BTL figures, opinions please

blushingbride_3

Hi everyone,

I have a couple of questions. I am thinking of buying a new 1bed house in city centre for £95k with a new tenant on 6month contract.

The retail value of the house is £130k it was brought buy my friends investment company & is available for £95k

I went to the bank yesterday.

I have a £70k mortgage @ 0.75% on my house which is worth £140k
i can increase my mortgage by £45k to give me the deposit for the BTL

The BTL will be 5.29% fixed for 2 yrs. Costing approx £264pcm Interest only

To increase my mortgage i'd be looking @ 2.58% lifetime tracker. approx £200pcm

So in total outlay would be £464.00 pcm
House is rented for £500pcm minus 10% letting agent fees £450.00

I just wanted others opinions on whether this seems like a good investment.

BB

Conrad

It's not great as the yield is only 5% and there WILL be ongoing costs (inexperienced landlords always say to me there wont be costs as the place is in good nick, but trust me you will be facing cosys ongoing such as replacement items, breakages etc etc etc). As such the true net yield will be only about 4%. You will be able to get 4% yield from far less hassle managed investments, plus less risk.

I personaly look for about 7%+ yield.

Also you say the 'retail' value is £130k. This is a classic 'noob' statement, no offense. The value is what someone is prepared to pay and no one sells for less that the market will pay. I honestly see this cooment all the time and its a nonsense. The value is the price you pay, period. Very occasionaly a close relative sells for less than par value (so thier own family looses money), but this is an exception. Repos still sell for THE MARKET VALUE.

blushingbride_3

this house is being brought from the builder as the sale fell through so i think he is desperate to sell as its the last house.
My friends business specialises in buying new houses cheaply from developers.

I do understand what you mean but how often can you get 7%+ ? you'd have to get a realy cheap place with high rent?

getmore4less

So your friend is tring to offload a place for £95k that brings in £500pm rent

(OK perhaps not, knock the builder down some more, why has the friend not bought it at this price?)

£500*12/95k = 6.3% gross 10% fees 5.7% net before costs

I bet they are loosing money on this if they paid full wack and could not get cheap lending.


If you increase your motgage is it only the extra lending that is at the 2.58% or all of it? ie do you lose the 0.75% rate on the £70k

Whats the rate on the BTL after 2 years?

Ok lets say
£50k @ 5.29% £221pm
£45k @ 2.59% £97pm

net £450-£318 = £132pm
So you make money but is it enough to cover the costs, I suspect at best you break even so this becomes preperty speculation on value for the work involved.

If all the current lending moves to the 2.59% rate

£50k @ 5.29% £221pm
£70k @ (2.59%-0.75%) £107pm
£45k @ 2.59% £97pm

net £25pm. is it worth it.

What are the mortgage fees?

Conrad

blushingbride wrote: »

My friends business specialises in buying new houses cheaply from developers.

I've lost count of the amount of times someones freind is supposedly able to extract these juicey deals. Its utter tripe.
Look I deal with experience property people with millions in cash and they offer big sweeteners to find these deals and still such deals as you describe never exist unless they buy at auction or buy in bulk. Your freind will be a 2 bit middle man makiing a bit of cash.

Tell you waht, pay for your own surveyor to do a private valuation, and , or ask local Estate Agents. NEVER trust a freind - the papers are littered with these stories - did you not see the one about the 'freind' in Leeds that found all those below market properties all sold with tenants in situ?

All I'm saying is do your home work and pay for your own valution.

It may be as described but in my 19 years in the business I've never known such a deal unless it's something like Gran selling to Granchild.

CloudCuckooLand

What builder gives away £35k ? Name and address please!?

Ok a lost sale might make him keener to sell, but he could just knock £10k off and shift it sharpish, rather than give away a full £35k.

Doesn't smell right. Don't get hoodwinked.

blushingbride_3

Of course i would get thorough checks.
Also she does buy in bulk

blushingbride_3

getmore4less wrote: »

So your friend is tring to offload a place for £95k that brings in £500pm rent

(OK perhaps not, knock the builder down some more, why has the friend not bought it at this price?)

£500*12/95k = 6.3% gross 10% fees 5.7% net before costs

I bet they are loosing money on this if they paid full wack and could not get cheap lending.


If you increase your motgage is it only the extra lending that is at the 2.58% or all of it? ie do you lose the 0.75% rate on the £70k

Whats the rate on the BTL after 2 years?

Ok lets say
£50k @ 5.29% £221pm
£45k @ 2.59% £97pm

net £450-£318 = £132pm
So you make money but is it enough to cover the costs, I suspect at best you break even so this becomes preperty speculation on value for the work involved.

If all the current lending moves to the 2.59% rate

£50k @ 5.29% £221pm
£70k @ (2.59%-0.75%) £107pm
£45k @ 2.59% £97pm

net £25pm. is it worth it.

What are the mortgage fees?

Hi thanks for the answer.

My current mortgage would stay the same, only the extra amount would be at the higher rate.

I dont know what the BTL rate would be after 2 yrs, would you recomened fixing for longer? 3yrs @ 5.49 4yrs @ 5.99 fees 1.5% of loan amount (min £1500)
Not sure if there is a fee for increasing my current mortgage.

I know its not a large monthly income, but i am hoping that buying now whilst the market is low will benefit me in a few yrs if the market rises again?

It does have to be this specific house, i'd just like an investment.

getmore4less

My current mortgage would stay the same, only the extra amount would be at the higher rate.

well thats positive


I dont know what the BTL rate would be after 2 yrs,

Well find out, how can you have done a business plan without this information, you can't set up a business without ALL the details

would you recomened fixing for longer? 3yrs @ 5.49 4yrs @ 5.99

again whats the rate after the fix

fees 1.5% of loan amount (min £1500)

So you are borrowing £51500 @ 5.29% thats £227pm not £221pm


Not sure if there is a fee for increasing my current mortgage.

Find out

I know its not a large monthly income, but i am hoping that buying now whilst the market is low will benefit me in a few yrs if the market rises again?

How many is a few years the last slump took over 10 years to get back to normal prices after bottoming out this one is still going down.
If the letting business does not stack up on its own you could end up with a cash flow crisis, if that happened when prices were lower than they are now you are truly stuffed.(Think no job, no tenant at the same time)


It does have to be this specific house, i'd just like an investment.

Just as we all would but reward comes with risk.
Work on the buisness basics.

Gorgeous_George

getmore4less wrote: »

My current mortgage would stay the same, only the extra amount would be at the higher rate.

well thats positive


I dont know what the BTL rate would be after 2 yrs,

Well find out, how can you have done a business plan without this information, you can't set up a business without ALL the details

would you recomened fixing for longer? 3yrs @ 5.49 4yrs @ 5.99

again whats the rate after the fix

You cannot know what the rate will be in numeric terms (the only terms that matter). All you can know is that it will be the lender's SVR or a tracker.

getmore4less wrote: »

I know its not a large monthly income, but i am hoping that buying now whilst the market is low will benefit me in a few yrs if the market rises again?

How many is a few years the last slump took over 10 years to get back to normal prices after bottoming out this one is still going down.
If the letting business does not stack up on its own you could end up with a cash flow crisis, if that happened when prices were lower than they are now you are truly stuffed.(Think no job, no tenant at the same time)

Back to normal? Are you suggesting the ridiculously high HPI of recent years was normal. Back to normal and the flat will be £60K max IMHO.


I wouldn't buy a flat - especially at over 3 x my annual salary. It is not worth £130K if they will sell for £95K. Will it always be easy to find a willing tenant? Is the tenant a friend of your friend or the developer? Could be a stooge to make the letability (new word?) look better.

GG

getmore4less

You cannot know what the rate will be in numeric terms (the only terms that matter). All you can know is that it will be the lender's SVR or a tracker.

It is esential for the initial plan to know if it relative to other lending option) likely to be a good rate or not.