Is this a good buy to let investment

NickC_4

I may have the opportunity to buy a property to let. I've not done this before so I would appreciate your advice and some guidance as to whether it would be a viable investment. The details are as follows:

Cost £160k (subject to offer)

Comprises one 1 bed Ground floor flat and one 3 bed maisonette.

Rents are £80/week and £120/week respectively with tennants on 6 month shorthold tennancy agreements. These are quite reasonable rates and there have been no gaps in rent income for many years.

I can get 10% deposit without a problem, perhaps 15% if I really need to.

Building has had work to ensure it is sound so there is no major work to be done, although there is scope for modernisation (and a potential for selling at a profit).

Can you tell me what costs I need to consider. Will I get a profit, or if not, is it worth getting for the long term investment.

Thanks,

Nick.

nmiah786

You will need a 15% deposit to get a BTL mortgage.

On £160k you will need £24k deposit plus £1.6k stamp duty also legal cost of £1k maybe more. You also have the service charge and ground rent to pay.

At the current rent you get roughly £866 pcm, your interest only mortgage would be roughly £680 pcm (assuming 6% interest). Roughly £186 pcm before cost.

Would I do it for rentals, maybe NO. Its your choice!

How about buying it and then selling it off seperately, 1 bed Flat and 3 Bed Flat? How much will it cost to renovate and what price will you get if you did?

Would I do it to sell on, maybe YES. Its your choice!

Is the market value of the property £160k, remember profit is in most cases made at the buyng stage.

All the best!

BobProperty

Cost £160k rent £10.4k return 6.5% gross. No thanks. Think about it this way, 85% of the value will cost 6% in interest by way of the mortgage. You are making a margin of 0.5% on 85% of your investment before any costs.

NickC_4

Thanks for the replies so far.

I'm would be looking at this as a long term investment, so I'm not overly worried about the initial profit. I Just want to make sure it covers itself. Then in a couple years, as the rent rises, but the mortgage stays the same (roughly) it will make a profit, and eventually I should own a property that has paid for itself!

By the way, it would be bought as two separate properties, so no stamp duty. (just double the legals I guess!)

Is it really possible to buy a place and rent it out a decent profit straight away (especially around Plymouth)?

Thanks,

Nick.

Kaminari_2

It still is possible in parts of England. I have just bought a property consisting of four one bed flats for £85k. Renting at £50 per flat per week = 12.2%. Tenant were on all 6 month shorthold tenancies and were all in place when purchased. I just had to make sure the place was sound. A no brainer really. I don't look at anything that yeilds less than 10%.

nmiah786

Kaminari wrote:

It still is possible in parts of England. I have just bought a property consisting of four one bed flats for £85k. Renting at £50 per flat per week = 12.2%. Tenant were on all 6 month shorthold tenancies and were all in place when purchased. I just had to make sure the place was sound. A no brainer really. I don't look at anything that yeilds less than 10%.

:eek: Where on earth was that!!! Why cant i find stuff like this!!! :wall:

Ian_W

NickC wrote: Is it really possible to buy a place and rent it out a decent profit straight away (especially around Plymouth)?

Unless you find something like kaminari has, ATM - No.

A few years ago BTL was a very good investment but two things happened to change that, property prices rose dramatically and loads of people bought BTL's. So in many areas, don't expect Plymouth is exempt, there is a glut of rental property keeping rents down. Check out the property section of Herald if it's anything like my local paper over the last 5/6 yrs there's been a swing from 70% "for sale" ads and 30% "to let" ads to about 50/50. In the private ads there is far more rental prop than used to be the case.

Property prices going up dramatically means you have to invest and borrow far more to buy the same property you could a few years back, with rentals pegged back by supply and demand.
So 3 or 4 yrs ago the 2 props that will now cost you £160K would probably have been sold at £100k. Your deposit would have been £15K and the £85K mortgage would have cost you £425 a month @ 6%. The combined rents would probably been over £750, even then, giving you £325 or more a month after your mortgage is paid. A good return on your £15K and plenty of spare capacity for voids, repairs, agents fees etc, etc.

On the figures to-day you'll make half of that which probably means you'll be subsidising your tenants, but hey, if you want to a social landlord, good on ya - who knows, if you want and can afford to prop it up, maybe long term you will make money both on renting and capital gains. But IMO not any time soon.

devils_advocate

NickC wrote:

I'm would be looking at this as a long term investment, so I'm not overly worried about the initial profit. I Just want to make sure it covers itself. Then in a couple years, as the rent rises, but the mortgage stays the same (roughly) it will make a profit, and eventually I should own a property that has paid for itself!

How about you give me £20,000. In a good year, I'll give you a return of 100%. In a bad year you get nothing. I decide if its a bad or a good year, or somewhere in between. In a really bad year, I decide what proportion of your initial investment you don't get back when you want it.

Is this a good long term investment? Is it worthwhile throwing money at me now to get up to 100% back as a return? Are you basing your views that I've given such good returns in the past, rather than the fact that I'm a grumpy old git who's not feeling so generous anymore?

Do tell me (without telling anyone else on the forum, as we can make a real killing) how you know that rents are going to go up in the next few years. Similarly, if you can forecast the future direction of interest rates, dont worry about buying a place to rent out. Get a job in the City, and I kid you not, you'll be able to buy Shropshire with your first annual bonus, and Wales with the next.

NickC wrote:

By the way, it would be bought as two separate properties, so no stamp duty. (just double the legals I guess!)

Unfortunately, Her Majesty's Revenue and Customs (as they've also had a bit of a makeover recently) are a bit wise to this sort of thing and they're likely to hit you for connected transactions, if you're buying both at the same time. Oh, and if you could achieve it, you'd need two separate mortgages, so the individual deals would not add up to the sum of the parts.

NickC wrote:

Is it really possible to buy a place and rent it out a decent profit straight away (especially around Plymouth)?

Probably not, unless you're a serious professional with the right contacts.

sorry if this appears a bit hard. Its a Friday night post, and there are a lot of professionals out there who are harder than me. In the current market, its reasonably safe to assume that any deals which you see, they've seen, and have decided not to do for whatever reason.

Conor_3

NickC wrote:

Thanks for the replies so far.

I'm would be looking at this as a long term investment, so I'm not overly worried about the initial profit. I Just want to make sure it covers itself. Then in a couple years, as the rent rises, but the mortgage stays the same (roughly) it will make a profit, and eventually I should own a property that has paid for itself!
.

Don't forget that you are liable for all repairs. If the combi boiler breaks down, YOU have to pay to get it repaired. That'll wipe out a couple of months profit. Also you are required by law to have the gas appliances inspected and serviced which is usually about £60 per flat...so there's another month profit gone.

BobProperty

NickC wrote:

Thanks for the replies so far.

I'm would be looking at this as a long term investment, so I'm not overly worried about the initial profit. I Just want to make sure it covers itself. Then in a couple years, as the rent rises, but the mortgage stays the same (roughly) it will make a profit, and eventually I should own a property that has paid for itself!

Define "long term" then bear in mind I can recall a property which had asking price offers on it in 1989 at £120k which failed to sell at that price (on and off) for the next ten years. It took 13 years before it went up in value by any significant amout.

NickC wrote:

By the way, it would be bought as two separate properties, so no stamp duty. (just double the legals I guess!)

DA has already answered that one - no chance.

NickC wrote:

Is it really possible to buy a place and rent it out a decent profit straight away (especially around Plymouth)?

Thanks,

Nick.

Not my territory but in my mind no. Sarah Beeny slipped into one of her programs that you should look for at least 10% return on renting. I look for more. Some people are buying property with an "on paper" return of around 5%. Some people don't know what they are doing and will get burnt.