BTL Returns

wotsthat

michaels wrote: »

Interesting comments that if yield went low enough some BTL owners would cash out....so thei begs the question, if yields go low enough would it make sense to sell to rent?

Obviously str is a very risky strategy as unless you never plan to own property again (which might be via helping children onto the property ladder rather than directly) then you are effectively 'short' housing. Plus of course PPR has huge tax advantages (arguably extremely unfiar but such is life).

However if it got to the point where the capital in your house could earn you 5k per month invested eleswhere and you could rent an equivalent house for 3k per month then str would start to make sense wouldn't it? (plus there is the saving on maintainance etc).

If I was a renter then super low yields and high investment returns might be persuasive enough to keep me renting.

Selling to rent though (especially with a plan to buy back in) would be less appealing. I can sell and buy back £500k of shares for £19.90 commission, £1 PTM levy plus 0.5% stamp duty on the buyback. The spread for doing the same thing with a £500k house kills it.

I'd need to be really sure I could maintain the margin on investment return over rental yield long term and be confident in my house price predictions.

michaels

chucknorris wrote: »

I'm selling up (soon) as part of my original plan to sell in my 60's (I invested in my early 30's), not much to do with yields. Selling to rent rarely makes sense, it might work if someone had to sell anyway (i.e. relocating) again though that is down to the individual.

But if you str'd you would never have to buy back in so you could just look objectively at whether you could earn more on the capital currently tied up in your ppr than it would cost you to rent an alternative.....

wotsthat

mwpt wrote: »

That is effectively what I said in a thread a month or so ago. In this weird market, there exist neighbourhoods in London where if you really wanted to live in a that neighbourhood, it would make more financial sense for you buy another house in a different location to rent out, and rent the house you want to live in.

The danger being the market becomes 'unweird' after you've shelled out to buy a house in an area you actually don't want to live in.

mwpt

wotsthat wrote: »

The danger being the market becomes 'unweird' after you've shelled out to buy a house in an area you actually don't want to live in.

Well, I've essentially done it the other way. I picked and bought in an area that isn't exactly glamorous but transport is decent, it's near nice areas, near friends and is becoming pretty popular with younger people due to being fairly affordable (or was). My strategy was always that if I didn't like it here short term I'd rent the house out and then rent a place back in Wimbledon. However, as it turns out, I do like it here.

Glover1862

I'm thinking of buying another BTL in Dunstable, it's £130000 with a rental income of £625 pm, yield calculator seems to suggest 5.77% which on the face of it is not too bad, however doing my own very rough figures its seems to make virtually no money.


My wife loves the place and suggests even if it breaks even we could repay the capital and it would make a nice starter pad of one of our children, I'm not sure how much more capital appreciation it has left as its 1 bedroom and Luton/Dunstable area has gone up a lot as not far from London and cheap compared to other areas.




http://www.rightmove.co.uk/property-for-sale/property-36355323.html?premiumA=true


£3600.00 75% LTV I/O Mortgage (£300 per month)
£1534.00 Ground rent and Service charge
£400 Gas Boiler Cert/ Maintenance cover
£250 general maintenance (travel cost etc)



£5754.00 Cost per year



Income at £625 per month inc 1 month void (self manage)


£6875.00 Income per year


I'd make £1121 per year, not a lot but wife likes it, its relatively new with little maintenance required and 115 year lease, ready to exchange as buyer pulled out so could be done before April. Any thoughts, I'm I calculating wrong?

wotsthat

mwpt wrote: »

Well, I've essentially done it the other way. I picked and bought in an area that isn't exactly glamorous but transport is decent, it's near nice areas, near friends and is becoming pretty popular with younger people due to being fairly affordable (or was). My strategy was always that if I didn't like it here short term I'd rent the house out and then rent a place back in Wimbledon. However, as it turns out, I do like it here.

You purchased what you could afford and got on with life rather than waste time worrying about not being able to buy what you deserved.

That used to be quite a popular approach before the internet.

michaels

Glover1862 wrote: »

I'm thinking of buying another BTL in Dunstable, it's £130000 with a rental income of £625 pm, yield calculator seems to suggest 5.77% which on the face of it is not too bad, however doing my own very rough figures its seems to make virtually no money.


My wife loves the place and suggests even if it breaks even we could repay the capital and it would make a nice starter pad of one of our children, I'm not sure how much more capital appreciation it has left as its 1 bedroom and Luton/Dunstable area has gone up a lot as not far from London and cheap compared to other areas.




http://www.rightmove.co.uk/property-for-sale/property-36355323.html?premiumA=true


£3600.00 75% LTV I/O Mortgage (£300 per month)
£1534.00 Ground rent and Service charge
£400 Gas Boiler Cert/ Maintenance cover
£250 general maintenance (travel cost etc)



£5754.00 Cost per year



Income at £625 per month inc 1 month void (self manage)


£6875.00 Income per year


I'd make £1121 per year, not a lot but wife likes it, its relatively new with little maintenance required and 115 year lease, ready to exchange as buyer pulled out so could be done before April. Any thoughts, I'm I calculating wrong?

So 1121 return on your (equity) investment of 32.5k or 3.4% so more than you can get in the bank but not much return for the risk and this assumes capital appreciation covers the buying and selling costs.

lisyloo

Anything in the calcs for voids, insurance, legal costs, transactional costs, income tax, cgt?

Glover1862

Going on a 2 year fix saves another £90, £300 is for a 5 year fix with £500 Product fee. I have allowed 1 month void and insurance will be included in Service charge, Won't be a lot of income tax to pay! Legal fee, transactional costs will be about £1000.


I agree not great investment, but easy one as buyer ready to exchange and also keen to get it done, I could add another without Stamp Duty, I'd decided against it but wife is keen, problem is anything else about the £130K is only getting between £575 and £675 rent anyway, am I likely to do better elsewhere?

lisyloo

Depends on what risk you want to take.
Personally I'd put it into equities (ideally through pension wrapper getting 66% uplift on the way). Conservatively I'd expect a slightly lower return but not having to do anything for it.