Is Buy-to-Let silly right now?

nm123_2

Hello there,

Keen to get your thoughts on a little dilemma...

My boyfriend and I will have approx £20k saved by the summer (July-ish). There is a small chance I may go to Australia with my job for 1 year in October-ish, and we're wondering what might be best to do:

Option 1
Buy a 2 bed place to rent out for about £115k-130k. Keep saving whilst we're away and have approx £20k to come back to.

Option 2
Keep saving and have approx £40k when we get back from Oz come Oct 2010 and buy a house for us to live in.

What would you do? Is now a silly time to buy-to-let? I know no one can predict the future but what do you think the market will be like in Oct 2010? Will our Option 1 flat have gone up in value? Or will our £40k deposit in Option 2 be a safer/better bet??

Thanks in advance

besonders1

I think option 2 would be better as buying to let now is risky, what if you buy now and it value drops by a third or more next year? You'd have lost a lot more than the return on rent and be in negative equity. Although I could be wrong but as you say no one has a crystal ball. Trying to sell now at todays prices is a nightmare, the only few houses which are selling are repos or forced sales where the prices are marked down, plus many vendors who can't sell are putting their house up "to let " so more competition i'm afraid with people who have the same idea.

Gorgeous_George

Depends how much you pay. Pay the market rate for a house and you will do ok but buy at below market rate and you should do great.

Make sure the yield is good. I wouldn't bother for less than 10% so, a £100K house needs £10K rent and that is unlikely. Find a house for £50K (auction maybe) and 10% is easily achieved.

Make sure you have an exit plan if it goes belly up.

Or play it safe and go for Plan B.

GG

Ladybird20

yes option 2...the market is Flooded with btl's . I for one wished i had paid my own mortgage off rather than buying another rental property. I have been renting out for 10yrs or so, which is a small amount of time compared to some on here.That is a good and relevant point that besonders makes, people who cant sell there homes are renting there homes so they can buy another home. I think people sometimes think that btl is a quick way to make and invest money,,well it used to be , but not anymore.

besonders1

sorry forgot to mention, if you can buy at the bottom at whatever price you think the market may fall to then - you won't be in negative equity. Maybe if you do a search on the land registry website you may be able to see selling prices for the start of this decade and base your offers on these. You may be looking at a house or flat that needs repair work or bereavement sale, try auctions etc.

themanbearpig

Yes, incredibly stupid.

Your £130,000 highly geared investment will depriciate massively. It is estimated to property prices will fall another 15-20% this year. So you will lose all your equity, and it will be very likely that you will be in negative equity by the time you get back. So you will be stuck with the debt, or because you can't walk away from it.
Its a suckers game right now, and anyone that tells you otherwise is a BTLer trying to get out of the market.

Gorgeous_George

My view is somewhat rosier than others because my BTL works very well. I was lucky.

I wouldn't buy today at current market rates as I agree prices are likely to fall further. However, if the right family home became available for 3x what I bought my 4 bedroom property for in 2001 - I'd offer cash without hesitation as this would give me an 11% yield compared to 2% to 3% that I can achieve at present on regular savings accounts.

It's more fun and more educating than saving. The same reasons that I like to lend on Zopa.

GG

Robert_Sterling_3

Put me down as a don't know on this one.

nm123_2

Thanks for the replies.

I guess we'll see how things go... The thought of having to move in with parents when we get back from Oz is not appealing, but I guess this should also not be a reason to buy at a silly time!

If prices are still tumbling, then I guess we could bag ourselves a lovely "home" (rather than an investment) at a good price in 18 months or so. Plus Oz is not definite anyway...

GDB2222

Gorgeous_George wrote: »

My view is somewhat rosier than others because my BTL works very well. I was lucky.

I wouldn't buy today at current market rates as I agree prices are likely to fall further. However, if the right family home became available for 3x what I bought my 4 bedroom property for in 2001 - I'd offer cash without hesitation as this would give me an 11% yield
GG

George are you saying that you would happily pay three times as much now as you paid in 2001?

GDB2222

by the way, short of finding an unbelievable bargain, there is no way I would buy to let at the moment. so, I vote for option two.