Buying ex council...

[Deleted User]

Would you be confident checking out possible tenants? Using simply references and credit checks can still put you in the way of a tenant with rent arrears (because the previous LL wants to get rid of them so gives a false reference and unless they have a CCJ for rent arrears, you wouldn't know about them). Same for a tenant who neglects/damages their home.

This could leave you with thousands in damages. A working tenant is just as capable of this as a none working tenant.

AdrianC

OK, so that £350/mo coming in after the mortgage is now £300 after the agent's fee. And any maintenance just got more expensive, too.

£200 after the service charge. Before any s22 extra costs.

Let's be optimistic, and just put another £50/mo into the pot for all the other costs... So that's £150/mo into your actual pocket. £1,800/year. It's going to be at least two years before you get one single penny into your pocket after covering the SDLT and purchase costs.

So from year three on, you're getting £1,800/year income. Woo! Before tax. 40%? So that's about a grand a year actual money that you can spend.

On a damn near £90k asset, I make that about 1.1% real yield. Once you've ignored two years of £0. So over five years, actual return of 3.3% - a bit over 0.6% annually.

Bet you can double that, with far less risk, in a savings account...

Oh, but there's the long-term growth...! I admire your optimism, but you have to admit it's a terrible business plan... And you still owe the entire mortgage capital at the end of it, even if the flat has decreased in value.

girllikeme1

Do you think this is the same for any BTL property then?

need_an_answer

So assuming you get £500 per month income

£100 service charge
£150 mortgage
£50 management fee...plus all the extras that will be charged to prepare agreements,inventories check in and possibly gas Safety certification at a minimum.


That doesn't leave very much for a void period or even redecoration/upgrading of the property.

AdrianC

girllikeme1 wrote: »

Do you think this is the same for any BTL property then?

Pretty much, yes.

Very few people run the numbers properly, especially those looking at "cheap flats" and planning on borrowing heavily to buy them.

In a rising market, it used to work out. Are you sure the market's going to keep on rising? For this low-end flat in a low-end area that's about to become even more low-end relative to surrounding areas?

Pixie5740

girllikeme1 wrote: »

Thanks for your time and input!


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.

Do you mean that you're not in in the South East? You mention "the close" so is this property in Scotland by any chance?

need_an_answer

girllikeme1 wrote: »

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.

so is that a polite way of saying you wouldn't choose there?

Your 5 year fix on the interest rate is perhaps good in the short term and whilst none of us that crystal ball to know what the payments will be when the fix is up for renewal...I guess you'll be looking to make overpayments on the mortgage regularly in order to future proof any potential interest rate rises....especially beating in mind you do see it as a slow burning profit making business over many years.

The rental payments alone are unlikely to keep pace with an expanding interst rate.

girllikeme1

It wouldn't be my top choice of area but if looking for that type of property I wouldn't disregard it. There are places I wouldn't live. There are also places I'd choose first because of schools etc. but that's not our target market.

It's part of a small town, in a street which borders an affluent area one side, and a council estate to the other. The block itself is ex council and one of four similar small blocks.

Yes I'm planning to overpay - but we need to keep looking at the figures as highlighted above, we seem to be going around in circles but I am of the opinion that savings are just losing value even if on a half-OK rate.

hazyjo

The one thing that would scare me is the fact it's ex-LA. They are renowned for sending large bills to private owners for works. If there's a lift or cladding, I wouldn't touch it with a bargepole. If the roof or windows need replacing, run for the hills.


From a basic search on the board:


https://forums.moneysavingexpert.com/discussion/5856039/service-charge-being-billed-for-5000-major-works


https://forums.moneysavingexpert.com/discussion/5353356/bought-leasehold-flat-and-major-work-not-disclosed


https://forums.moneysavingexpert.com/discussion/5902616/advice-on-buying-council-flat

Comms69

girllikeme1 wrote: »

LHA is £504.96 if that helps.

Well I hope it helps you, BUT that isn't necessarily the rate. A single person under 35 would get a single room rate, as opposed to a 1 bed rate.




However you target market isn't ideal. 1 bed flats don't tend to attract long term tenants