Someone Tell Me Why This is a Bad Idea? BTL Quandary!

northerner79

Well it looks a reasonable deal on paper but I would look at the following over the course of an average year:

Rent 500 pcm, after service charge say 400, after 10% management fee 350, you will also require an annual gas safety certificate and there should be an EPC to let the property. For ground round and gas safety certificate take of 5 pounds a month so you have 345 a month.

What is the supply of apartments like in the area, if a block has been stuk up on every corner you are unlikely to achieve much growth, if any when the market returns in the short term. This should be a long term investment.

In the first instance after your legals etc you will probably pay say £66k. Annual rent (best case scenario - find a tenant in month one, no work required to property, one off letting/marketing fee of circa £300) you will have net revenues of 345 pcm after costs, £4,140 per annum. Based on a purchase price of 65k this shows a return of 6.37%.

The service charge appears to be very high, does the block have lifts? In the future these will need replacing at some point, admittedly the block is only 2 years old so it shouldn't be for a while, but one off items such as this may not be included within the service charge.

A very best case scenario is that you get

TBeckett100

the only thing you need to check is whether you have a big enough deposit and will having a second liability affect your affordability to move in the future.
The problem we found with our first flat was the fact it was a block and when trying to see it we were at the mercy of a) the other residents andhow they parked their cars, littered the place or smashed their windows in and b) any planned works on the horizon. It wasnt until we moved into the flat in 04 we were quickly told the roof may need doing, we decided to sell in 07 and after we out it on the market they confrirmed the roof will need doing, so double check any major expediture,

Also again, you are at the mercy of other residents so objectively, would you but the place on a fresh look at it (disregard the price as you will prob sell at the next peak)

i don;t know if you moved since we spoke last year, but you could plough your money into stepping up onto the next rung of the ladder and rent out a room.

TBeckett100

forgot to add, is the area good for work prospects i.e. are there students who could rent or suffficient jobds so you don't get too many voids. However, sometimes those who take the risks make more of themselves who plod along

real1314

Do people not read the OP?

Cash buyer.
Self manage.

No letting agent fees, no deposit worries, no mortgage fees and no increased mortgage rate to worry about.

£4800 before costs, and after service charge. Call it £800 (almost 20%) for costs and you're left with £4k retrun on a £65k investment.

6.15% return, which seems pretty good to me.

Leaving 2 issues:-

1. How long do you want to tie it up for (and can you afford to pull out when YOU choose, not when the market / circumstances dictate)

2. Do you think prices in the area have bottomed out / do you think they will rise over the period you want to tie it up for?

Fire_Fox

As you know the block and the managing agents, this sounds like a good deal. My only worry would be that if there are any large levies (over £250 and you'd have notice) can you afford to pay two at once? Presumably if you lost your own job you could give the tenant notice and put both places on the market - then move into the one that didn't sell?

theartfullodger

As long as you

- a) have a thick skin, won't mind the 'phone calls @ 21:47 Sunday evening saying "Toilet leaks" and on asking "How long has this been happening" hear "Oh, 3 or 4 weeks",,,,
- b) Have enough spare money to ride the probably 9-12 months to get out the tenant-from-hell who trashes the place and pays you nothing whilst you shell out on legal bills..
- c) Can cope with another 20% drop in house prices ...
- d) And can be sure any loss-of-job/illness/family crisis will be survivable, ...

... then, maybe, err, possibly, maybe, might be worth thinking about ..

Otherwise::: walk away & buy a new car/boat/world-cruise and/or get a toy-boy/mistress (or both..)

Cheers!

Lodger

PS Must remember to take my own advice...

zzzLazyDaisy

Remember if you are a cash buyer with no mortgage and little outgoings you will pay tax on the rent (after deducting maintenance charge) as being full profit. This will bring your over-all return down.

In fact, because of this, you may be better off taking a small mortgage on interest only as the interest is tax deductable, and keeping some of the cash in the bank - newcastle bs is offering a 5 year fix atm at 5%, and you can take your money out during the term by giving 90 days notice.

By the time you factor in voids, maintenance, tax and inconvenience, this may give a similar return.

Unless, of course, you are able to keep the flat for, say, 15 years (or whenever the next property boom kicks in) and sell at a profit - in which case bear in mind that there is 18% tax on BTL property gains after the CGT allowance has been deducted.

If you are keen to buy, I'd make an offer and see what happens. You are on site and will have little overheads, so it could work for you, if you are willing to tie your money up for the longer term.

franklee

Is the OP still around? This thread is a couple of months old

zzzLazyDaisy

Well spotted! Guess we've been wasting our time (why do people resurrect old threads in this way?)

theartfullodger

Is the OP still around? This thread is a couple of months old

... yeah, but it's a slow day....