BTL, could we do it?

catwoman

We currently own outright (no mortgage) a semi worth about £180K and wonder would it be possible to buy a small house to let with the hope of giving it to our daughter when she is 21 (only 4 now). we have no savings and only an income of £20K. Could we use our house in some way? or get a mortgage? or is it a totally impossible idea?

Guy_Montag

You could borrow against your house to buy a flat, let it & if you have no troubles with your tenants for the next 17 years & no major repairs, & you get a yield of about 10% you should have a place to pass on.

On the minus side, you could lose your current house.

Why not try to increase your income & put a little money aside to set your daughter on the road to financial success by giving her love, attention & a good eduction?

ds1980

still don't understand where people get their sums from?

In 17 years that flat will be worth far more tahn whatever you'd have paid for it. IN 17 years that yields will be more like 50% not 10% as you should have paid off the mortgage by then and any rent - fee's is profit.

You don't pay for the mortage in the first place as someone else is doing it for you.

Im just about to buy 2 more with far greater yields than 10%

your making money by borrowing money its a no brainer if you ask me. If their semi is 180k i imagine a small flat is only £100k which is nothing. in terms of repayments go for it as long as your willing to keep it for many years then you'll be fine.

catwoman

Am I being naive in thinking the rent will pay the mortgage repayments?

kingkano

Id say in the current climate it depends. remember alot of people are already out there snapping up everything and anything where the rent value will pay the mortgage cost. Its easy money after all.....

Id probably NOT do it at the present time. Although thats based wholly on my own personal opinion. As your daughter is only 4 do you already have stuff like a child trust fund in place etc?

sortofok

ds1980 wrote: »

In 17 years that flat will be worth far more tahn whatever you'd have paid for it.
Not necassarily. I bought a flat in 1987 for 26k. I am currently in the process of selling it for..... 32k

IN 17 years that yields will be more like 50% not 10% as you should have paid off the mortgage by then and any rent - fee's is profit.

Not necassarily. Yields have been falling for years and an IO mortgage needs to have capital repaid

You don't pay for the mortage in the first place as someone else is doing it for you.

Not necassarily. The flat could be empty. And don't forget most peoples deposit is actually a loan (MEW) which also needs paying back.

Im just about to buy 2 more with far greater yields than 10%

Not necassarily. There are numerous hidden costs that you haven't even accounted for.

QUOTE]

I am speaking from experience. Beware of debts masquerading as investments.

Romani_Ite_Domum

catwoman wrote: »

Am I being naive in thinking the rent will pay the mortgage repayments?

If you bought a place for £125K, a repayment mortgage would be about £800pm for 17 years.

Do you think you could rent out a place for for that, cover any rental voids, and allow 10% maintenance?

inmypocketnottheirs

catwoman wrote: »

Am I being naive in thinking the rent will pay the mortgage repayments?

You will have to do the sums. How much rent are you likely to achieve, what are the mortgage repayments. Will the rate be fixed? What happens if the mortgage rate goes up, will you be able to fund any potential shortfall. Also you need to factor in any void periods, i.e. one tenant moves out, you could easily wait between 4 to 12 weeks to find another tenant that moves in. Will you be able to make the mortgage repayments in this period? Not forgetting any potential bad tenants, who do not pay the rent, trash the place and leave it un-rentable.

I have been a BTL landlord for around 15 years and have suffered all the above problems (and more). However I have made good money (from capital appreciation) but I am able to shoulder the problem periods.

Only you can decide if BTL is for you, for me (and others) it works, yet there are plenty of folks who have bitten off more than they can chew and severely regretted their decision.

I am not trying to put you off, there are plenty of others here to do that. My advice is purely practical, and is through first hand experience.

Very good luck to you!

Buy to Let is not for the faint hearted. You need a strong constitution and nerves of steel.

inmypocketnottheirs

sortofok wrote: »

ds1980 wrote: »

Not necassarily. I bought a flat in 1987 for 26k. I am currently in the process of selling it for..... 32k

Out of interest, where is the property?

sortofok

inmypocketnotheirs -could not agree more.

Well said. :beer:

(post 9 that is)

RabbitMad

Buying a single property is a risky investment. (would you have put all your money into Enron shares?)

If that hasn't put you off then let me list some of the risks
1. You buy in an area that goes down hill
2. Subsidance
3. More regulation on letting property (stronger tenants rights)
4. Tenants that wreck the property
5. Housing market crash
6. Relationship breaks up due to money worries having taken on extra house (make sure OH is in full agreement)
etc.

Still not put you off. Good so you'll be going into this with eyes open.
Now lets look at some potential sums:
You buy a property at 100K, the market crashed 20% straight away. Then house prices rise at 5% a year. You pay 7.5% interest (£875 p month on a repayment basis). Therefore when your little girl is 21 she'll have a property worth 175k and you'll have spent 170K saving for it. If of course you've rented it out in that time at say 600 pcm no voids or other costs etc its only cost you 53K.

Basically, if you can buy right you should make money, if you buy poorly you'll end up worse off.

its entirely your choice / gamble