Buying ex council...

girllikeme1

Having put in an offer on an ex council flat as a buy to let (first timers), we've had a moment of uncertainty as one letting agent (out of say 8 we have contacted) has said they find it hard to let out flats there because of its reputation.

When pressed, she said 'well you do know the area?' and asked if we had considered other locations!

It's a very small council estate which has a grant for improvement from the Lotto.

We offered on this flat because it's at a good price and the yield is worthwhile. If we bought elsewhere we would have to pay a lot more and rent would not be substantially higher.

Any advice from others who have bought ex council or in less affluent areas?

Tia.

Comms69

Some estates are great, some are war zones.


BUT I think you need to stop/pause and breath.


If you're looking at just yield, then you're not cut out for this landlord malarkey.


Who's your target market? It's a flat, so young couple?
How many beds? Enough space for them to have a child?
Crime rates? Will you be switching tenants every few months?
Local housing rates, will benefits cover most/all the rent?

TonyMMM

girllikeme1 wrote: »

We offered on this flat because it's at a good price

And you have now found out the reason for that ....

Whether that will put off your target market is for you to decide, but be prepared for lots of issues as stated above.

girllikeme1

Comms69 wrote: »

Who's your target market? It's a flat, so young couple?
How many beds? Enough space for them to have a child?
Crime rates? Will you be switching tenants every few months?
Local housing rates, will benefits cover most/all the rent?

Thanks for these replies. I'm not going in thinking it's a luxury apartment on the seafront. It's a 1 bed flat - very small and no space for a child. Target market would be a single person or a couple.

I will look into the housing rates/benefits - thank you.

AdrianC

girllikeme1 wrote: »

Having put in an offer on an ex council flat as a buy to let (first timers), we've had a moment of uncertainty as one letting agent (out of say 8 we have contacted) has said they find it hard to let out flats there because of its reputation.

When pressed, she said 'well you do know the area?' and asked if we had considered other locations!

It's a very small council estate which has a grant for improvement from the Lotto.

We offered on this flat because it's at a good price

Is it priced low compared to other similar flats in the same location, or is it just a less desirable location to buy in than other locations? Big difference...


The "grant for improvement from the Lotto" raises my hair. Lotto grants are never 100% of the money needed - they're on a fund-matching basis. And that means that if the Lotto is putting in £1k per flat, the local authority is putting in £1k per flat they own, then you as a leaseholder are going to get a bill for £1k for your flat...

Probably nearer £1,100 or £1,200, because the LA are putting time into the management which they will recharge to you...

and the yield is worthwhile.

Let's see your numbers.

need_an_answer

In my experience most properties will rent,the difference between the good and the bad are that you get perhaps a better price if the area is better,possibly a better type of tenant and maybe a longer tenancy out of each tenancy agreement.

I've always avoided known hot spots,yes the purchase price may be less but I probably have been risk adverse where up and coming areas are concerned.
Lotto grants are great and really can help an area that needs revitalising however sometimes the stigma remains for many years.


Moving on to the more practicalities and presumably whilst you are first time LL's you will know the type of people that rent in this area having done your homework. are you prepared for example to accept a housing benefit tenant for example?

Whats the service charges and management charges like on the property...those that need investment usually are higher and will impact your income.


As a LL when buying a property I've always asked myself the question,if things went wrong and I had to live there would I be happy?


How would you answer that question about where you are buying....

girllikeme1

Thanks for your time and input!

AdrianC wrote: »

Is it priced low compared to other similar flats in the same location, or is it just a less desirable location to buy in than other locations? Big difference...
The latter. Similar flats in the same close have similar prices.

The "grant for improvement from the Lotto" raises my hair. Lotto grants are never 100% of the money needed - they're on a fund-matching basis. And that means that if the Lotto is putting in £1k per flat, the local authority is putting in £1k per flat they own, then you as a leaseholder are going to get a bill for £1k for your flat...
It's next to the estate with the grant, not in it.

Probably nearer £1,100 or £1,200, because the LA are putting time into the management which they will recharge to you...



Let's see your numbers.

Purchase price £88K*, advice on lettings has been £500-625, I think the higher end of that would be a push and £550 is realistic so I have based all my workings on that. Mortgage will be £150 per month interest only.

*If you hadn't guessed, we're in the South East, hence prices.

girllikeme1

Comms69 wrote: »

Local housing rates, will benefits cover most/all the rent?

LHA is £504.96 if that helps.

AdrianC

Similar flats in the same close have similar prices.

It's not "cheap", then. It's what it's worth. Why is that lower than other locations? Will tenants - except those at the very bottom end of the market want to live there? If you're looking at that end of the market, what's the local housing allowance rate?

(edit: Just seen it's less than the rent. So let's call the rent the LHA rate...)

It's next to the estate with the grant, not in it.

So it's going to become relatively less desirable still - until such time as it gets redeveloped (see earlier comments about who's paying).

Right, even at those figures... You're straight down to £350/mo income after paying the mortgage, at the LHA rate.

Will you be self-managing, or shall we take another £50/mo straight off that for their 10%?

Do you own your home currently? If so, then don't forget the £2,650 SDLT on top of the purchase legal costs. If you don't, then can you even get a BtL mortgage?

How much are you budgeting for service charge?

What if interest rates rise? Voids? Maintenance? Insurance? Tax? Can you afford to deal with the 3am "The plumbing's exploded!" call? How about when the tenant does a runner on the eve of the court hearing granting possession for extensive unpaid rent, leaving a smouldering ruin behind?

girllikeme1

It's a lower price than properties in the town centre, as you'd expect. I suspect you are right that the 'bottom end' of the market would want to live there - people who have grown up in the area or adjacent area.

We do own and have factored in stamp and have the BTL mortgage approved on a five-year fix.

Yes we are thinking of having some kind of managed service, realise this will eat into costs as well.

Service charge is £1100 per annum.

What we are looking at is a long term investment rather than monthly profit. I suppose the points you have made about errant tenants are part of the risk.

need_an_answer

Echoing Adrian …

One of my concerns with this would be knowing exactly what the situation with service charges were.
If you've only just had your offer accepted then its unlikely that you have that information via the solicitors yet...but you need to digest and read that to the letter and all the corresponding accounts that come with it.
Ex council properties are usually still council maintained and serviced so expect those service charges to be higher than some others that you may get from property management companies.

Are there any planned section 20 works within the next 2 years..they can be expensive when you have no control over the tendered contractor.

Whats the general state of the communal areas in the building and the landscaping around it,you can tell a lot about a development by looking at how the communal areas are managed!

Remember you may be able to choose your tenant but you cant choose their neighbours...