Is it still possible to make a profit on BTL???

Generali

Whaddya reckon - easy money or mugs game?

AndrewSmith

Depends really I suppose on your own expectations.

If you are looking for a massive income then I think you will be bitterly disappointed. If you are looking for mid-long term capital appreciation then maybe it will work for you.

The trouble is that with interest rates rising and rental income falling it is becoming more and more difficult to make a BTL viable.

It is quite normal these days when looking at BTL for a client to find that taking all the variables into account (purchase price, 15% deposit, rental income = 125% of the mortgage payments, etc) there will be little or no income monthly from it, if in fact it is even viable in the first place. Yes there are always exceptions and localised variations but in general the financial side of BTL is becoming a lot tighter.

dannyboycey

You can no longer make 'easy money' on an interest only mortgage as interest rate rises mean that mortgage payments are often larger than rental income. If you're happy to cover this cost out of your own pocket, it's still a viable long term investment.

RabbitMad

Yes it is still possible to make a profit. If you've got 160K you can buy a nice 2 bed place around my way and get 625 to 650 pcm. That is vey close to a 5% income (but its taxable) and there is the posibility of capital growth.

There is no such thing as easy money, but its far from a mugs game.

Generali

Cripes! 4 responses before I got the poll up! What I am trying to discover is what people consider to be a high/medium/low risk investment in housing. Is it hard to lose money long term if you know what you're doing? For example, is 5% income ok if you can borrow money at 5%?

pamaris

I said no because I know a couple who would be considered newbies who have 1 home (mortgage 55k) and 2 BTL's (not sure the total mortgages, but monthly mortgage is 250 each). Currently they are losing £80 per month (rent not covering mortgage). They are about to go from a combined income of 40k per year to 20k and they have no cushion for cash flow shortfalls (!!!!). I took the risk of warning them about the precarious situation they might find themselves in but I am not sure how well they received my unsolicited advice.

I think a lot of newbies don't realise:
1) You've got to have the cash flow/ reserves!
2) You've got to realise the interest rates may rise!
3) You've got to understand that if you can't cover these costs, you might find yourself in a negative equity situation.

AndrewSmith

£160,000 purchase, assume 20% deposit
£128,000 mortgage assume interest rate of 5.8% = £619 pm

£619 x 125% (usual calculation lenders will emply to verify viability for lending) £774 PM

Therefore for it to be safely viable using thr above assumptions you would need to get at least £774 pm in rental income.

MORPH3US

Given the current financial climate, I personally would max out ISA's and HISA's with my money rather than get a BTL!

M

prudryden

Time to cash in and leave a little on the table for the next guy, who may end up holding the bag.

RabbitMad

AndrewSmith wrote: »

£160,000 purchase, assume 20% deposit
£128,000 mortgage assume interest rate of 5.8% = £619 pm

£619 x 125% (usual calculation lenders will emply to verify viability for lending) £774 PM

Therefore for it to be safely viable using thr above assumptions you would need to get at least £774 pm in rental income.

I think this highlights the problem people have if they are using a mortgage on a BTL.

However if a person has plenty of equity in their home then taking a mortgage out on their home and buy a BTL with that money and the deposit will provide them with an investment. Will it make a hugh profit, who knows?

Generali

I did another poll a while back and found that some people were happy to use a self cert ('liar loan') to fund a BTL if the numbers didn't stack up. I wonder what proportion of self certs are being used in this way. I guess quite a lot although I have no way of knowing.

Rabbitmad - I am interested in your calculation of profit. 5% yield from the rent is less than you can get from a 'risk free' investment such as gilts or just putting the money on deposit. Presumably, you'd be looking for some capital appreciation to make a profit above what you can get without so much risk.