Still life left in the BTL market......in SOME areas !

spiritus

I read with interest the threads on this forum about the buy to let market and the general consensus seems to be that it's not really worth it anymore.

I live in the north of England (outside the property bubble of South East England) and here you can buy a one bed flat for between £ 40,000 to £ 50,000 with expected rental income of £ 380 - £ 400 per month.

Worst case income yield would be 9.6%. Best case would be 12%

Forking out a 25% deposit equates to £ 12500 and there are mortgages on the market that fix the rate for five years at about 2.45% making the mortgage payments around £ 80'ish a month.

As long as homework is done on the area and as long as a buyer is happy with that return then is there anything that I am missing out on that should deter a prospective buyer ?

lisyloo

If you’re happy with that return and have factored in the additional stamp duty that needs paying then I agree it may be worth it.

Personally I’d still go for 7% from a diversified portfolio of stocks and shares as the risk is much more diversified and I have to do absolutely nothing (mine is managed for me).

I would be really interested to know what the yield was if you valued your time at say £25 per hour, because that would be comparing like for like.

Do you know how many hours you spend on each BTL? (diy and admin) and are those yields gross or after expenses/tax?

SmashedAvacado

the problem with buying a flat for £40k as a BTL is that if something goes wrong, then its a disproportionately high cost to fix. EG new boiler becomes 4% of the home's value. This means that any problems / expenses will have a disproportionate impact on your yield assuming they cost the same for your flat as they would for a flat worth 10 times more.

lisyloo

It quite well known that buying 1 flat is relatively risky, but if you bought 10 then Presumably you have a budget for maintenance and you’d be less likely to blow the budget.

I’m not convinced those returns justify the actual work, costs and risks compared to a stocks and shares portfolio where you can do nothing for 0.5%.

I don’t think we can now rely on increases in capital values which was once an attraction to property.

spadoosh

SmashedAvacado wrote: »

the problem with buying a flat for £40k as a BTL is that if something goes wrong, then its a disproportionately high cost to fix. EG new boiler becomes 4% of the home's value. This means that any problems / expenses will have a disproportionate impact on your yield assuming they cost the same for your flat as they would for a flat worth 10 times more.

Conversely rents are disproportionate. So a £40k flat might yield £3-400 per month. A £400k flat is never going to yield £3000-4000 per month.

lisyloo

I think what may now be missing (compared to previous decades) is the expectation of decent capital gains.

tom9980

lisyloo wrote: »

I think what may now be missing (compared to previous decades) is the expectation of decent capital gains.

This and Political risk is high lots more regulation to come especially if Corbyn and co win an election. I intended to buy more property in 2015/16 but saw the wind change coming and that looks the right choice now.

lisyloo

tom9980 wrote: »

This and Political risk is high lots more regulation to come especially if Corbyn and co win an election. I intended to buy more property in 2015/16 but saw the wind change coming and that looks the right choice now.

Yes, The proposed changes to section 21 seem pretty major.

spiritus

lisyloo wrote: »

If you’re happy with that return and have factored in the additional stamp duty that needs paying then I agree it may be worth it.

Personally I’d still go for 7% from a diversified portfolio of stocks and shares as the risk is much more diversified and I have to do absolutely nothing (mine is managed for me).

I would be really interested to know what the yield was if you valued your time at say £25 per hour, because that would be comparing like for like.

Do you know how many hours you spend on each BTL? (diy and admin) and are those yields gross or after expenses/tax?

I used to invest in stocks and shares but fell out of love with the idea when I started to realise that it's just another form of gambling. Diversifying the risk makes it a little safer but there is no guarantee the portfolio value will go up.

There is really very very little time needed to "manage" the property. A 1 bed flat in a nice estate usually will be electric heating only. So worst case scenarios would be new panel heaters fitted or any plumbing but the scale of those jobs are reduced by the relative small scale of the flat.

There is no admin other than a 30-60 minute self assessment at the end of the year.

I wouldn't be expecting any capital gains from the property value though it would be a nice bonus. It would be used more as an income vehicle. I appreciate though that £ 300 extra a month doesn't get many people's pulses racing but for some it's a decent amount of money to make plus there's the opportunity to expand your portfolio.

dimbo61

Seems you have forgotten the stamp duty on your 10 flats, ground rent, service charges, maintenance of the properties, refurbishment of the kitchens and bathrooms every say 10 years.
Void periods and damage done by tenants, Bad tenants who don't pay and take months to be evicted.
Gatekeeping by councils,
Getting a BTL mortgage in the first place with all the fees involved.
No just a case of the money rolling in each month

lisyloo

There is really very very little time needed to "manage" the property.

What about

Checks in between tenants e.g. inventory
Using the deposit scheme (legal requirement)
Advertising property
Vetting new tenants, signing contracts
Tax return
Painting, sealant jobs in between tenants
Gas safety checks (at least organising)
Ad-hoc repairs (at least organising)

This is with good tenants.
Put some numbers on it - what do you mean by very very little.

You do agree there’s a change of getting bad tenants?
Where you have to evict?
Talk to the council/courts?
Treat for flea infestation
Totally refurbish

Yes this is a really bad case but actually TRUE. Maybe you’ve been lucky but there is a risk it could be A lot worse.

Give us some numbers - on average how many hours per year.
My landlord does very little to be honest, but there will be painting/sealant type jobs that need doing when we move out, so that has to be averaged out.

I’m saying it’s going to be loads but 30-60 mins simply does not meet the tax and legal requirements.

I run a limited company and we spend probably a few hours each month keeping on top of the legislative and tax regime, for example IR35, dividend allowance changes.
If I went running a property portfolio I’d expect to spend a number of hours working out the best way to own the property (ltd company, wife, jointly etc.) and the best way to take the income and minimise tax.
As a director of a limited company I’d put that at 2 hours a month of 24 hours per year.

Does your tax planning/book keeping /accounting all happen by magic?
I don’t think it does, I think you are subconsciously denying this effort is involved as it’s now an ingrained part of your lifestyle (unintentionally I should add).

There is no admin other than a 30-60 minute self assessment at the end of the year.

Really?
My agent comes around annually to sign contracts, spend at least an hour.
Organises gas safety check (isn’t that a legal requirement?)
and maybe one or two other repairs per year.
Usually is present for gas safety check so that’s a few hours.

I don’t believe you dont so much as organise a gas safety check with your tenant as that’s a legal requirement (unless you pay an agent in which case that cost has to be factored in).

I appreciate though that £ 300 extra a month doesn't get many people's pulses racing but for some it's a decent amount of money to make plus there's the opportunity to expand your portfolio.

Depends how it stacks up against the alternatives.
I used to get 45.8% tax relief on my SIPP, I now get only 32%, but that’s a better opportunity for me.