Amount of cash needed for letting out property

molit

Currently thinking about a btl flat, and want to get my head round the sums. AFAIU, it is expected that 10 out of 12 months the property is occupied =- give or take, but just want to understand how much continency money I should put aside:

bit of info - buying off plan - rent = £550-600 a month, less management fee

mortgage ~ £450 a month (interest only)

ground rent and management fees for flat - about £800

Buying as a long term investment.

My guess is that ideally I should have 3 months rent, plus about £800. Does this sound reasonable, or on the light side - this is my first investment property. Also, is it best to set up a company to do this, have a seperate bank account etc? jsut really after peoples thoughts about cosdts and ways of operating this kind of thing

TIA

clutton_2

if the developer has told you the rent will be £550-£600 - i would budget on £100 less rent per month. buying off plan as an investment is a very tricky business - read www.singingpig.co.uk and do a search on off-plan - you will read some salutary tales.

poppy10_2

molit wrote: »

Currently thinking about a btl flat, and want to get my head round the sums. AFAIU, it is expected that 10 out of 12 months the property is occupied =- give or take, but just want to understand how much continency money I should put aside:

bit of info - buying off plan - rent = £550-600 a month, less management fee

mortgage ~ £450 a month (interest only)

ground rent and management fees for flat - about £800

Buying as a long term investment.

My guess is that ideally I should have 3 months rent, plus about £800. Does this sound reasonable, or on the light side - this is my first investment property. Also, is it best to set up a company to do this, have a seperate bank account etc? jsut really after peoples thoughts about cosdts and ways of operating this kind of thing

TIA

How much is the house worth?

Jonbvn

New build flats are now generally being seen as risky investments for several reasons.

1. Massive over supply in a lot of cities (Manchester, Leeds, Cardiff etc.) , causing great difficulty in getting and retaining good tenants.
2. Due to over supply, new build flats are likely to fall first and most, should (when?) a correction occur. Evidence of this is already apparent, with developers offering numerous different incentives to buyers.

The above points aside, at 450pcm I/O means you are borrowing 90k (assuming 6% IR). Assuming 75% LTV, means a property price of 120k. 600pcm rent would seem a bit optimistic.

Have you been listening to a developer's sales team?

teabelly

I'd say you'd want at least 10 months rent in the bank per property ie in this case about £5k. Rental short falls are common in the first couple of years of ownership. Currently new builds are considered to be over priced and in some places there is serious over supply in the rental market. Consider whether it is better to rent at full price for 10 months of the year or rent it out at less than the market rate and have it occupied more of the time. Talk to rental agents that are independent of the developers as they may suggest better places to put your money and will give a more honest appraisal of the situation.

molit

Thanks for all the replies - had suspcions that the place had been overvalued, and am glad to hear (in a way) that my suspicions had some grounding.

In short I had only had the blurb, and had a quick look on rightmove, and didnt think the sums added up - also the oversupply in those cities menioned by jonbvm seems to indicaite that buying off plan is a better business for those trying to sell to me, than myself.

This is an area wihch I would like to get into for a long term investment - but it appears that there are a lot of pitfalls - I'm guessing from some of the replies that there are a few peeople who have built up a portfolio of property - in short how did you do this?

dolce_vita

To begin to build property portfolio now with sky high prices, high interest rates, falling yields, oversupply of flats, changing sentiment and general uncertainty in the market would be very silly indeed.

I currently own 4 properties (2 of which are mortgage free), but all were bought during a slump or while prices were beginning to rise. Consequently, the mortgages are quite low and the rent easily covers them.
This means that in the present situation, I can undercut 99% of other landlords to attract tenants and my properties are never empty.
the capital appreciation has also been significant.

You would be better off saving as much as you can for a deposit and buying when prices fall to more realistic levels.

lynzpower

molit wrote: »

Thanks for all the replies - had suspcions that the place had been overvalued, and am glad to hear (in a way) that my suspicions had some grounding.

In short I had only had the blurb, and had a quick look on rightmove, and didnt think the sums added up - also the oversupply in those cities menioned by jonbvm seems to indicaite that buying off plan is a better business for those trying to sell to me, than myself.

This is an area wihch I would like to get into for a long term investment - but it appears that there are a lot of pitfalls - I'm guessing from some of the replies that there are a few peeople who have built up a portfolio of property - in short how did you do this?

ever been in a new build flat! the one I just got shot of last year could never be a long -term investmetn. it was so shonkily made ( yes,. stud walls, Im talking about you) I doubt it would be even standing in 15 years LOL