Let To Buy Advice Please - Figures included

Financial_Savvy

I am after some let to buy advise please.

Am in a chain and the sale is going foul. If our buyer pulls out which I am expecting, I am considering asking the top of the chain to drop £25K to do a Let To Buy.

New Purchase Price 87000
Deposit Needed 21750 (25%)
Rental income 525
Interest Only Mortgage 352.87 (5.59%, 2 year tracker)
Letting fees 57.75
VAT on fees 10.10
Buildings Insurance 15 (approx)
Rent Void Periods 43.75 (1 month in 12)
Profit element 45.53

Want I want to know is would you guys do this?

Do the figures stack up?

Apart from maintenance, what else am I missing?

Appreciate your help.

Financial_Savvy

Would really appreciate any help with my query below.

Welcome all views, especially from any landlords.

N79

Financial_Savvy wrote: »

I am after some let to buy advise please.

Am in a chain and the sale is going foul. If our buyer pulls out which I am expecting, I am considering asking the top of the chain to drop £25K to do a Let To Buy.

New Purchase Price 87000
Deposit Needed 21750 (25%)
Rental income 525 - Based on what assessment.
Interest Only Mortgage 352.87 (5.59%, 2 year tracker)
Letting fees 57.75 - Seems high - negotiate harder with the agent. I think 10% is normal for a single property.
VAT on fees 10.10
Buildings Insurance 15 (approx) Seems very low at less than 200 a year. LL insurance is much higher than residential insurance.
Rent Void Periods 43.75 (1 month in 12)
Profit element 45.53

Missing - at least

Contigency fund
Repairs
Advertising / Letting costs
Tax


Want I want to know is would you guys do this?

Do the figures stack up?

Apart from maintenance, what else am I missing?

Appreciate your help.

You appear to be investing 21750 for a return, on your optimistic figures which I can not add up to get your 45.53, of less than 600. If we assume you made a profit of 600 that is a return of 2.75%. You could get a return of around 6% by just putting the money in a bank - no effort no risk. So no, I do not think your numbers add up at all.

LandyAndy

N79 wrote: »

You appear to be investing 21750 for a return, on your optimistic figures which I can not add up to get your 45.53, of less than 600. If we assume you made a profit of 600 that is a return of 2.75%. You could get a return of around 6% by just putting the money in a bank - no effort no risk. So no, I do not think your numbers add up at all.

Start with 525 take away all the costs underneath and end up with 45.53.

Financial_Savvy

I would welcome some more views.

At the peak of the market the house was worth £125K, and I would be purchasing it at £87K. It's a long term investment.

What kind of price should I be asking for? Is asking for £25K off enough?

Cannon_Fodder

N79 wrote: »

So no, I do not think your numbers add up at all.

DITTO

was going to be my short answer...


You don't know you can get it for £87k. If you can't you'd be making NO profit, instead of a tiny one.

If the vendor was happy at £112k (87 + 25 you're planning on taking off?) why should they discount because your buyer has dropped out?

They can just decide oh that's a failed chain, remarket, or come off the market rather than take the £25K hit. Maybe they will have to adjust a bit for time lost in the falling market, but it hasn't dropped -20% in one or even two months that your chain has presumably been running (no matter how much some HPCers might want it to be the case).

If you can make a profit, even though a tiny one, they can do the same remember.

What repayment vehicle do you plan on having, its going to be a VERY long-term investment with virtually no profit, why bother..? Equity will not be likely to improve for 2-5 years depending on which level of doom you subscribe to.



Oh and

N79 wrote: »

So no, I do not think your numbers add up at all.

DITTO

silvercar

It all depends on how much you value getting the house you want to move to and finishing this headache of moving homes. We did similar 2 years ago, I'm sure on paper it doesn't add up, but in terms of the emotional investment it worked.

Financial_Savvy

Thanks for the comments guys.

On what basis would the numbers add up? When I get the same return from £21750 that I can get from a bank?

It is only an idea to a chain that is going pear shaped for the second time.

Cozworth806

Given you could lock this up at about 7.20% before tax which works out at £1250pa then you are going to have to clear £100pm profit.

Either the rental is going to have to go up (unlikely) or the mortgage and costs go down (also unlikely, unless you can drive it down even further.)

Not sure where you live but I would not be looking at over £500pm rent if the mortgage costs were less. Round West Yorkshire I would imagine that sub £100k houses rent for £500pm tops

GDB2222

There's nothing in your figures for maintenance, replacement of carpets/furniture. Not enough allowance for voids. You need to allow for mortgage costs possibly going up. You need a much more sizeable profit to compensate for the risks.

Really, when I ran this through my old BTL calculator, I couldn't see any point in paying more than about £50k for the property. That gives you a gross rental yield of just over 10%. I know that people have been doing BTLs on a yield as low as 5%, but they're in all sorts of trouble right now.

pinkshoes

Cozworth806 wrote: »

Not sure where you live but I would not be looking at over £500pm rent if the mortgage costs were less. Round West Yorkshire I would imagine that sub £100k houses rent for £500pm tops

No offense, but that's a bit of a naive comment. Many people will have to rent until they can save at least 10% deposit to buy a house, which for many is near impossible!

If it's in a university town where there's a large transient population, then there will also be many people wanting to rent and not buy.