Letting your first property...

Skiny

Hi,

So I'm looking at buying & letting my first ever property, and was just wondering what some of the more experienced landlords think?

I realize there will be some initial buying costs (solicitor, arrangement fee, etc), but other than that, does this sound right? Or am I missing something crucial?

Flat cost: £62,000
Deposit: £18,600 (LTV 70%)
Mortgage: £43,400
Rate: 3.5% (BTL est)

Mortgage cost/year: £1,519
Mortgage cost/month: £127
Estate agent fee/year: £480
Insurance (buildings, legal, rent guarantee): £220
Maintenance /year (est): £200
Costs/year: £2,546

Rent/year: 4,800
Rent/month: 400

Balance: £2,254
Unoccupied for 1 month - £400

Profit?/year: £1,854

:think:

The estate agent I spoke with estimated £450/month rent, so I've assumed £400 to be cautious.

franklee

I think you need to compare the rental position against what else you could do with £18,600. Simplest thing in a savings account at say 3.5% would bring in £651.

So you are going to all that effort for £1,854-£651=£1,203.

But your figures are on the optimistic side as there is little to allow for when things go wrong.

On the fees what does Maintenance /year (est): £200 cover? Flats usually have a maintenance charge for upkeep of the communal areas, external redecoration and repairs, plus ground rent. If there is a lift this can get quite pricey. Does your £200 cover all of that and internal repairs you will be responsible for should the boiler break down etc and for regular things like the yearly gas safety certificate. I'd be amazed if £200 covers it all.

Skiny

Hi,

Thanks for the reply.

Surely a 3.5% savings account isn't even beating inflation, so in a way I'd be losing money?

There isn't any maintenance charge as there are no communal areas. Also no ground rent, nothing to really maintain externally and no lift. There is no central heating, just storage heaters, so I assume maintenance on those is very minimal (maybe some electrical check every few years?). The property doesn't have gas, so no certificate would be needed either. The £200pa was just an estimate to maintain the little things, and have money set aside to redecorate every few years. Should I consider much higher maintenance costs?

What % rate of return do most people achieve?

theartfullodger

What makes you think the tenant will pay you??


My standard advice:

ONLY start as a Landlord if you have BOTH the financial & emotional reserves to cope with the "tenant from hell" (or "agent from hell") such that you ain't paid for (say) 7 months, you keep paying legal & mortgage bills and T then 'phones you up at home (he's entitled to your name & real address..) interrupting your dinner party in month 6 @ 10:37pm Saturday nite with "toilets leakin' gorra fix it" and you reply "Thank you my good man I will have my maintenance team round Monday.." and he says "nah, nah, gorra do it na... 'orrible pong, mould on lounge ceiling below & things growing in lounge carpet.." & you say "oh, shame, how long has this been going on for dear Sir...." and he replies "ah, dunno, 3 maybe 6 weeks - when U coming??" and you know you've got to fix it @ your expense (at least initially..) or T will explain disrepair & harassment to Judge & will be allowed to stay even longer...

Me, I make money from lettings - most years but not all..been threatened a few times (not hit yet..), had Police involved a couple of times (at my request..), been through courts (my instigation) several times, had squatters including infant under 2 (I evicted them..), recovered over £6k in unpaid rents through the courts, told of drug dealing in one house, had criminal damage, had letters from council Environmental health about problems (mould, ventilation..) caused by T, had attempted identity theft by tenant/ex-tenant (mail order accounts), had subletting which was earning T more than he should have been paying me - but he wasn't...

Most tenants are fine & pleasant: Most Landlords ditto: Probably some agents ditto...

Get booked on a course like this
http://www.rla.org.uk/landlord/courses/course1.shtml
- NLA & RLA both run them..

Welcome to the fun world of property lettings... Are you sure you want this??

Cheers!

Artful

PS Rent protection?? Now, is it you or them that are better at finding ways out of the policy responsibilities...

PPS & if house prices drop???

anselld

Are you sure you can get a BTL mortgage at 3.5%? Seems low.
What if interest rates (eventually) rise?

poppysarah

Skiny wrote: »

The estate agent I spoke with estimated £450/month rent, so I've assumed £400 to be cautious.

Don't assume anything.

Do the research. Get the local paper and see what is offered at what rents. What's listed on rightmove and other sites that list lettings.

Do a LHA check and see what someone would get on benefits.


Flats are likely to cause you more problems financially.

kingstreet

anselld wrote: »

Are you sure you can get a BTL mortgage at 3.5%? Seems low.
What if interest rates (eventually) rise?

I agree. For example, a 2 year tracker with the likes of TMW is 3.94%, On top of that, the arrangement fee is 3.5% of the mortgage amount, leaving you with an additional cost of £1,519.

The cost of the mortgage is therefore likely to be higher than projected.

The insurance issue is also questionable. If this is a leasehold flat, there would normally be a service charge including part of the buildings insurance cost. If there isn't, I believe the cost of such insurance taken by the leaseholder would be much higher than the projection given.

googler

Skiny wrote: »

So I'm looking at buying & letting my first ever property, and was just wondering what some of the more experienced landlords think?

The estate agent I spoke with estimated £450/month rent, so I've assumed £400 to be cautious.

So you're going into business. Do you have a business plan? Does it extend to more than the bare bones figures you've quoted here? Have you spoken to anyone else currently in this business who you can turn to for advice, or is this forum your only sounding board?

Which estate agent? The one selling you the property? Do your own research.

discplayer

Skiny wrote: »

There isn't any maintenance charge as there are no communal areas. Also no ground rent, nothing to really maintain externally and no lift.
...
The £200pa was just an estimate to maintain the little things, and have money set aside to redecorate every few years. Should I consider much higher maintenance costs?

No communal staircase/hallways/lights?

It's wise to have money aside for these things but it should still form part of your budget. Also, you could easily spend a chunk of that on a clean-up/minor redecoration when you get the keys.

Would you be providing any kitchen white goods? If these are not included in the flat's purchase price you'll need to budget for them too.

Skiny

Thank you for the replies.

Regarding the rent, the cheapest place available in my town is £425/m. Other than that, everything else is currently £500 and up. The lowest I've ever seen a property rent for is £375.

For now I am just researching and trying to get a feel for everything. I don't own any property yet and would like to buy a place for my future, but rent it out for some years first.

What do you consider a typical/good rate of return on invested money?

googler

Once more;

You're going into business. Do you have a business plan?