What's it worth?

Gorgeous_George

I have seen a property (3 bedrooms) that I an considering buying to let.

Rental income could be as much as £475 based on similar properties on Rightmove. I'd let it at £425.

It has gas central heating so would need annual certification. Otherwise, it is a pretty much standard property in an improving area.

Based solely on the rental income, what is it worth? I'll be making an offer tomorrow and I have a tenant eager to move in.

Any ideas?

GG

orangeslimes

I think that is an impossible question to answer...
Do you mean how much money will you make?
That would depend. Have you thought about the possible costs you'll face - i.e. maintenance, legal fees, accountancy fees, insurance? And obviously how much profit you make depends a lot on the mortgage you have.

GDB2222

Umm, is the rent monthly or weekly?

Personally, I don't think I'd bother at £400-500 a month rent. You have all the hassle but not much income.

Anyway, if you want a valuation: 10 times the annual rent. So, on a rent of £425/mth, that would be about £50k.

silvercar

Round here you would be looking at 5% gross yield, so 450pcm would equate to 108k. If you are also thinking of capital growth, if it is an area with potential you may want to go a bit higher.

Its not really what its worth to you as a landlord but what is its market value. If you are competing against FTBs then that may increase its value. Couple of houses round here available to rent at £1500 that are "worth" £800k+. As a rental yield that doesn't make sense, but as a vacant property that someone would rather be occupied than left empty it works. At the opposite end, a property with a short lease would be valued lower than one with a long lease but the rental would be the same.

Gorgeous_George

Thanks for the replies - interesting.

There seems to be little competition. Many people in this area prefer to rent. It sold for £90K in 2007 and I'll be offering less than £50K. The capital value is not important to me as I only want to let it. Any sale would almost certainly be after my death.

Here goes - time to make an offer.

GG

lincroft1710

For commercial properties there was a rule of thumb that 10 years rent would equal purchase price at start date, so £475 (max achievable) x 12 x 10 = £.57K.

I don't whether this works for houses though

dopester

Gorgeous_George wrote: »

There seems to be little competition. Many people in this area prefer to rent.

Why might that be?

Perhaps because such people don't feel secure in buying in that area even if they qualify for a mortgage? That employment and opportunity in the area is nosediving? That you might be lucky to get £100pm in a couple of years time... including cuts with what Government will pay towards housing benefit / LHA?

Go buy. Knock yourself out.

mlz1413

B2L mortgages normally have a 125% rental income rule, so if you rent at £425 then the maximum IO loan repayment would be £340pm.

As your only purchasing at £50k then even if you loaned the full amount the interest rate could go up to 8% before you're near to that rule.

Gorgeous_George

Well, I made an offer that was accepted. Only for another offer to be made a day or two later.

After 6 months on the market, two offers in a week! Did I want to make a higher offer? I may have done if the property would then be taken off the market - but it wouldn't be. So, for now at least, I won't be bothering. If I wanted to buy at auction, I'd go to an auction house.

GG

Gorgeous_George

Latest update:

After thinking it over over the weekend I decided to increase my offer by £4K - almost £2K over the asking price but it was rejected.

As it is a repossession, are they allowed to go forward with a lower offer? I'll be asking for the rejection in writing and I will be interested in the sale price once it comes up on the Land Registry site.

I know the former owners and I'm sure that they will be interested if the lender fails to achieve the best for them.

GG

Fire_Fox

As it's a repo the offer price will be advertised in local press and you will have a change to top the offer.