Becoming a buy to let investor with 45k capital - which way forward?

princeofpounds

You've included £40k deposit.

Then you need to factor in purchase and sale costs of the property. Interest payable while the property is vacant awaiting sale.

Not forgetting the 4% - 5% you could have earnt on the deposit money if left in an ISA.

Is it worth the hassle?

All good points, but I didn't speak about them for a reason - when I try to explain the concept of gearing to people, all the incidental costs of doing business obscure the critical point which is the key feature of the BTL business model. If I bang on about other costs, people tend to think I am just putting a downer on their business case in general, when in reality I am trying to get them to understand the particular type of leveraged financial risk they are taking.

But yes, all these things certainly do need to be considered too.

Is it worth the hassle? These days, probably not at all. But it was during the property boom.

Real house prices went from 80 to 210 according to the chart on the housepricecrash website, between the mid 90s and 2008. Assuming that you put a deposit of 8 down with an interest-only mortgage, and that rent and other costs netted off, then you would have made a 17x return on your equity over that period (OK, the calculations are very imprecise but I'm just making a general point here).

I.e. all these BTL millionaires that are knocking around are not special, you would have to have been an absolute mug not to coin it during the biggest property boom in modern history. Right place, right time is all it was about, and I'm not sure that most of the really foresaw this once-in-a-generation boom before it happened.

Mrs_Egg

Have you actually been to look at any of the houses before they have gone to auction? My husband went and lookied at a couple of houses over near burnley a few months back as they looked OK on paper but after seeing the houses one of the gable ends needed a completely re-work and many had subsidance. There was no way you could have made any profit in them even if they were giving them away he said. You need to do a lot more research, if something seems to be too good to be true, it normally is.

Looter

Mrs_Egg wrote: »

Have you actually been to look at any of the houses before they have gone to auction? My husband went and lookied at a couple of houses over near burnley a few months back as they looked OK on paper but after seeing the houses one of the gable ends needed a completely re-work and many had subsidance. There was no way you could have made any profit in them even if they were giving them away he said. You need to do a lot more research, if something seems to be too good to be true, it normally is.

I did have a look at one property, it was a 2 bed flat in Openshaw, Manchester, guide price 25k, sold for 27k. It needed everything, new bathroom, kitchen etc. I really wanted to bid for that one, unfortunately (or fortunately maybe) I didn't have enough for the deposit on the day as I cashed in some premium bonds a few days earlier but didn't take into account the Jubilee bank holidays and so didn't get the funds in time!

Thanks for replies everyone, I think I need to watch a few more episodes of Homes Under The Hammer to make sure I know what I'm getting into!

motherofstudents

Burnley and Openshaw are not good areas, fairly deprived so rents will be low. I don't think Homes under the Hammer is very realistic either but interesting to watch. Just keep investigating, don't rush into anything, you are putting a lot of money into it so just be careful.

penguingirl

Looter wrote: »

Thanks for replies everyone, I think I need to watch a few more episodes of Homes Under The Hammer to make sure I know what I'm getting into!

I think on homes under the hammer they only ever show success stories- no one would agree to go on it if they had just been ripped off. Also most of the episodes are quite old.

googler

Looter wrote: »

I think I need to watch a few more episodes of Homes Under The Hammer to make sure I know what I'm getting into!

I think you need to look at the coyright dates at the end of each episode of Homes Under the Hammer to see when they were made, and ask yourself - am I working in the same market as they were when they bought?

HUtH should not be your only learning or guidance material on the process of becoming a landlord, or on buying suitable rental properties......

Have you read the link posted by Werdnal above? Are you clear on your legal rights and responsibilities as a landlord?

GAH

Dont believe everything you see on Homes under the Hammer. Went on it as an agent years ago when i was in the business, and they wanted me to give an over inflated price, i refused.

Werdnal

OP, as others have said "Homes under the Hammer" is TV land - glossy, shiny, unrealistic and gives a very one-sided view of buying and letting. They want to make an interesting story, and no doubt creative license is rife!

I am hoping your comment about watching more episodes was "tongue in cheek" and no one should base their whole research into becoming a BTL investor on a simple TV programme. Its bit like saying you watch Holby City and Casualty and that qualifies you as a brain surgeon!

And if you are planning to buy at auction, you need to do even more research. Properties usually only end up in auctions as they will not sell easily on the open market. You must never just turn up, flick through the catalogue and bid! You need to view the properties beforehand and ask to see all the legal packs of any properties you might be interested in. Visit the areas where the properties are, see what other places rent for in the area, see what other places have sold for - even knock on a few doors and ask current residents what the area is like! If you decide you may not want to live there yourself for any reason, you may also have trouble getting (or more importantly keeping) tenants!

The more I read your comments the more I realise that you do know know what you are getting into ... :eek:

Looter

Yes Werdnal, got no experience in this so grateful for all the advice I've received, I'm not going to be buying anything soon until I've done my homework!

Lilly_L

I personally wouldn't buy any property in the cheap areas in the NW the house values are still plunging badly.

why dont you try areas like Chester or good areas in Manchester take out some mortage. house pricess will be more resillient and you may get some capital growth after 5 years.