BTL instead of selling?

geoffky

6% a good return.....your easily pleased i get more for just parking my money in a bank..without the hassle of being a slumlord

stevetodd

geoffky wrote: »

6% a good return.....your easily pleased i get more for just parking my money in a bank..without the hassle of being a slumlord

I am not a slum landlord I rent very good quality properties to young prof's. All my properties are finished to a high standard.

There is no capital growth on top of the interest paid at the bank, so it is you not I that is easily pleased.

Also rents go up so the 6% is merely the starting yield (actually 6% is huge for btl I hope to achieve 5% if I can in year 1). Consider the following properties that I bought, 2 x 2 bed flats and 2 x 3 beds flats in Battersea between 1991 and 1999 for a total of 296k, now worth approx 1.25m (was about 1.4 last summer, not that I would ever sell in this market). So thats almost 1m capital growth not to mention approx 38k rent profit (giving a yield on price paid of 12.8% and that is considering all expenses as that is my projected taxable income from property for last tax year.

Also don't forget I only actually paid the deposits, furniture, acquisition costs which was about 50k, even if you discount the current realistic value (for the next few years of a bad market) by a further 20% and call it 800k. Tell me which bank would give you high enough interest for your capital to grow from 50k to 800k in less than 17 years? Not to mention rental profit from about year 2, carrything through to now giving 38k a year.

In fact if you express the yeld as after expense income (but before tax) to the deposits paid + expenses that gives a current yield of 76%

stevetodd

Ulfar wrote: »

Why would you consider this a good return, you can get more than this in interest from a bank or building society.

Thats before you consider all the extra costs that come from being a landlord such as :

Getting the agreement of your mortgage company to let the property.

Letting agent fees.

Insurance, this isn't just buildings you also need third party insurance.

Maintenance of the property.

Problems with tenants.

I haven't listed tax as you would pay that on interest or rent in excess of the interest payments on the mortgage.

Gas/Energy checks each year.

see my response to another poster above all is explaned in that. Incidentally I very rarely use letting agents, they just aren't worth it (at least to me)

Kessie1

Wow thanks, I didn't expect to get such an informed and largely positive reponse. I'm trying to print the thread off for future reference and have bookmarked it so I can come back to it.

Incisor - we are moving for extra space, more local facilities (e.g. not having to drive for a decent grocery shop), we are stuck between two counties here which means the community often gets forgotten and although the primary school here is excellent, the secondary catchment is complicated, so I'd like to sort that out by the time my little boy is at school (he's 2.5 now). I work in education so for once know what I'm on about so I hope to be settled in our chosen area for at latest Sep 2010, as long as the right house comes up (the two I liked have now sold ).

I think alot of reponses relate to the profit I may make. I would hope that this is a long term investment, I am not looking to make a quick buck or expecting to make a lot per year, but would like to think of it as an asset in the future. However I am concerned about capital gains tax, but don't fully understand the implications of this. Does anyone else know? Also what does yield mean? Sorry, I must sound really naive. I do all the books, PAYE etc for my husbands business, so have a fair financial brain, but have just not looked into BTL before.

Thats a good idea about testing the water for tenants. I have got some good contacts for advertising in local directories and papers (again for my husbands business) I'm sure they would do me a decent ad. I wouldn't really want to use an agent, I have seen plenty of 'To Let' signs up in the area with private mobiles and they quickly go. I would check out any references etc. and plan to have about 5k as a cushion in the BTL account in case of emergencies. So I'm not so worried about the practical sides of letting it out, more the long term financial benefits.

Lastly I think someone mentioned making this based on a business decision, not one of convenience, which is a valid point. I do think this would be a good business decision, as long as the figures add up. I felt quite torn back in May when I sold it, and had put a reserve on my new mortgage to BTL at a later stage, so I'm very hopeful that this frightful market is a blessing in disguise

Thanks again, much appreciated

Ulfar

stevetodd wrote: »

I am not a slum landlord I rent very good quality properties to young prof's. All my properties are finished to a high standard.

There is no capital growth on top of the interest paid at the bank, so it is you not I that is easily pleased.

Also rents go up so the 6% is merely the starting yield (actually 6% is huge for btl I hope to achieve 5% if I can in year 1). Consider the following properties that I bought, 2 x 2 bed flats and 2 x 3 beds flats in Battersea between 1991 and 1999 for a total of 296k, now worth approx 1.25m (was about 1.4 last summer, not that I would ever sell in this market). So thats almost 1m capital growth not to mention approx 38k rent profit (giving a yield on price paid of 12.8% and that is considering all expenses as that is my projected taxable income from property for last tax year.

Also don't forget I only actually paid the deposits, furniture, acquisition costs which was about 50k, even if you discount the current realistic value (for the next few years of a bad market) by a further 20% and call it 800k. Tell me which bank would give you high enough interest for your capital to grow from 50k to 800k in less than 17 years? Not to mention rental profit from about year 2, carrything through to now giving 38k a year.

In fact if you express the yeld as after expense income (but before tax) to the deposits paid + expenses that gives a current yield of 76%

You are in the position of having bought at the bottom and your business is going well, however the poster that started this discussion is not in this position they are getting into BTL now as an alternative to selling.

They need to know all of the downsides to letting and that they will not be getting a 6% yield this year or next at least. They will also be losing value on the property they are letting.

They are also looking at taking on huge amounts of further debt, I don't think that is the wisest move at this time. Apart from anything else the interest rates they will be paying are going to be anything but nice.

Kessie1

Ulfar wrote: »

They need to know all of the downsides to letting and that they will not be getting a 6% yield this year or next at least. They will also be losing value on the property they are letting.

They are also looking at taking on huge amounts of further debt, I don't think that is the wisest move at this time. Apart from anything else the interest rates they will be paying are going to be anything but nice.

I did say in my original post that if I were to do this, I would wait until prices hit rock bottom, as I certainly don't want a depreciating asset. If I sold now at 105k and bought for something at 150k, and prices fall another 15-20%, then I will 'lose' money on the house I buy anyway Equity is only money 'on paper', but as long as you operate on a level playing field, I believe its a risk worth taking.

If prices fall another 15-20%, which is what I worked my original figures on, then I would have two houses worth around 180k (80k and 100k), with two mortgages of 118k (60k and 58k), so still around a 65% LTV. And I wouldn't be paying 60k of the mortgage, this would be the tenant.

I appreciate the risks involved, and your input, which is why I asked for opinions in the first place. However, I believe that as long as you can afford the repayments and that you don't risk negative equity, then your mortgage is like a piggy bank - the more you put into it, the more you'll take out in the long run. I am 36 now and I wish that I'd bought two houses (or more!) when I first bought into the market 8 years ago. I would hate to wake up in 10 years time and realise I'd missed yet another opportunity back in the crash of the late 'nougties

eco-friendly_2

brit1234 wrote: »

The recent big drops in rent have been in houses, just look at the ARLA statements over the last couple of months. The housing side is being flooded with properties as they can't sell bringing prices down.

Only the dodgy Paragon (vested interest and minute survey group) are saying they are rising. However Paragon have been proved wrong constantly in the last 2 years and are going bankrupt like they did in the last recession


Or move home or some other arangement

Increased demand against bigger increased supply means cheaper rents.

' Or move home or some other arrangement' sorry coulden't get my head around that sentence?

brit1234

eco-friendly wrote: »

' Or move home or some other arrangement' sorry coulden't get my head around that sentence?

IE move back with family to save money. Or move in with freinds, keyworker accomadation or something else.

dopester

stevetodd wrote: »

There is no capital growth on top of the interest paid at the bank, so it is you not I that is easily pleased.

How many properties do you have again?

I think you'll find we have entered a period which is going to see an epic reversal on the capital growth you thought you had amassed.

Want the Halifax/Nationwide chart of the last 12 months? Remember it when you keep parading your capital growth.

dopester

stevetodd wrote: »

I'm from the Newcastle area originally but now live down South and rent out property in London (I rent 4 flats, my wife 2 houses and 1 house we jointly rent out). I think this is what you should be aware of:

Bet you wish you'd sold in early 2007 now. All those properties you have. Even if you have wisely factored in continued falls, it must sting a little, with tens of thousands or hundreds of thousands wiped off what you could have sold at.

Keep assuming the demand and rental levels will remain strong - good lad.