Buying to let -- any advice please?

bundly · 29 November 2009 at 1:46PM

I've currently got £60k in the BS that isn't making much interest. I own the place I live in. I don't draw or need the interest on the investment. So I have decided to buy a property to let. There are still one bed flats near me for £60k-£100k. Things I am pondering are:

Should I get a place within my budget (studio, or v small one-bed) or borrow £10k-£20k and get a much more desirable (e.g. sea-front) or even a two-bed?

If I do borrow to buy a more expensive property I would be happy to repay the loan realy fast, putting all the incoming rent of £400/month to the repayments until it is paid off. Would it be better to

(a) borrow a mortgage against the property I am buying
(b) borrow a mortgage against the property I own and live in
(c) get a bank loan over 2 years?

I don't have anyone in my life that can give me good impartial advice on these matters, so if anyone has any thoughts on my plans I would be so glad to hear them!

Bundly

bundly · 29 November 2009 at 1:59PM

Oh just to add - I am not working, and the Nationwide, with whom I have my 60k invested, have just told me on the phone that because of that, even though the loan to value is a mere 10% of what my property is worth, they cannot offer me a mortgage......!

brit1234 · 29 November 2009 at 2:05PM

bundly wrote: »

I've currently got £60k in the BS that isn't making much interest.

So you want to go from little interest on your account to buying a property which is most likely going to fall in value over the next couple of years.

Are your predicted rental returns high enough to cover mortgage and equity lose?

missile · 29 November 2009 at 2:12PM

bundly wrote: »

any advice please

I have been a LL for many years. Please believe the best advice I could give you is :beer:don't do it:beer:

There are so many people who seem to think it is easy money. Do not underestimate how much effort is required and how much heatache one bad tennant can cause. :eek:

Fire_Fox · 29 November 2009 at 3:06PM

In many areas the market is flooded with one bedroom flats - I'd get a two bed as then you can let to couples, sharers and even someone with a baby. Having said that, you need to do your sums very carefully. Out of the rental income you will have to pay service charges and ground rent, buildings and landlords insurance, income tax, repairs and safety certificates, letting agents fees, voids and non-payers. You can't just lodge it all against the mortgage - interest is tax deductible, capital repayments are not.

bundly · 29 November 2009 at 3:16PM

Thanks to peeps for the replies so far. They seem rather negative.

Brit: not sure why you seem so certain that property will fall in my area.

Missile: I take your point about bad tenants, but when you say "the amount of effort" - what do you mean? Househunting or what?

Firefox: Yes I am aware there will be costs. Rents are about £500 a month here. If I was to pay £100 a month for various charges, I'd still make £400 a month.

Brock: Why is it so hilarious that I am not working? I am prepared to put up a £200,000 property against a mere £20,000 loan, why is that enough to make you laugh out loud?

Bringing up envy seems irrrelevant; after all, I could envy people who earn good money while I earn so little I don't even pay tax.

If buying to let is so terrible why do so many people do it successfully?

bundly · 29 November 2009 at 3:42PM

Wow that is incredibly negative.

Is this just your view, a minitory view, the view of 50% of those "in the know" or the view of everyone, would you say?

Fire_Fox · 29 November 2009 at 3:47PM

bundly wrote: »

Thanks to peeps for the replies so far. They seem rather negative.

Firefox: Yes I am aware there will be costs. Rents are about £500 a month here. If I was to pay £100 a month for various charges, I'd still make £400 a month.

If buying to let is so terrible why do so many people do it successfully?

You are grossly underestimating the costs - £100 a month for service charges alone is not uncommon plus £50 to £75 (10 to 15%) for letting agents fees. Do your homework and join a landlord's association! Too many BTL properties are being repossessed, mostly it seems to me because amateur landlords are being taken for a ride by effusive estate agents and professional tenants: search the many helpful posts by Artful Lodger and Clutton, both of whom are professional landlords, to find out the pitfalls.

zzzLazyDaisy · 29 November 2009 at 3:59PM

bundly wrote: »

Rents are about £500 a month here. If I was to pay £100 a month for various charges, I'd still make £400 a month.

No you wouldn't. Because you'd have to pay tax on the £400. You don't say where your income comes from, but if it is a taxable source (such as incapacity benefit, for example) then you are probably already using up most of your personal allowance. If that is the case, you'd lose around another £100 on tax.

Then there is the question of how you would pay the mortgage if your tenant left you in the lurch and it took a few weeks or months to find another tenant? Your capital would be tied up and you are not working, so apart from the rental income, you don't have any spare money to pay the mortgage.

bundly · 29 November 2009 at 4:14PM

Firefox - the highest service charge of any of the properties I have looked at so far was £1500 a year (just over £120p,) and that was for a place with lifts and 24-hour porterage, and that included hot water. This is very unusual, most places dont have lifts and staff, and so the SC are much lower.

There won't be any letting agents' fees, as I would handle the letting myself. I used letting agents once many years ago on a flat I let, and the tenants stopped paying, then trashed the place when I got them evicted. When I handled the letting myself, I had no problems at all.

Daisy - THANK you for your time. If I bought a flat for £60k I would not even need a mortgage at all. The largest amount I am thinking of borrowing is £20,000. How would I meet the £25pw repayments if the flat was empty? I have enough income to cover that. I get IB plus I have a lodger (RAR scheme, not taxed), and I make some money from my small business. Yes I would have to pay tax on the rental income from the new flat, but surely any service charges, ground rent etc would be offset?

fortunehunter · 29 November 2009 at 4:16PM

Understand the frustrtation of low return from the banks. Property not the answer yet, I would wait until spring 2010 to see if we have a second bounce downwards in the housing market.

Buying to let -- any advice please?

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