Fool-proof Buy-to-Let: Can this be?

edited 30 November -1 at 1:00AM in House Buying, Renting & Selling
10 replies 1.5K views
Scooby_ManScooby_Man Forumite
131 Posts
edited 30 November -1 at 1:00AM in House Buying, Renting & Selling
OK, lets say I buy a property on a 25 year mortgage.

I have tennants for 25 years and each rental payment has covered my monthly mortgage payment.

So 25 years later I sell the property. Taking away the tax etc, I am bound to have made a huge gain if the value of the property is more than the deposit for the mortgage (let's face it, it will be).

So isn't this foolproof?

over 25 years the house prices will go up and down, but the price after 25 years is bound to be higher!

Surely it's a no-brainer?!
Smile and be happy, things can usually get worse!

Replies

  • muckellmuckell Forumite
    248 Posts
    Your more than likely right, BUT that is a very optomistic view to take.

    What if you have months where the property is not let?

    What if interest rates claim to the 10+% rates seen in previous decades?

    At the end of the day anything could happen in the next few years, let alone the 25 years your talking of.
    You Can, If You Think You Can!
  • Scooby_ManScooby_Man Forumite
    131 Posts
    10% rises will not be sustained and for the most part nearly all mortgage repayments will be covered (somewhat of an assumption, but look at the demand for renting compared to supply of tennants - e.g. near unis and you can't lose!). As a full time earner living with parents I am happy to take the risk that i may have to pay or add additional payments at some points in the 25 years.

    For me, I think Buy-to-let is just such a no-brainer (unless interest rates go over 100% at which point I wouldn't be able to afford the mortgage repayments!)
    Smile and be happy, things can usually get worse!
  • BoltonMinxBoltonMinx Forumite
    1.4K Posts
    There are associated costs to letting:

    Agents rates
    Costs associated when the property is empty - council tax, gas, elec, water
    Redecorating costs
    Allowance for repairs
    Annual gas inspection

    I've considered these variations, targeting:
    Lower end of the market like student accomodation - Bolton has just been granted university status for example.
    Higher end of the market, e.g corporate letting - presentation must be to a high std.
    Holiday apartment rental - touristy areas which will mean higher purchase costs. My ma is Spanish and we are considering getting an appt in Madrid / Malaga.

    Here is an interesting article about when it all goes wrong http://property.timesonline.co.uk/article/0,,14050-1464388,00.html
    "There are only two lasting bequests we can hope to give our children; one of these is roots, the other wings" - Hodding Carter

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  • m00niem00nie Forumite
    2.3K Posts
    ✭✭✭✭
    you will need a 15/20 % deposit , you will have to pay for insurance, you will have to allow for times of non letting, you will have to pay for repairs, maintenance.

    will you chose an agency to manage things ( they charge) or will you look after it all yourself, finding the tenants, collecting the rent, tennancy ageements etc.

    there are many things to look at, but it can be a good route to take.

    but dont just assume its all plain sailing and so easy.

    just make sure you reseach EVERYTHING properly. (there are quite a few members on here that are landlords that always seem happy to offer help)

    good luck
  • Don't forget maintenance

    and what happens during the times the property is empty?
  • I have lived in rental accom for over 10 years now and in all properties some problems occured, there seems to be a theme with boiler systems when the gas man comes to do an inspection they always seem to find a reason not to supply a safety certificate either the room needs fireproofing, not enough ventilation, the microbore pipes are too small to allow for expansion. the last property we lived in the landlord replaced the whole boiler and shelled out £2-£3k just to get a safety certificate. Now the property I have lived in for 4 years has had each anual inspection with a couple of tiny problems but we have had at least 4 visits a year from gas companies.
    oh and the back brick wall is not safe an some has fallen apart i'm dreading calling the landlord as i don't want him to say the house upkeep is far more expensive than he expected and kicks us out like the last house. (boiler system payment was 4-5 months worth of rent)
    Check out this site they seem to think on the forum that buy to let is dead.

    I would do plenty of research before trying this plan
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  • PalPal Forumite
    2.1K Posts
    ✭✭✭✭
    One problem now is that mortgage payments are not fully covered by the rent i.e. the interest might be covered but the repayment amount is not. As a result you owe the same amount after 25 years that you did at the start.

    The other problem is that potential negative equity can mean that you end up unable to sell up a property that is losing you money.

    Students are more prone to causing damage: Not always the case but get a bad bunch and you are in trouble, and you know that the turnover is going to be very high. They also don't tend to rent over the summer. I was looking at buying a BTL a couple of years ago for my stepdaughter to live in while at college, but the risks were so great and the potential upside so small that I decided against it.

    If you get the right property it might work, but certainly BTL in the SE of England now seems very high risk. By all means go for it, but as others have said, read up on the subject and examine all of the potential risks before you make your choice.
  • One thing that you will have absolutely NO control over is the neighbours!

    An acquaintance of mine purchased a nice little terraced house and got some good tenants. Gradually over the next few years all the neighbouring houses became inhabited by druggies. The nice tenants moved out, no new ones wanted to live there (unsurprisingly) and now the house can't be sold because nobody wants to buy it either.

    I guess everyone reading this will know of an area that this scenario could apply to
  • your quote of "i'd only be in trouble if interest rates went up 100%" could be a bit misleading.....or misplaced comedy.

    Lets say your paying interest only at 5% (I know buy to let mortgages cost more than residential but 5% is a round figure).
    every .25% rise adds 5% to your cost. this may not sound much, but if your paying £500 a month in interest and getting £600 in rent, then soon you'll be making a loss.........and thats before any fees/expenses.

    On the other hand, I do have BTL properties, and still think they are a good investment......if you buy the right property. It's just that finding the right place is getting tougher, but theres still plenty out there if you look!
    Anything I write is based on my opinion only. Before acting upon any advice from anyone on a forum further professional advice should be sought.
  • gallygirlgallygirl Forumite
    17.2K Posts
    Part of the Furniture 10,000 Posts Name Dropper Mortgage-free Glee!
    ✭✭✭✭✭
    I agree that generally it's a good thing - I have 2 and partner has 2. By necessity (i.e. all the deposit we could afford and demographics of local rental market) we have gone for bottom end of market - providing 'council houses' for families. You rarely get voids at this end of the market - all 4 houses have the original tenants - 2 lots of 6 years, 2 lots of 18 months. Before we bought the houses I put an ad in the property to let section of local paper to gauge interest - could have let each one 10 times over, so even if did lose a tenant there are plenty more out there.

    We don't make a lot of money but costs are covered, any excess we had before we remortgaged to buy last 1 went towards our own mortgage (better than paying off BTL mortgages as you get tax relief on interest payments).

    One tip - if you go for this end of market DO NOT get housing benefit paid direct to you - make the tenants pay you themselves. You will be liable for any overpayments otherwise. My partner wanted HB to be paid to us but I persuaded him otherwise - found out today one family has been claiming HB as a single family household although there is a full-time working male partner. They have been overpaid +5k, if the HB had been paid direct to us we would have been liable for this. (Partner now thinks I DO know better than him after all - don't suppose it will last.....)

    Good luck, let us know what you decide.
    A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
    :) Mortgage Balance = £0 :)
    "Do what others won't early in life so you can do what others can't later in life"
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