Buy to let advice - would you go ahead in the current market?

mustrum_ridcully

Think back to 1994/5 lets say, I bet your friends and financial advisor would of said stay away from property, you'll only loose money. Their advice would of been considered perfectly sensible.

Your subsidy on the property would be around £30k according to your figures.

Have you also considered:
Void periods when you have no tenants (you'll have to pay the mortgage and the council tax).
Repairs and maintenance.
Tax on income from the property.
Capital Gains Tax when you sell.
Increases in interest rates.

Finally, would you be happy in 10-15 years time finding out that you'd of made the same amount (or more) money if you'd just left your deposit and subsidy in the bank or building society?

Turnbull2000

OP, maybe you should scan though some of the financial and market broadsheets for views on the timing of BTL? The Financial Times has run numerous articles lately, and these may be of some use.

Some view BTL in today's climate as making no sense, whereas others who have taken the plunge recently - kissingthepink for example - believe you should go for it.

Most serious economists would probably advise against BTL at the moment, and choke at the thought of subsidising to the tune of £180 p/m. You'd likely be better served putting your deposit in a high interest account, or finding an alternative investment.

Remember, house prices are at historical highs and interest rates at historical lows. This is combined with huge economic uncertainly and an ongoing credit crunch. With that and many other factors in mind, I tend to agree with the almost universal consensus that BTL in 2007 is not worth it.

Debt_Free_Chick

What price have you agreed for the property?

What rent do you think you'll get?

pinkshoes

Derfel wrote: »

Any rent will just about cover the buy to let mortage but we'll have to cover the extras (management fees, insurance etc) which comes to around £180 per month. We can afford this and looking long term (10 - 15 years) like to believe that increase in house prices will cover what we pay out and leave a decent sum for retirement.

Don't forget that it won't necessarily be let for 100% of the time, and I think an ideal BTL would have a rent that covered 130% of the mortgage and fees to allow for unoccupied periods.

If it's a longterm investment, I wouldn't worry about any short term blips in the market, but by not making any profit other than yearly increases in rent (whereas mortgage payment should roughly stay the same depending on IR - so eventually you will break even, then make profit), you're somewhat relying on houseprice increases rather than making much effort to pay off the equity.

General_Mayhem

Putting your pension in property is a risky investment.

In the long run shares are likely to be a better investment than property (at least historically), but I would advise to you get some professional financial advice before ploughing money into a loss making BTL.

If you understand the risks, and it forms a sensible part of your savings, then fine, go ahead. But don't expect the past 10 years' price increases to be repeated. Thats not to say they won't, but it is a gamble, and IMO the odds are stacked against you.

Also note the general consensus is the closer you get to retirement, the less risk you should take with your money.

Derfel

Debt_Free_Chick wrote: »

What price have you agreed for the property?

What rent do you think you'll get?

we've agreed £160K as a price for the property and will get £700 in rent

Romani_Ite_Domum

Derfel,

even the VI optimistic say that next year will be a flat year for house price growth.

As your "business" will be operating at a loss for at least the next year and you are relying on asset appreciation to make money, there appears to be little sense in going ahead with a BTL right now.

Sleep well, enjoy life.

Derfel

Thanks for all the replies and comments- really much appreciated and all comments are being taken into consideration.

We did start the whole process in august but the general climate seems to have changed so much in the last few months with all the doom and gloom in the press and on forums that I must admit it really has made us think twice.

The actual BTL mortage is £650 and rent is £700 but management fees will take 10% of this and we got to the figure of £180 by adding on the annual cost of buildings insurance, landlords insurance, a repairs cost of £500 and the cost of having one month in a year without rent. We didn't fancy trying to manage the property straight away but see how it went to start with.

The timing also seems bad with Xmas now so close to try and find a tenant before Xmas but if we pull out now we'll have a very angry seller and estate agent chasing us.

Heart says carry on, stop being so cautious as I have all my life and you can't go wrong investing in property which will probably double in value in 15 years time (our own property now has a market value of 3 times what we paid for it 10 years ago) but my head is shouting stop this process, write off the £1k already paid in fees and forget about making investments in either property or shares (which I've also lost out on in the past) and just enjoy the money that I've worked hard for right now.

Still so undecided...another sleepless night coming up

dannyboycey

Romani_Ite_Domum wrote: »

Derfel,

even the VI optimistic say that next year will be a flat year for house price growth.

As your "business" will be operating at a loss for at least the next year and you are relying on asset appreciation to make money, there appears to be little sense in going ahead with a BTL right now.

Sleep well, enjoy life.

Even with a small amount of growth - once you and in all your fees and costs, not to mention time, hassle and stress, you will still be operating at a loss. It's a no-brainer really.

I'm astonished by the amount of posts of this nature recently - I don't mean to sound rude, but have you worked out the math? It's not rocket science. If you have cash on the hip, you can get 6-7% on your investment in high interest accounts and bonds - risk free!! Can you beat this with BTL? (No is the answer BTW). If, on the other hand, you have little or no cash up front and you are speculating on rising house prices, you will need credit. Credit is extremely expensive at the moment and your profits come from your speculation on rising HPI, which at the most optimistic will be very low over the next few years.

lypsey

Derfel
You say "but if we pull out now we'll have a very angry seller and estate agent chasing us."

So what , this is business not a charity for EA's and sellers