even properties at the low-end of the market still require £20k.
Purchase Costs Example:
Purchase Price: £60,000
- Deposit = 25% of £60k = £15,000
- Stamp Duty (LBTT in Scotland) 4% of £60k = £2,400
- Solicitor = £800
- Mortgage Broker = £300
- Valuation Fee = £300
- Light Refurb = £1,000
Total Initial Investment = £19,800
When you compare the initial investment to the share market, where you can get started for as little as £1, it can put some investors off property.
3. Ongoing Time Investment
Let me level with you; property investing is far from passive.
Now, as a landlord that also does his own refurbs and maintenance, I am more hands-on than the average property investor – managing my portfolio is more like running a small business than investing.
But even if you’re an “armchair investor”, you’re still going to be involved in the ongoing decisions regarding maintenance and finance as well as some admin work.
Proper systems and outsourcing the day-to-day management will cut down the time required, but not completely.
BUT… no investment is truly passive.
Passive income is actually a myth.
Even if you hold only gilts, which is as passive an investment as you can get, you’ll still review the performance of your portfolio and have to reallocate funds from time to time.
4. Void Periods
You’ll inevitably have times when your property is lying empty. Even your most stable tenants will one day move on.
And of course, when you don’t have a tenant, you don’t have an income. But that doesn’t mean your mortgage and insurance costs stop. And you’ll also have to cover the council tax and utilities during voids.
If you keep on top of maintenance, the best-case scenario would be a couple of weeks of voids every few years to allow for redecorating.
If you own property in a low rental demand area, the worst case is a lot scarier.
5. Bad Tenants
So far, I’ve only had two bad tenants – he says as he frantically touches every piece of wood in sight.
The first was a student who I was sure was subletting the property to other students. When I asked about why one of the bedrooms was filled with bunk beds, he said he had family coming over to visit. Fair enough, I’ll give anyone the benefit of the doubt.
But the neighbour’s reports, an endless stream of white lies, and that six sense you get when someone’s lying to you gave rise to my suspicions.
I never did find out if the place was being sublet. The only way of “busting” the tenant would be to wait outside the house, which is a massive waste of time, creepy, and illegal.
The second bad tenant I’ve had was a friend that stopped paying rent so that he and his girlfriend could get a “free” council house. It was six months before the tenancy tribunal granted an eviction and repayment order (which I’ve never seen a penny of), and I finally got the keys back.
I now look back on these events and laugh, but at the time they were a major pain in the arse.
And I’m lucky compared to the horror stories I’ve heard from other landlords: houses being turned into cannabis farms, tenants removing the kitchen and leaving behind a dump truck’s worth of garbage.
Rogue tenants are out there, but fortunately, they are few and far between, and the majority of renters are good folks looking for a decent home.
6. Increased Legislation
The amount of hoops property investors have to jump through is ridiculous.
While I think most of the legislation landlords must comply with is a good thing as it weeds out shady landlords, there’s seems to be an endless amount of tick boxes.
Even if you use a letting agent, you must be aware of all the legislation as the overall responsibility rests with the owner.
The latest requirement for all rental properties to achieve at least an E on the EPC (Energy Performance Certificate), is yet another to add to the list.
7. Increased Tax
Landlords are greedy, money-grabbing scrounges that rob our society of one of their most basic human needs.
I’m sure that’s the general consensus in parliament as landlords seem to be punished with constant tax reforms.
First, we had the removal of the wear and tear allowance, then came the addition of stamp duty, and most recently we’ve seen the removal of mortgage interest as a deductible expense.
There’s no denying that buy-to-let isn’t as profitable as it used to be. And I wouldn’t rule out future tax changes that will squeeze profit margins further.
Wrapping It Up
Buy-to-let isn’t for everyone. It may not suit your risk tolerance, time available, or free capital.
But that doesn’t mean you should rule out holding property in your portfolio. Investing in listed property funds will provide many of the benefits of property investing while limiting the downsides.
But if BTL still appeals, at least you now know the cons, and you can go into the investment with your eyes wide open.
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Hi! I'm Jamie
I’m a 30-something money blogger that writes about saving, frugal living, investing and entrepreneurship.
I achieved financial independence at 30 through hard work, saving and learning to invest.
On this blog, I share everything I've learned about money to help you build a life you love, free from money worries.
If you'd like to achieve financial freedom, escape the 9 til 5 and spend your days however you want, then I know you'd love the newsletter.
I’m usually banging on about how to manage your money better. Save hard and invest wisely is my mantra. But today, I’m playing devil’s advocate.
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