Should I buy2let ?

overnetworld

Good Morning again,

Yes this query is linked to my other thread but its a different type of query so thought new thread would be warranted, if not ptb please merge.

I've recently looked at a few 3 bed houses for around 57k, with a view to buy2 let. These wiill be on a buy2let mortgage my idea is to have the repayment period as 15 years and then possibly sell the properties.

As has been seen looking at the bigger picture (in time) is not my strong suit, I was considering having tenants in directly and charging them £400 a calendar month (this way I can be picky and the props aren't in the best of areas).

So income 400 a month

Outgoing mortgage 330-350
I've budgeted 300 anually for building insurance, gas safe cert and home emergency cover etc. I will do tenant check and am considering using a rent gaurantee scheme

Gives me a £500 margin which I hope will be enough to cover any repairs/improvements.

Is it worth using a letting agent ? I am not local to the property, 30 min drive. (sister has used one and tbh i dont think he's earned his money, apart from finding a teanant who she think has sublet, dont think he ever moved in (but she's ok with that as SHE has inspected prop and its in good order)).

Anything glaringly obvious (or otherwise) that I haven't thought about ?

Running_Horse

If the houses are in dodgy areas, then you are likely to have empty periods while you find nice tenants willing to live there. If the tenants aren't nice, expect to pay for regular damage, or periods of non-payment.

Annisele

You don't seem to have budgeted for the costs of finding your tenants, for the cost of your rent guarantee scheme, or for void periods.

missile

Being a LL is not easy money. It can be hard work.

How are you going to vet tenants? Using your figures there is not enough potential profit and your margin could easily be swallowed up with unforeseen expenses. You have not budgeted for costs to purchase and have no exit strategy. Have you checked to see whether you will be approved for BTL mortgage?

G_M

Check this post here.

Do a PROPER budget (not 3 lines on the back of an envelope). If you don't know how, learn. See the resources in this post here (AGAIN).

overnetworld

Thanks, for a credit check it will cost: £35, rent guarantee scheme 3% for £12 per month.

Mortgage etc is not a problem, got an aip.

Thoughts on these figures please.

Mortgage 350*12 = 4200
Rent guarantee = £144 annual (3% of 400 per month)
Credit Check = £30 (should I get prospective tenants to pay this ?)
building insurance, gas safe cert and home emergency cover = £300
Finding tenants (gumtree?) : Free
Repairs/improvement budget: £500- £1000 per annum

=5174 (if £500 budget) = DIVIDE BY 12 = 431 a month

= 5674 (If incl 1K repair budget) = DIVIDE BY 12 = £474 a month (for this price DSS yes, private NO)

unfortunatelly 5174/10 = 517 a month and this is not a figure I could get, maximum I would be looking at is 499 per month from a dss/lha tenant

dopester

Annisele wrote: »

You don't seem to have budgeted for the costs of finding your tenants, for the cost of your rent guarantee scheme, or for void periods.

A quick glance at one rent guarantee insurance info page makes clear the landlord should only take tenants who've passed high standards of screening and credit checks.

If the criteria is not followed, I doubt the insurance provider would pay up.

http://www.landlordzone.co.uk/rent-guarantee.htm

I ask myself how many people looking to rent a £400pm houses in dog-roughish areas are likely to have impeccable credit histories. Quite a few probably but I should think it rules out quite a few too.

lvm

You haven't factored in tax on rental income (as far as I can see).

Why do you want to pay capital? What % rate have you looked at? Why don't you just pay interest only and use surplus for repayment/investment plan.

To me, it looks like if you've got a void period for even a month, you're making a loss.

You asked opinions on letting agents - personally, I wouldn't go there but this is only because I used to work for one (one of largest in Edinburgh) and would never want any of my property left in their hands. On the other hand, letting agents have the legal knowledge and resource to deal with arrears, legal issues etc. But with the figures you're using, I don't think you could afford a letting agent.

overnetworld

Mortgage with teachers bs: http://www.teachersbs.co.uk/mortgages/buy-to-let.aspx

Rate 4.99 with 25% dep. Works out at 340 per month, (348 if add arrangement fee).

My thought were it would be easier to do capital repayment rather than mess about with ISA etc, i'd be ok covering the odd void.

I do need to speak to an accountant but simples me thought: set up company

money in rent - money out (as below) = £0 profit therefore no tax. I thought i'd only be subjec to CGT when I sold. (ducks)

Annisele

overnetworld wrote: »

money in rent - money out (as below) = £0 profit therefore no tax.

Nope, sorry - doesn't quite work like that! You can offset the interest part of the payment against tax, but not the capital part of the payment.

Mrs_Z

I think your margins are too tight - is it really worth the hassle for the projected £100 pcm profit?

As already stated, you have not considered void periods for which only you have to meet the mortgage payment AS well as utility bills.

What about EPC, boiler service (might want to consider break down cover)?

What if you can not find tenants through gum tree? Where will you advertise then? On-line agents are cheaper but high street agents take a huge slice from the rent. What about cost of tenancy agreements?

Who are your target tenants? Will you be accepting people on benefits? That could be another headache altogether - delays in processing, people not paying, etc.... Can you afford to take people to court if needs be?

I think you should really do a lots more research before you take the plunge. Loads of advice is available in the net.

Start from www.residentiallandlord.co.uk

And what happens if the interest rates will rise????? What happens to your profit then.