BTL figures, opinions please

getmore4less

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

After the high HPI period you get a slump then a more normal HPI to get back to where you were that took over 10 years to recover after the high HPI last time.

It looked shorter because there was high underlying inflation at that time.

The slump started mid 1989 and mid 2002 before getting back to the previous peak so 13 years also the bottom was 6.5 years into the cycle on the non inflation numbers it looks like 9 years to recover and 3.5 years to bottom with flat prices for a further 3 year.

THe key point isthat rental needs to be a long term investment 10y+ especialy at this stage inthe cycle.

blushingbride_3

yes i would be looking at a long term investment especially as at the moment there is demand for rental properties

I have enough earnings to cover mortgages in the event of unlet as well

Thrugelmir

Putting aside the tax relief available by offsetting interest against rental income.

If you conclude the deal as suggested. You will have total debt of £165,000 to service in cash terms. So in 5 years time with a debt still in excess of £150k. If interest rates were to rise 3%. Your cash outgoing would increase by at least £4,500 or £375 per month.

This is precisely where leveraging up to invest falls down. Ok, while interest rates are stable or markets move upwards. When the slope is against the benefits of leveraging go into reverse.

BTL is a business. Most new businessess fail not through not being profitabile but a lack of cash.

blushingbride_3

Thrugelmir wrote: »

Putting aside the tax relief available by offsetting interest against rental income.

If you conclude the deal as suggested. You will have total debt of £165,000 to service in cash terms. So in 5 years time with a debt still in excess of £150k. If interest rates were to rise 3%. Your cash outgoing would increase by at least £4,500 or £375 per month.

This is precisely where leveraging up to invest falls down. Ok, while interest rates are stable or markets move upwards. When the slope is against the benefits of leveraging go into reverse.

BTL is a business. Most new businessess fail not through not being profitabile but a lack of cash.

I'm sorry i dont 100% understand your response.
Do you mean its a bad idea to increase my current mortgage for the deposit of a rental property?

getmore4less

blushingbride wrote: »

I'm sorry i dont 100% understand your response.

Its simple

If interest rates go up your rent will not cover the interest on the mortgage.

CloudCuckooLand

blushingbride wrote: »

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

getmore4less wrote: »

Its simple

If interest rates go up your rent will not cover the interest on the mortgage.

The rent already doesn't cover the mortgage.

Heaven help the OP when rates shift 0.5% let alone 5%.

And they haven't mentioned the BTL fee - £3k?

getmore4less

blushingbride wrote: »

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

BB

Only you can decide if you think this will work or not

But I think you can see that you need to think about this alot more

Thrugelmir

blushingbride wrote: »

I'm sorry i dont 100% understand your response.
Do you mean its a bad idea to increase my current mortgage for the deposit of a rental property?

As with any business venture you should factor in the potential impact of a a number of scenarios. In order to stress test your business plan. Only ever risk what you can afford to lose.........

I'm neither suggesting it is or isn't a good idea. Only you can decide whether its worth the risk.

madeupname1

I am generally a fan ofo BTL as an investment, but it is a risky strategy to go into this with an immediate monthly loss. Also, your figures don't include other, non-escapeable, expenses such as yearly gas safety certificate (required); buildings insurance on the property (which your mortgage company will require) and an ERC certificate (which is a one off cost). There are also other potential costs, for example yearly electricity certificate (not required but good for peace of mind), void periods when you would have to cover the mortgage payments and utilities (there will be some from time to time, people assume about 1 month every year), cleaning and refurbishment costs when tenants move out. Also, remember, if something breaks down in the property, you will not have the luxury of waiting and saving until you have the money to repair it. It needs to be done quickly and that can up the cost. Also, as others have mentioned that there is no room in your figures for an interest rate rise and do not include an amount for repaying the principal. Neither of these things may matter to you if you are looking for a very long term investment but personally I don't think the numbers look good.