Hello! Earlier this year, I bought a one-bedroom flat at auction for £83,000 (including fees) thinking it was a good investment. I got a BTL mortgage and have tenants, but I’m only making about 2.04% ROI (average is 5-10%). Rent is £725/month, mortgage is £450/month, and the service charge is around £1,500/year. The property pays for itself and helps with some bills, but I’m worried about emergencies. I’m thinking of raising the rent to £790 (area average) but don’t want to be that landlord. Any advice?
First off, why are you paying personal bills with the profits? You need a maintenance fund and attention to bookkeeping. How did you set the rent? Are your renters quality? Is the location good? Do you have a 2nd property fund started?
@Fifer
I’m trying to save for a second property and avoid using it for personal bills. The tenants were already in place when we bought it and the agents set the rent. The location is nice, near a train station to London, but not ‘desired’.
Raising rent to market rate isn’t being ‘that landlord’ - it’s business. £790 is reasonable if it’s the going rate. The property cash flows and builds equity not factored into ROI. Keep it as a long-term hold unless you have a better investment. Emergency fund is crucial - start building one now while you have good tenants.
@Rory
I’m worried if I raise the price they’ll leave and I’ll have to cover the mortgage until new tenants come in.
Addison said:
@Rory
I’m worried if I raise the price they’ll leave and I’ll have to cover the mortgage until new tenants come in.
That’s always a risk, but having an emergency fund can help cover those gaps.
@Winter
Good point. I should start one ASAP.
Start by calculating ROI by the down payment, not the purchase price. You might be making more than 5% (down payment 20-30k, so possibly more than 10%). Keep track of your numbers.
Why not gradually raise the rent? Small increases can be easier for tenants to handle.
Olen said:
Why not gradually raise the rent? Small increases can be easier for tenants to handle.
I hadn’t thought of that. Could be a good compromise.
Do you have a long-term strategy for the property? Think about where you see it in 5-10 years.
Xian said:
Do you have a long-term strategy for the property? Think about where you see it in 5-10 years.
I’m still figuring that out. Any suggestions?
Xian said:
Do you have a long-term strategy for the property? Think about where you see it in 5-10 years.
I’m still figuring that out. Any suggestions?
Consider if you want to continue renting or eventually sell. Market conditions can change, so having flexibility is good.