BTL - profit margins?

Thrugelmir

phill99 wrote: »

But people are obsessed with rental returns.

The real return is capital appreciation over the long term. That's where you make money.

If you were raising investment for your business. One of the first things that investors would be trying to ascertain is do you understand the market that you are in.

BTL was only born in 1998. Prior to then a different ball game. The next 15 years may be totally different again.

anselld

ch3101 wrote: »

I'm in the middle of a buying a 1bed flat for 36000.

Mortgage is 170, rent will be 350ish.

Our total investment will be 10k to do the following :
Deposit n mortgage
Register as landlords
Pay all legal fees
Pay bank fees
Get the flat safety certified for gas and electricity etc
Pay a finding fee to get an agency's help finding a tenant initially
Fresh lick of paint
Any other costs in starting
Keep ~1000-1500 in the account the rent goes into and mortgage is taken from just for peace of mind and in case we need to do any repairs or maintenance etc.

So going on a profit of ~150 a month - 1500 a year (assuming 2 months empty a year) it's 15% yield on the investment.

The mortgage would be 120 a month interest only so we will be building equity at >50 a month as well so say another 600 in the first year, 21% yield assuming everything goes as planned.

Not bad at all eh?

You just have to find the right market and right price point for the area you are buying in.

That is not how you calculate yield, but yes those numbers look reasonable if you can let to good tenants.

gnvqsos

Thrugelmir wrote: »

Starting point needs to be around an 8 to 10% yield.

Any less and the margins aren't worth the risk. Particularly if you are carrying a high level of mortgage debt.

This would mean letting a £100k home for £667 to £833 pcm-where in the UK can this be achieved legally?

gnvqsos

tim123456789 wrote: »

Nope, I think that you've got it about right

I can't understand why all the numpties are still jumping into BTL

tim

Referring to others as numpties is a bit disrespectful-you sound like Noel Edmunds:)

Thrugelmir

ch3101 wrote: »

I'm in the middle of a buying a 1bed flat for 36000.

Mortgage is 170, rent will be 350ish.

Our total investment will be 10k to do the following :
Deposit n mortgage
Register as landlords
Pay all legal fees
Pay bank fees
Get the flat safety certified for gas and electricity etc
Pay a finding fee to get an agency's help finding a tenant initially
Fresh lick of paint
Any other costs in starting
Keep ~1000-1500 in the account the rent goes into and mortgage is taken from just for peace of mind and in case we need to do any repairs or maintenance etc.

So going on a profit of ~150 a month - 1500 a year (assuming 2 months empty a year) it's 15% yield on the investment.

The mortgage would be 120 a month interest only so we will be building equity at >50 a month as well so say another 600 in the first year, 21% yield assuming everything goes as planned.

Not bad at all eh?

You just have to find the right market and right price point for the area you are buying in.

As its a flat. Have you allowed for service charges and possible sinking fund contributions?

Thrugelmir

gnvqsos wrote: »

This would mean letting a £100k home for £667 to £833 pcm-where in the UK can this be achieved legally?

Then my question would be is property a worthwhile investment at the current time? Given the potential combined downside risks of rising interest rates and lower capital values.

ch3101

Thrugelmir wrote: »

As its a flat. Have you allowed for service charges and possible sinking fund contributions?

We are basically going to let all of the money accumulate in a bank account as well as put in £100 per month.

This will build up and if something goes wrong we will have the money to cover it if the insurance doesn't.

If nothing goes wrong this money will give us a deposit on a second flat.

I don't think there are any building service charges, I will look further into that. But as it is just a tenement of 6 flats I assume they will work on a 'if something needs done we'll have a meeting' type way.

robatwork

Never mind your £85 sinking....it would take one replacement boiler or serious replumbing/rewiring job and your profit for months/years is wiped out. You would need a serious increase in underlying house value for your figures to make sense....and this is unlikely in most areas of the country.

tim123456789

anselld wrote: »

Depends what part of the Country it is.

Not IME

It matters not whether 200K represents an entry level property or is top of the market for a particular region. They still rent out at 5-6% yield, in 99% of cases

chucknorris

tim123456789 wrote: »

Nope, I think that you've got it about right

I can't understand why all the numpties are still jumping into BTL

tim

He (and you) hasn't got it right, you can't look at the initial yield/profit and fully appreciate or evaluate btl as a potential investment. It is a long term investment where the yield grows over time and offers the opportunity (in the long run) of capital growth. Also it isn't for everyone, you have to know what you are doing.