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

Turnbull2000

It's fascinating how people have been seduced by the biggest economic bubble in history. The OP has evidently not questioned why his/her house has trebled in value in 10 years, nor analysed the costs and losses that will be incurred.

Though this is not quite as bad as those who buy their first cash-flow-negative BTL, and only then come onto this forum to ask for advice on the absolute basics of investing, landlord responsibility and laws. Foolish is too gentle a word.

A bout of economic misery is almost worthwhile if people are forced to rediscover common sense.

Doozergirl

I can't see you losing anything if you just wait for a bit. I'd have thought right now was a better time to get an offer accepted than back in August. With maths like that, just looking at the property price and the rent, I wouldn't have bought in the first place.

I am in the process of buying a BTL at the moment. I've found the right house with the right yield, I have minimal money put down on the house, a long term fixed rate and a long term tenant lined up so I don't have to worry too much about professional tenants etc for a while.

I'm not expecting any capital gains at all, I just know that I've got an investment that is going to pay for itself and provide me with a modest income stream when I am older.

I've got it at a very good price so am already protected against a 10-15% fall, I think. Rent is 150% of the IO portion of the mortgage, 120% of the repayment.

I'm over the moon. If you're going to do it at any point in any cycle, then you must shop around to find something where the maths works properly.

Derfel

sarkin wrote: »

How about, a guy comes up to you in a pub and offers you the chance to invest in something that will loose £180 a month, what would you do?

I know the provocative point you're trying to make but house prices have risen continually to easily cover a £2k outlay a year so the question is more would you gamble £2k a year to make potentially serious money in say 10 years time, thats the real dilemma

Gmorgan_3

Anyone saying that 'buy to let is dead' is making a very general statement that isn't true of the whole market. While returns are nothing like they were a few years ago there is still money to be made in renting out property.

One of my clients recently bought a number of HMOs. He purchases them for about £190K and rents them out to students for about £1600 a month. The rent covers the mortgage, insurance and other monthly costs and gives him £500 a month profit. While the capital appreciation is negligible right now he's still taking home thousands of pounds each month from his portfolio.

It sounds like the original poster is looking at a flat as they mentioned maintenance charges. If you want to get into property investing then how about changing the property type to something like a HMO where you won't have to subsidise it each month?

Derfel

Turnbull2000 wrote: »

It's fascinating how people have been seduced by the biggest economic bubble in history. The OP has evidently not questioned why his/her house has trebled in value in 10 years, nor analysed the costs and losses that will be incurred.

The thing is we have and thats why we're now seriously re-considering at the eleventh hour - but the unknown factor is the continuing rise in the cost of property. I can afford a deposit for a £160k property and costs of £180 per month right now but if house prices rise like they have in the past I couldn't afford this again if I delay buying now. Guess the big worry is that we're now at the peak - but house prices in UK history have never peaked before, maybe dropped for a period before steadily rising again.

Appreciate all the comments, difficult decision to make, so in 2 minds. Hope the tread is of benefit to others too.

mlz1413

just a thought if property is lease hold how long is the lease?
If you need to extend this within the 10-15 years ownership to make it saleable then you need to find out the cost of the extention.

I've just bought a flat and the lease left was 55 yrs so i needed it extending just to buy it and that was going to cost £6000 for 25yrs to be added plus the management companys cost which were a min of £700 + VAT.

I backed out as cost were too high to justify buying and vendor came back and paid all extention costs. But I still only have 79 yrs on lease so will look to sell before the lease is below 75yrs.

Dithering_Dad

Derfel wrote: »

Turnbull2000 wrote: »

Guess the big worry is that we're now at the peak - but house prices in UK history have never peaked before, maybe dropped for a period before steadily rising again.

If you have a rise, then a drop, then that's a 'peak'.

My Alliance & Leicester shares peaked at £8 a share then fell down to about £5odd. While over the next few years they will get back to £8 a share, until they do, that's the peak.

It's not good to invest in shares at the peak because, while you will get your money back eventually, in the meantime you could have invested in a share that is still climbing and make money.

The same is true with housing.

acook

Derfel wrote: »

Hi folks,

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.

it seems hard to imagine the price increase being the same in the next 10/15 years.

I think you answered your own question here. First, the rent does not cover the mortgage costs, therefore as a going concern, it has negative cash flow. This makes poor financial sense.

Second, and perhaps more importantly, you understand that house prices are unlikely to increase in the long run. That is, to say the least, a reasonable assumption.

Negative cash flow plus no capital appreciation equals a very bad investment.

Don't do it.

Alice

http://ukhousebubble.blogspot.com

Doozergirl

The 'peak' means the peak in a cycle. Not the peak in all time. Inflation will of course see much more expensive houses in the future.

If property prices do not rise for the forseeable future, which I really don't think they will, in general, it means you are looking at a fall in value, in real terms.

If you are looking for capital gains, then I am telling you that you are buying at exactly the wrong point in time. Leave it for a year, two years and you will have saved yourself £4000 and house prices will either be the same as they are now, or they will drop. House prices are not going to go up for a while. Much of the rises have been fuelled by lenders lending higher and higher wage multiples. That has stopped - they are not going to go any further and in some cases, are reining back. London dropped 0.6% last month.

I don't necessarily subscribe to the 'crash' theory, but I would not place a penny on rising prices for a while yet. Find yourself a BTL that pays for itself and cut yourself some slack.

Turnbull2000

Derfel wrote: »

...if house prices rise like they have in the past I couldn't afford this again if I delay buying now. Guess the big worry is that we're now at the peak - but house prices in UK history have never peaked before, maybe dropped for a period before steadily rising again.

You're failing to consider how inflation and markets work. My reply would be the same as DoozerGirl's.