Buy-to-let investments

WickyWickyWa

Hi all,
Looking for some free advice really.
I am getting made redundant in approximately 1 years time. I will get quite a sizeable payout, but obviously wont have a job. I have been considering becoming a full time landlord using the redundancy payment to buy several properties to let.
As far as I can see, by using a 25% deposit for each property, I would make very approximately £300pm per property which means I would have to have about ten properties to replace my current income.
Obviously I am considering tax, etc, but still in early stages of researching and I thought here might be a good place to get some pointers.
I think I am being a bit vague about what I'm asking for lol - maybe start with general advice and see where it goes?

Thanks in advance.

kingstreet

A BTL proposition requires the rental income to be around 125% of the monthly interest payment, ususally based on a rate of 5% or 6% per annum.

Therefore, a £100k purchase with a £75k mortgage might mean an interest calculation of £75k x 6% = £375 x 125% = £469 minimum monthly rent.

Keep this calculation in your mind to establish the feasibility of a particular property.

ACG

125% is magic number with BTLs.

Also with BTL properties the admin fee the lenders charge is higher than a normal mortgage - sometimes closer to £2k.
If your looking at 10 properties then its worth sitting down with broker maybe closer to the time. Some lenders will only allow you to have x number of properties with them, some will allow x number of properties all together. Once you start getting above 5 that will start to come into play so its worth planning who you will go with and in which order.

Another thought could be that you buy a building with a few flats in 1 place - you get to charge a management fee then too to look after the building - the downside to this however is all of your eggs are in 1 basket.

Youve got a year to plan this though, so youve got plenty of time to research. Maybe visit a few auctions just to get a feel for it, heck right move all the time you might just see a bargain pop up.

Also when i first started to buy property i bought with my heart and not my head. Needless to say i didnt stay in it long, i didnt lose money but i just about broke even. So ive learnt a few lessons along the way.

WickyWickyWa

Thanks for the responses - your fast.

I've seen the 125% mentioned before. From the small amount of research I have done so far, it seems I would be better off buying several flats rather than 1 or 2 houses.
In the areas I looked at 60k seems to be the minimum for a decent flat. After taking off the 25% deposit and working out the mortgages, I think I would be left with approximately £300pm per flat before tax. So I'm thinking I would need about 7 or 8 to continue with my current standard of living without another job (allowing for emptyness, etc).
Hopefully I'm not rambling too much.
Was thinking perhaps one (or a few) of the banks might do some advice under their small business advice schemes.

somethingcorporate

I am confused by your figures - is the £300 pm the rent? or profit?

WickyWickyWa

somethingcorporate wrote: »

I am confused by your figures - is the £300 pm the rent? or profit?

Profit - very roughly

WickyWickyWa

To elaberate a little:
£60K flat minus £15 deposit = £45K mortgage.
4.5% intest = approx £170pm over 25 years interest only.
Rent = £500 pm (low end)
So profit = approx £300pm

pheonixrising21

There are some estate agents who do guaranteed rental schemes. I have a flat of my own which I now rent out since moving in with my partner. They guarantee to start paying you rent 1 month after you make the flat available to them, cover all unoccupancy periods at their risk, cover all hassles of tenancy - they are effectively your tenants and they sub-let. Obviously, you don't get full market value for the rental, but it is almost risk free. Not sure how these would work with multiple BTLs though

One thing I would say is that your figures seem optimistic, but this may be due to the area you are looking to buy in. My flat was bought for £78k 5 years ago, probably worth around the same now. Market rental is £395 pcm. Thats just outside Sheffield.

RenovationMan

WickyWickyWa wrote: »

To elaberate a little:
£60K flat minus £15 deposit = £45K mortgage.
4.5% intest = approx £170pm over 25 years interest only.
Rent = £500 pm (low end)
So profit = approx £300pm

There will be other associated costs with BTL such as landlords insurance, agency fees, voids, etc.

Are you sure that there will be enough profit to replace your current job income?

ACG

I sell a product that will get you a tenant for £75+ VAT and will do the rent guarantee, ensure your client is credit checked and signs a AST etc for 6%...its cheaper than a letting agency as the landlord has to arrange gas checks and do any work but your covered from the lgal side if you have problems getting them out. (Im not selling, this is just to the post above).

A letting agents would charge around 10-12% and do pretty much everything.

So that would be between £25-50 for the OP to fork out. Its still a pretty generous profit margin and thats presuming he doesnt do everything himself.

I imagine there would be a pay cut involved for the OP, but considering he would be self employed no boss, doesnt have to get up at whatever time and has much more free time id be prepared to take a pay cut for the improved quality of life.

RenovationMan

ACG wrote: »

I sell a product that will get you a tenant for £75+ VAT and will do the rent guarantee, ensure your client is credit checked and signs a AST etc for 6%...its cheaper than a letting agency as the landlord has to arrange gas checks and do any work but your covered from the lgal side if you have problems getting them out. (Im not selling, this is just to the post above).

A letting agents would charge around 10-12% and do pretty much everything.

So that would be between £25-50 for the OP to fork out. Its still a pretty generous profit margin and thats presuming he doesnt do everything himself.

I imagine there would be a pay cut involved for the OP, but considering he would be self employed no boss, doesnt have to get up at whatever time and has much more free time id be prepared to take a pay cut for the improved quality of life.

Could you advise on average costs on the other expenses of running a BTL business? I mentioned landlord insurance and I guess there will be periodic gas checks and other costs? I'd be very interested to see what the average annual running costs would be as BTL is starting to look increasingly attracted as an investment vehicle.