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

dolce_vita

hearts wrote: »

The problem here is because they say house prices are over valued at x% you then jump to the conclusion that they will then surely fall by this % to reach their statusquo. This isn't going to happen.

This is precisely what will happen.

Turnbull2000

hearts wrote: »

The problem here is because they say house prices are over valued at x% you then jump to the conclusion that they will then surely fall by this % to reach their statusquo. This isn't going to happen.
The more likely scenario is for prices to level off for a few years during which time this over valuation will disappear.

So why don't you enlighten us with the fundamentals of prices "levelling off". The fundamentals of falling prices have been discussed in depth and are well understood thanks to this scenario being the inevitable consequence of practically every bubble in history. A "levelling off" has never been known to occur.

I pay attention to quite a few regional UK newspapers, and it's quite amusing to repeatedly see claims that every other region will suffer whilst their own is in good stead for a comfortable "soft landing".

Romani_Ite_Domum

hearts wrote: »

The problem here is because they say house prices are over valued at x% you then jump to the conclusion that they will then surely fall by this % to reach their statusquo. This isn't going to happen..

Correct? a house over valued by x% has to drop by 1/1+(x/100) to reach its correct value.

A house overvalued by 40% would need to drop by 28.5% to become correct.

Don't forget a correction will undershoot the long term average before bouncing back. So maybe a drop of 40% giving an undervalution of 16% would not be that far off.

Jillinoz

Regardless of the maths, have you also considered the potential burden of tenant hassles in your advancing years? People can be just as unpredictable as housing markets!

An acquaintance of mine was unfortunate enough to have major problems with two consecutive lots of tenants - both of whom had to be evicted before their tenancies ended. The first couple were drug dealers (now convicted) and the second lot regularly had such loud and violent domestic disagreements that the council's environmental health department was processing an ASBO against them before they were thrown out - after trashing the apartment and causing hundreds of pounds of damage.

Not only was my acquaintance left out of pocket but she daren't show her face at her BTL property because she's lost her reputation and any goodwill from the neighbours and local community who bore the brunt of her nightmare tenants.

Incidentally, the first lot of tenants she recruited herself, but the second were found through a lettings agency who were also charging her for the management of the property.

Personally, I'd prefer to keep my money under my mattress if it meant I could sleep easy at night and retain my good reputation.

granville_2

hearts wrote: »

The problem here is because they say house prices are over valued at x% you then jump to the conclusion that they will then surely fall by this % to reach their statusquo. This isn't going to happen.
The more likely scenario is for prices to level off for a few years during which time this over valuation will disappear.

Markets don't have a habit of levelling off. When was the last time the UK housing market levelled off?

May I point you in the direction of the US housing market.

Of course it could never happen here. We have a shortage of housing don't you knowzzzzzzz....

Debt_Free_Chick

Derfel wrote: »

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

Is that before or after you deduct £180 for the other costs?

If before, then deduct the £180 to give you an annual rent of £6,240. That's a yield of 3.9%. You can get nearly 6% (before tax) if you put £160k into a savings account!

Even if that's "net" after you fork out £180 for your other costs, the yield is only 5.25%.

And this doesn't allow for the maintenance costs of owning a rental property - and no allowance for voids, either

$$$_12

The Times is reporting that houses are 30% overvalued:

House prices in Britain are overvalued by about 30 per cent, the HSBC said yesterday, sounding the alarm that the property market could suffer a similar slump next year to that experienced in the US...

....The findings echo those of the International Monetary Fund which last month calculated that homes in Britain were overpriced by up to 40 per cent....

...Higher mortgage costs would spark repossessions and make buy-to-let a poor investment. “A major source of demand in the past couple of years could then turn into a major source of supply,” the report said....

...Had there been a true supply shortage, rents would have been pushed up, but rental growth had in fact been mild, she added...

http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article2963482.ece

Surely shume mishtake? House prices only go up. I think you should go for it - HSBC don't know what they are talking about.

dunstonh

Markets don't have a habit of levelling off. When was the last time the UK housing market levelled off?

Between 31/05/1989 and 28/02/1991 property prices dropped by 2.11%. Thats close to levelling off as its over 2 years. However, 28/2/91 to 31/07/1995 dropped another 11.37% before a steady rise after that to where we are today. Although the last 2 months have shown decreases of 1.18%.

If you bought in 1989, you didnt break even until 1998 on average (although some areas went as long as 2001).

source: Halifax house price index.

dannyboycey

hearts wrote: »

This isn't going to happen.
The more likely scenario is for prices to level off for a few years during which time this over valuation will disappear.

Based on what!? Your ill informed anecdotal observations? I'm playing devil's advocate here but your statement is just as provocative and 'hysterical' as saying there will be a 40% drop.

Gmorgan_3

MissMoneypenny wrote: »

Welcome to the forums.

Have I got this right? Your client rents to students for £1600 for 10 months of the year (September to June). That is £16,000 - £6,000 (his profit 500 x 12) = £10,000. £10,000 divided by 12 months = £833

Does this £833 cover his 190k mortgage plus HMO bits + insurance + EAs fees + repairs?

Pretty much. The only thing it doesn't cover is maintenance and lettings but seeing as he owns a property maintenance and lettings company I don't think it concerns him too much.

Even if he didn't own the company then £500 a month should cover all tenant find fees and maintenance contracts.

The HMOs are all in central Cardiff, between the two universties.