Can anyone see a flaw or catch with this deal?

CTID_2

I am moving abroad and I am in the process of selling up. With the equity from my house I want a smaller property to rent out and still have a foothold in the housing market and the joy of no mortgage!

Barratt have built a new housing estate in the centre of my local town, an area which is predominantly warehouse and is being generally spruced up. They have townhouses for sale at £167,995 but are in a spring sale (I know, I know!!) and have them up at £159,995. This is phase 1 and there will be a total of around 65 houses on the site when complete. Next to it is an old warehouse with truck access but I think moves are afoot to develop this in the future.

Now local houses are going for around the same price, obviously some less some for more. Now the interesting offer is Barratts will guarantee a monthly let of 6% of the price for 2 years, which equates to £19,000 or 10% for 12 months, a total of £15,9999.

I guess the attraction is the secured let for 12/24 months. But I know Barratt are still making on this. I also worry that the house will be worth less in the future as the area is a gamble. It is by the river and they have built apartments overlooking it.

Any comments folks?

Doozergirl

I'd be very, very wary of guaranteed rental income and any new build directed at novice BTL investors. It suggests to me that they're finding it hard to sell AND to rent these properties. Barratts are giving you an equivalent rent of £791.00 a month - is that really what you can expect from tenants in the future? I'm currently selling a 2 bed house at £155,000 and the rental would be £575 at a push. They're basically giving you a drip feed of some of your purchase price back in the disguise of a decent rental income, whilst they have the benefit of your lump sum in the bank. It's entirely possible that the house isn't really worth what you're paying for it already.

You're looking at BTL in what sounds like a predominantly BTL area which means LOTS of competition and a very high possibility of long void periods. If the area is not already an established residential area then who's to say that many people genuinely want to live there? If this is newly developed territory and more development is planned in the future, depending on when you decide to sell up you're going to be up against massive, brand spanking new competition, plus the sheer number of available houses will be holding down prices - both selling and rental.

When your two years is up, so will everyone elses, so you'll all be flooding the rental/sales market at exactly the same time with no fancy discounts or incentives to offer to people.

I think that it is fine to keep a foothold in the UK market if it gives you a feeling of security, but I'd be looking for a house in a more established area within the catchment area of a decent school and good transport links. Families are more likely to stay put for longer than faddy young professionals which hopefully will reduce the likelyhood of voids and the cost of finding new tenants every 6 months. Otherwise, the smaller property, the proportionally bigger rental return you get.

I'd avoid. Please. High volume, new build BTL properties are the one area of the market that I really do foresee people suffering falls in.

lynzpower

Completely agree with Doozer there, nothing much to add, but I personally wouldnt.

CTID_2

thanks for that. I am a bit nervous TBH, too many unknowns. I can see you point about the quantity of lets that will soon be available. In fact that comment has made me realise what the big mis-giving I had, there are no expensive properties on the plot, they are all around £150 to £170 thousand. They are more like starter homes, AF or BTL so are not going to increase in price, more like decrease. BTW, The area is Selby for info.

My other idea is to look for student housing, I think a bit more hassle but it gives me a residence when the students are not around in the summer.

It is a minefield and I don't want to be greedy I just don't want a solid house that will provide some income and be worth the same or maybe more when we return.

homer_j_3

Renting will in itself present you with risks whether it be in the newbuild you were looking at or the alternative plan of student housing.

You will be responsible for maintenance etc and will probably have to employ a management company if you are out of the country.

Looking at the 2 types of property, you are going to hopefully have less upkeep on the new property than ones in a student area and you will probably have to replace things more often in a student house too. However you will always have strong demand in a student area.

Your aim is to keep a foothold in the UK market. You are going to have minimal expenditure on the property so the money you make will be a nice income. You may be best speaking to some local estate agents to get a better idea about the area where the newbuilds are being built and the opportunities in the surrounding areas.

I personally wouldnt write either idea off but understand what the others are saying and if you had a mortgage secured against it then you may be right to be more cautious with the newbuild on the basis that when everyone else gets the rental deals ending then it will be everyman for themselves.

Your advantage is that you dont have a mortgage to pay so you can effectively price your flat fairly competetively without feeling the pressure of mounting mortgage payments should you wish to keep on renting - heck you could be the cheapest landlord if you really wanted.

I guess you really just need to decide which is best but if you go to the newbuild as a cash buyer then you may even be able to beat the spring sale price and get their BTL special. I would wholeheartedly say go an speak to the local experts before deciding anything..good luck

pat_strong

I agree with Doozergirl too! If it's of interest we bought a 2 bed. victorian house in Derby (near the town and university). We have never advertised it has been let continously, the rental is currently about £750. p.m and the current value is only about £135k. (bought 2 years ago at a cost of £87.5k). This sort of plan would keep a 'safe' foot in the UK property market, whilst giving a high yield. Key important factor is to research your area and meet current and future demand. What's the old adage, if it looks too good to be true, it probably is to good to be true. Good luck with your plans.

Gorgeous_George

If you like the estate and the house I'd be tempted to offer £120k cash. If they're struggling to sell, they might go for it. If not, you've lost nothing.

The estate will likely improve over time.

Tassotti

What do you want to gain from this. At best, the Uk market is flat. If you want long term, then by all means go ahead. If you are out of country and have to pay a letting agent to sort your rental property out, then very best of luck.

Most of them don't know property law , taxes and how it all works. New deposit schemes, HMO;s, general property law

Where are you moving? Maybe better to invest in local property market.

Don;t get me wrong, I have masssive interest in the UK property market, but, at the moment, you have to know what you are doing

CTID_2

I do worry that we will have to rely on agents, but there will be no alternative. We are going to South East Asia and so local property is out of the question too.

It will be realtively long term - 4 yrs possibly more. Hopefully there will be 200k to invest, with a return of around £600 a month and a property which will at least keep up with the market.

I don't want to return in a few years and find I am at the very bottom of the property ladder. We will have this money, no mortgage so there is not the worry of the rent having to cover it.

I know it is minefield and I am not experienced at all at renting. Being so far away will not help either.