Chasing the BTL Dream

IveSeenTheLight

mewbie wrote: »

I want to be rich and have a nice pension so I thought it's time to get into this BTL thing. So I have been looking at properties and am keen to explore any avenue, or road - f*ckin lol.

Anyways. I spied an 85k flat which could probably rent out for about 450 a month. Allow for voids 10 x 450 = 4500. 85k x 5% borrowings = 4200. So a nice profit on my 85,000 pounds of 300 hundred pounds a year. Not bad I thought.

However the service charges come to 200 a quarter. 800 a year. So now I'm 500 quid behind.

Plus I can't borrow the money anyway because apparently I need a deposit and get this - the fascists want the rent to cover the mortgage payments by 125% or something ridiculous.

Anyway I'll keep looking - it's the way to get rich obviously
.

Wasn't this all explained to you with your £100k hypothetical postings last week?

Just to clarify a few things in case you are serious (which I don't think you are but others might take interest)

£85k flat means you would probably be looking at present a 25% deposit (£21,250) and a mortgage of £63,750

The lender would normally be looking for the rent to cover 125% of the mortgage interest, therefore using your 5% (there are better trackers out there and worse fixes i.e 5.99%) themortgage interest would be £265.63 per month (£63,750 * 5% / 12 months)
As you would be able to get from your research £450 per month, this is 150.6% of the mortgage interest payments, so you would be covered there.

You mention factor fees at £200 per quarter, ok, sounds expensive for an £85k property but this is £66.66 per month. This however is part of the allowed deduction when you make your tax return, so would be calculated later if to be deducted from a profit or added to a loss for future calculations

Other factors which can be deducted from income tax are insurance, advertising fees, mortgage interest, legal fees, management fees, other allowable property expenses etc

One simple way of roughly assessing the worthiness of a BTL property is to calculate the Rental Yield.
For this property it is 6.35% (£450 * 12 / £85k) * 100. A reasonable return so could be worth looking into.

You mention catering for two months void. This for me is far too excessive and if you needed it would point to either a poor letting agent or incorrect pricing in the market or both.
Part of assessing the property is assessing how the rental market is in the area for the property i.e. will it be easily let.
However on your figures, you'd be taking in £4,500 - £5,000 and have a mortgage interest of £3187.56 in the first year (remember, the interest would reduce each year as the capital is paid off)

Let's deduct the mortgage interest and factor fees from the income, this leaves £512.44 - £1012.44 profit in the first year to cover advertising, maintenance, capital repayment etc and you can see it's possibly not worth it.

Lets assume you break even in the first year and do so for the remaining term of the mortgage. It's very feasable with rent increases over the 25 year period that this will be easily achieved if not surpassed.
At the end of the mortgage period, you then own a property originally purchased for £85k without taking into consideration HPI or profit from rent increases.
Compare that against the £21,250 invested in a bank with a similarly average 5% return then after the same 25 year period, you would only have a £71,960.04
Therefore the BTL investment provides an 18% better return without any profit from rent and without any HPI gains over the 25 year period (Never seen any record of this happening)

You may or may not also be interested in this link for A Landlords Guide to Assured Shorthold Tenancies
http://www.communities.gov.uk/publications/housing/assuredassuredlandlords

More likely you would need this link for a tenants guide to Assured Shorthold Tenancies
http://www.communities.gov.uk/documents/housing/pdf/138289.pdf

Harry_Powell

caroline2960 wrote: »

<However the service charges come to 200 a quarter. 800 a year. So now I'm 500 quid behind >

But at the end of the mortgage period, 25 years or whatever, you will have a house with no mortgage which has cost you approx 500 quid a year, not a lot for a nice little pension fund when the time comes.

C

He'd be in profit a long time before the 25 yr mortgage period was up. As the mortgage was paid down, his expenses would decrease and the property income would increase.

Many people seem to forget that once the house is purchased, its purchase price is fixed. Apart from fluctuations in mortgage interest rates (which can be protected against using a fixed rate mortgage), the outgoings generally stay the same over the years, while the rental income increases with inflation.

IveSeenTheLight

mewbie wrote: »

Actually I've just worked out if I borrow money against my house then the mortgage on the BTL is a lot less. So I can make a real profit from day 1. Now if I do that for a bit, then all the rent money goes in a jar and I can buy the next property in about 20 years. And so on.

Easy pickings. Don't you lot go pinching my idea now. Mind you, there seems to be a lot of typical BTL property available at the moment, so there's room for everyone.

Theres a bonus that you can claim the interest from your home mortgage for the funds you withdraw as that is how you secured the funds for the BTL purchase

IveSeenTheLight

mewbie wrote: »

I've realised I'd need a very big jar to save 500k in. Because prices will go up a lot in 20 years obviously.

But your buying tomorrow remember, not in 20 years time

mewbie_2

IveSeenTheLight wrote: »

But your buying tomorrow remember, not in 20 years time

I was referring to the second property in my empire.

Thank you for your figures - I am genuinely interested in the financial argument as opposed to the moral one.

Corporate bonds currently yield anything up to 9%, tax free and no lightbulb changing. In fact no effort at all. I do wonder, much like buying gold shares instead of real gold, whether it makes better sense to invest in property via shares rather than bricks. No effort required, easier to spread your 'bets'.

But I am open to information on this, a good use of the board I would think to understand real facts and figures on property as a potential investment.

HammersFan

carolt wrote: »

What has paying rent got to do with it?

The OP is talking about buying an investment, silly, not to live in. Buying places to actually live in yourself, rather than rent out and make a killing, is sooo 2005.

Do keep up.

We all know where newbie is coming from here.

Now where is that "Report being patronised (repeat offender)" button?

IveSeenTheLight

mewbie wrote: »

I was referring to the second property in my empire.

Thank you for your figures - I am genuinely interested in the financial argument as opposed to the moral one.

Corporate bonds currently yield anything up to 9%, tax free and no lightbulb changing. In fact no effort at all. I do wonder, much like buying gold shares instead of real gold, whether it makes better sense to invest in property via shares rather than bricks. No effort required, easier to spread your 'bets'.

But I am open to information on this, a good use of the board I would think to understand real facts and figures on property as a potential investment.

Fair doo's on the second property in 20 years time.

regards the corporate bonds, as you can see there are many options for investment, BTL being only one.
Only you can decide what investment vehicle you wish to try.
I certainly would not put down any investment option (well maybe pensions which never seem to come to fruition from what I have seen) that others choose to invest in, only time will tell if they make a better return or not.
Risk also plays a factor in investment choice as well

chucky

HammersFan wrote: »

We all know where newbie is coming from here.

Now where is that "Report being patronised (repeat offender)" button?

it's his form of entertainment in his tiny little world.

Harry_Powell

mewbie wrote: »

Corporate bonds currently yield anything up to 9%, tax free and no lightbulb changing.

Please find me one, just one, that I can invest in today and receive anything close to 9%. Pretty please .

chucknorris

Harry_Powell wrote: »

Please find me one, just one, that I can invest in today and receive anything close to 9%. Pretty please .

You can actually get them tax free if you wrap them up in an ISA (has to have at least 5 years to run to qualify though). Last time I looked at corporate bonds the safer ones (utilities, tesco, sainsburys, BT etc, when I say safe I mean unlikley to go broke not necessarily make profits) were paying about 6-7.5%. But since looking I have heard that the cost of the bonds has gone up, therefore driving the yields down.

Anyone got any latest news (or a link), it's been over a year since I looked into it. When (or if) the ftse gets to about 6,500 - 7,000 I intend to get out and 'park' my isa stocks and shares in corporate bonds, keeping the isa status. But I don't see that happening for quite a few years yet, and of course getting out even earlier might be an option depending on how the economy is going.