£200k to invest - Buy to Let?

pdarc

Hi all:

Hope I could get some opinions and advice.
I have a relative who decided to sell their house in the UK and travel the world. They put their money in a savings account earning 3%. But they are asking me to consider investing their money in property near my area which is Pinner/Northwood/Ruislip and surrounding areas (North West London).

They have £200k to invest. They could stretch to £220 total costs fees etc and they don't mind locking the capital in for the next 4-5 years or even beyond, they may come back and potentially live in the invested property.

I've spoken to a few estate agents and they general consensus was...

- Buy to let yield of about 4.5% is practical on rental income, they have seen returns as low as 3.5% and as high as 5.5% if you're really good [I personally have no idea]
- Don't expect property values to increase in the next couple of years. One agent said he thinks prices will slip further in the next 24 months and any increase from 2012 values more likely to happen in the 3-5 year horizon. [no one can be sure but I guess as always property is a long term investment we are planning to hang on for at least 5 years]
- The Rental market is good at the moment as first time buyers are finding it more difficult to buy making rental more necessary [sounds about right to me]
- Be careful as unemployment is a concern and tenants may default on rent which can cause income problems [I'm worried about this]

The disagreement amongst the agents was about whether to leverage a mortgage to buy two properties 100k each with a buy to let mortgage on each.
One agent said it was a no-brainer while the other said my relative is travelling without a salary so this would be risky (or even not possible to gain a mortgage).

What do you all think?
Any advice is welcomed, what would you do with ~200k
Thanks P

Thrugelmir

pdarc wrote: »

said my relative is travelling without a salary

Also problematic. BTL lenders on the whole require a separate source of income.

cwcw

Might have been better and easier to have kept the house and let that out, rather than selling up to buy another to let out with a new mortgage too.

BitterAndTwisted

Five years isn't a long-term investment where property is concerned. A yield of 4.5% can be achieved with other vehicles with little to none of the same risks as BTL. I'd be looking at some of those.

pdarc

BitterAndTwisted wrote: »

Five years isn't a long-term investment where property is concerned. A yield of 4.5% can be achieved with other vehicles with little to none of the same risks as BTL. I'd be looking at some of those.

It is possible their plans will change and decide to dell at 5 years or hold... What sort of investments would that be? Or can you point me to any threads so that I can review?
Thanks

00ec25

if those are gross yeilds then they compare very badly with even something as simple as a 5year money market fixed rate cash deposit.
halifax are doing 5 years at 4% gross right now
http://www.moneysavingexpert.com/savings/fixed-rate-savings#fiveyr

I don't know if he will qualify for FSCS protection since he's overseas but i would suggest that a 4.5% gross rental yeild will net out at below 4% when he knocks off BLT running costs let alone factors in risk for cosst of one off repairs and potential voids.

I'd also suggest that 200k in a cash deposit at 4% is exposed to inflation but that will be a lower risk that his 2ook exposed to house price fluctuation over the next 5 years. The EA has already said he'll lose money in the next 2 when prices fall again.

I would suggest that he needs a BTL with a better yield - being offered 4.5% whilst being told rents are rising is an insult in my book

demontfort

I'm in a similar situation I've got £200k knocking about (most of which is still in shares). However having looked at the London property market neither buying a house for myself or BTL makes financial sense, especially once you factor in even the tiniest of price falls.

If you can handle the tenant hassle factor and are deadset on BTL, look outside London in the big cities in the Midlands or the North. Yes rents are much lower but so are prices and from what I've read yields are much better. However I'd leave BTL to the professional landlord. In a static or falling property market, unless you bag a bargain or have some very pliable tenants then yields just don't stack up for the amateur BTL investor.

My advice load up on shares, there's plenty of low risk companies listed on the FTSE paying dividend yields of 5% or more. There's no voids, no repairs, no agency fees and no moaning tenants and best of all you can get your cash back at the click of a button.