Rents rising again....

IveSeenTheLight

Incidently, RY is increasing.
http://www.landlordexpert.co.uk/index.php/news-centre/4873.html

We've also discussed that costs (interest) are typically lower meaning there is additional profits to be had at this time.

Thrugelmir

IveSeenTheLight wrote: »

A Typical BTL has 30% equity to get the mortgage.

How much of the 30% equity was cash though and not released on paper gain?

The_J

IveSeenTheLight wrote: »

A Typical BTL has 30% equity to get the mortgage.

The discussion you was having was regarding whether the rents achieved would cover the mortgage, hence I considered that a £250k BTL mortgage would be on a higher priced property.

No son. When doing the calculation you cannot add in the cash deposit that a landlord will be putting in because if he wasn't putting that in, it could be invested elsewhere.

Ignore the house, if you had to pay off £250,000 over 25 years it would cost £1500 a month at a 5% interest rate. That is why I said that a tenant would have to pay that much for 25 years for them to own the property outright when in reality it would probably be more like £1000 a month which would just cover the interest and not buy the house outright.

Aberdeen, as you must know, is a rental anomaly due to the oil business up there.

IveSeenTheLight

Thrugelmir wrote: »

How much of the 30% equity was cash though and not released on paper gain?

I'm sorry, I don;t have the foggiest how to get a factual or even statistical answer to that question?

Do you have access to data to answer your own question?

I guess the answer lies somewhere between 0 and 30%.

I'm sure some have used equity that has been built up, whilst others have used cash from other sources.

Question back to you: -

At 25, you buy a £100k property and inflation is 5% each year for 10 years.
The property also increases in value by 5% in each of those 10 years.
You pay £644.30 per month on a 6% mortgage.

After 10 years, your mortgage debt has been reduced to £76,351.98, whilst the property value has increased to £162,889.50.

Now at 35, you have built up an additional £25,218.82 in savings (well you have had 10 years of wage and career growth) and consider using those savings along with releasing equity from your existing home to return the mortgage to £100k on a BTL investment.

The similar property you could buy would cost you £162,889.50, with a deposit of £48,866.84 (savings and equity withdrawel) leaving a mortgage of £114,022.60.

The typical rent for this type of property is £760 pcm, which covers the £475 pcm mortgage interest (also at 5% for ease of calculation) and provides a profitable return of £285 pcm (7% return on investment) which also covers capital repayment, maintenance etc.

Fast forward a further 25 years, your now 60, both properties are now paid in full, one by yourself and one by tenants.
In the meantime, both properties are now valued at £550k.

The savings investment £25k and equity withdrawel £23k (£48k) is now providing a valuation of £550k.

You do sell off the investment and have to incur CGT, assuming personal allowance hasn't increased in those 25 years (which most likely it will), you pay £105k in CGT, meaning your £48k investment is now worth £445k

Is this a better investment than in a savings account?
Hint The return is almost 10 times the initial return whilst a typical savings account will provde just over 3 times return.

Was it worth releasing that equity?

IveSeenTheLight

The_J wrote: »

No son.

LOL, seriously........

The_J wrote: »

When doing the calculation you cannot add in the cash deposit that a landlord will be putting in because if he wasn't putting that in, it could be invested elsewhere.

Not disagreeing when considering whether it is better to rent or buy.

I believe your discussion was whether that rent could be achieved on that level of mortgage.

I simply stated it was not the best BTL option, but it could be doable.

The_J wrote: »

Ignore the house, if you had to pay off £250,000 over 25 years it would cost £1500 a month at a 5% interest rate. That is why I said that a tenant would have to pay that much for 25 years for them to own the property outright when in reality it would probably be more like £1000 a month which would just cover the interest and not buy the house outright.

I'll re read the thread later, I think we are talking about different things

The_J

I think we are talking about the same thing son. I've no doubt that somewhere it would be possible to get the tenant to pay off a repayment mortgage but it's very unlikely.

IveSeenTheLight

The_J wrote: »

I think we are talking about the same thing son.

LOL, there you go again.
I'm not your son.
Maybe I should affectionately call you grandad or more appropriately "neanderthal man"

The_J wrote: »

I've no doubt that somewhere it would be possible to get the tenant to pay off a repayment mortgage but it's very unlikely.

In my experience of the three properties I have as a BTL, rental income more than covers the repayment mortgages.
Indeed, it's pretty standard that one of the requirements is that the rental income must be at least 125% of the mortgage interest.

Certainly in the early years, the calculation may be very close, but in subsequent years with the debt remaining stable / reducing whilst the rental income increases, over the term of a typical mortgage, the rental income will definately repay the mortgage, interest and then some.

For the exceptions, then it's not a viable BTL opportunity.

IveSeenTheLight

The_J wrote: »

I think we are talking about the same thing son.

Just a reminder of your post I intially replied to

The_J wrote: »

Why do you think the landlord would end up with a free house after 25 years?

A £250,000 mortgage at a low arbitrary rate of 5% would cost £1500 a month to pay off the mortgage in 25 years. There's no way rent on a property of that value would be £1500. More like £1000 which wouldn't pay the interest.

Quite clearly your referring to in "no way" the achievable rent on a BTL property with a mortgage of £250k would be repaid by the tenant.

This is why I said your random figures were not good example of a BTL model, but verified that it was "in some cases" achievable.

Now, time to settle back down with your pipe "grandad", otherwise you'll gain a reputation as a wind up merchant

The_J

IveSeenTheLight wrote: »

In my experience of the three properties I have as a BTL, rental income more than covers the repayment mortgages.
Indeed, it's pretty standard that one of the requirements is that the rental income must be at least 125% of the mortgage interest.

Yes, of the interest. Not the "capital and interest = repayment". If you are ignorant of the terms we use in the industry it doesn't make you right.

Certainly in the early years, the calculation may be very close, but in subsequent years with the debt remaining stable / reducing whilst the rental income increases, over the term of a typical mortgage, the rental income will definately repay the mortgage, interest and then some.

For the exceptions, then it's not a viable BTL opportunity.

Maybe you are referring to Aberdeen, after all that was the only example you could provide where rent was more than a repayment mortgage. Even then, it was on a house that was valued at £100k more than the acceptable level (reasons previously explained) and the rental excess was only £100.

I have won this argument. I'm not sure how many times I can say the same thing before it becomes embarrassing for you.

IveSeenTheLight

The_J wrote: »

I have won this argument. I'm not sure how many times I can say the same thing before it becomes embarrassing for you.

Hmmmm.......
Wind up merchant who claims "vistories" in a debate without merit, with a fettish for using belittling affectionate names.
Someone who can't reasonabbly debate posts or stick to the poonts raised.

I've got a feeling I've heard this all before.

I can foresee that you'll come out in 2 years time and claim you never were a financial advisor and that the joke is on us.

Indeed, isn't it obvious with your user name being The "J" that this is in reference to you being The Joker.

I wonder, are you any good at drawing cartoons?

Time for me to get out whilse the going is good, else you'll change from calling me "son" to being one of your "gals"