Buy-to-let: Student without a clue!!

Teddie24

Hi everyone,

I am keen to buy a house in Reading and rent it out to students. Having just graduated from the uni there, I feel I know the student property market well (in terms of location, needs, prices etc). I am currently 24 years old, and have now embarked on a career in medicine (so yes, another 7 years of being a student!). I have £20k as a deposit for a property, and the property price range I am looking at is around the £200K mark. This will get me a decent 4 bed terraced property in a good student area. I will be able to get circa £300 per person per month from my property (=£1200 income per month).

My question is: Is there any sort of mortgage package out there which will enable me to buy such a property, and then use the rent to pay off the mortgage payments? I haven't a clue what options are available, or how much a month your typical mortgage would cost. Also would I have to have my parents as guarantors (sp.)? As I have mentioned I haven't got an income as such, although all of the rent would be able go towards the mortgage payments.

How does the above idea sound to you lot?!! Probably barking mad!

Many thanks in advance for your advice and help.
:money:
Ted

meanmachine_2

Don't tell me - you watched that piece of fiction called "Where Best to Invest"?

Yeah.

dunstonh

Buy to let mortgages exist by the bucket load. Without an income of your own, you are probably going to find the answer is no. Mainly as a buy to let for you is going to cost you more money than you would bring in from rental income each month and your deposit isnt high enough.

However, you need to be aware that buy to lets are not exactly good value at this time and there are legal responsibilities as a landlord as well as liability and these are only likely to increase. Plus the yield is low (rental income compared to property value and expenses).

You estimate £1200 income per month. A 25 repayment mtge on £180k is around £1082 (a 1.25% increase in interest rates would see that rise to £1215). You would lose around 10-15% of that income to a letting agent. You would have heavy redecorating costs as well as the annual checks. There is also income tax that may need to be paid on the income and the property is liable for capital gains tax on any gains.

Most people that go into buy to lets do not realise that its a high risk transaction that ultimatly can cause them to be made bankrupt. Whilst it has all be good over the last 8 years, it wouldnt take much of a swing in interest rates for individuals to find themselves in a big hole with nowhere to go but negative equity, unable to pay the mortgages and repossession. There are still some good opportunities for those that know what to look for but the novice really needs to tread carefully.

I would perhaps be more concerned about getting yourself on the ladder first.

mystic_trev

Teddie24 wrote:

How does the above idea sound to you lot?!! Probably barking mad!
Ted

Barking and howling......

Teddie24

Ha, this site is the best thing ever! Dunstonh, a superb reply.

mystic trev: Barking and howling.... yes I can certainly see where you're coming from!

No I didn't see that program but I have heard people talking about it, Reading only springs to mind as I know the area so well.

So perhaps I should simply try and get on the property ladder in the town I am at uni in (glasgow) and then review things in a couple of years?? The property up here in certain places still hasn't taken off, so fingers crossed it may prove to be a good investment........ just an idea.

meanmachine_2

Yeah, take advice from every quarter but do your OWN research and make up your own mind.

Don't follow the herd.

I think you'll find Glasgow has taken off in recent years. It just isn't as crazy as London say, because earnings are lower there.

I'd use that 20K to get me through college - come out without debts and then take out a graduate mortgage.

I wouldn't buy in the area where you're a student unless you are going to be living there longer than a couple of years - costs of moving are too high.

dunstonh

What you tend to find is that when the media hype something as being good, that is the time to pull out and do something different. The media are masters of past performance and hindsight plus they focus on what is fashionable and target the cynical.

meanmachine_2

Quite so.

Only now are newspapers saying that fixed rate mortgages are rising and people have "missed the boat". Many of us on here were pointing out that swap rates were soaring and that fixes were going to get more expensive - weeks ago!

What's the point of running articles now telling people that the era of cheap fixes is at an end? Yeah, thanks for nothing!

Stupid journalists.