Buying a house to let out with cash.

boshdmg

Hi everyone

I just want to get peoples opinons on whether this is a good idea......

Me and two friends are considering buying a house together in cash. I have 10k and my friends have 30k and 50k respectivly. We are considering buying a house, which will have to be no more than 90k, and then splitting all costs and profit 1/9, 3/9 and 5/9 respectivly.

Assuming we buy the right house and are able to get a tennant and charge around 350-400, we will all be making rougly the same amount of money as we would be from a high interest account, plus we would benefit from the steady increase in property prices.

Is this a wise thing to be doing or am i better off keeping my money in my ISA and premium bonds?

david29dpo

if you all "feel" its the right thing, do it. i have, and never looked back.

richgirl

Why not invest in the stock market instead, you get dividends AND capital gain and the markets liquid.

F_T_Buyer

Things to consider:

Costs:
Agents fees, maintenance, voids when you don't have a tenant, insurance, purchase cost fees...

Tax:
If it is all tax, you will pay tax on the rent you receive.

Add all this up, and there is a lot of hassle. But is it wise investing in something that has big risks, and may not cover it's own costs? If this is the case, you're not investing, you're speculating.

I think you need a serious think about future price increases when house prices are at record highs, and the fundamentals that pushed prices that high are receeding - rising interest rates, unemployment, inflation etc etc

Also, investing with friends seems a perfect example for arguments. Especially as you don't have equal shares, so one person has more to gain/lose than the others.

Maybe you should add the costs, so we can do a breakdown. I.e. purchase costs, achievable rent, voids (i.e. other empty rental properties in the area), type of house (hence maintenance costs)..

PoorDave

boshdmg wrote:

Hi everyone

I just want to get peoples opinons on whether this is a good idea......

Me and two friends are considering buying a house together in cash. I have 10k and my friends have 30k and 50k respectivly. We are considering buying a house, which will have to be no more than 90k, and then splitting all costs and profit 1/9, 3/9 and 5/9 respectivly.

Assuming we buy the right house and are able to get a tennant and charge around 350-400, we will all be making rougly the same amount of money as we would be from a high interest account, plus we would benefit from the steady increase in property prices.

Is this a wise thing to be doing or am i better off keeping my money in my ISA and premium bonds?

The downside is you may not get:

£350-400pcm
A steady increase in price

Is the rent reaosnable or optimistic?

I think if you make the max rent stated at £400pcm and multiply by 11 (seems standard to allow 1 void month per year) your get £4400. Divide this by your purchase price of 90k and you get a gross return of 4.89%.

This return is then subject to the same taxes as your high interest bank account would be, so a fair comparison.

I reckon you could find a better account than that (and i don't mean an ISA).

Plus i've taken the high end of your rent figures, and no maintenance to the property or agent's/letting fees/buying costs are included.

Down forget that any gain in value is taxed when you sell too, and you'd need to pay agent's fees.

I looked into this whole idea a few months ago (albeit in my area, not yours) and the figures just didn't stack up.

Oh, and FTBuyer you can't spell "fundamentals"! Apart from that i think we're agreed on this one

real1314

...it all depends on the right property, achieving the right return, with the right potential for property price increase.
personally I'd want a £400 pcm rent on a £80-83k property. A £90k property would need £450+.

Maybe consider a lower priced property and put some money into a contingency fund?

However, the main way to make property investment work is through gearing via a mortgage. It involves more risk, but means that you can gear your investment 5x by using it as 20% deposits.
The income is reduced by the mortgage payments, but the rewards via price increases (if they come) are greater.

Maybe a first cash purchase is a good way to test the water regarding whether you 3 want to do it, are happy to continue and can work together. Give it 6 or 12 months, then get a mortgage to release capital for further investment?

ringers

poor dave. You should have taken more care typing "reasonable" before you took FT to task regarding his spelling of fundamental.
srory to piont taht otu!

ringers

and FT can't spell "hassle" ether

ringers

Bosh!
You do what your happy with. If you think it's a good deal for you,it probably will be. It's obvious you've spent sometime looking at the figures and have asked this question looking for a bit of reassurance.
I don't see any way that you are going to lose your initial investment and it is highly probable that you will get some income.
Ultimately the desicion is yours. It's your sword, your the one that will have to live or die by it.
Given the last two post I hope I haven't missmelt anything or had ayn typos.

F_T_Buyer

Shiver me timbers, I'll try harder in the future! I've now corrected this, so as not to pull down the integrity of this thread.

:beer: