Thinking of buying some property for letting...advice please.

AdrianC

Rjhsteel wrote: »

4% rental yield.
11% ROI.

So fairly minimal 25% equity and 75% BtL mortgage...

You really need to show your working, because there ain't no way you're turning 8-10% raw yield into 4% actual profit after mortgage costs and tax treatment.

And that still wouldn't be 11% RoI, because you're still ignoring that your investment is the entire purchase price of the property - just heavily leveraged.

Rjhsteel

Rent £400x12 =£4800
Costs

Interest only mortgage £75x12 £900
Property management 10% £480
Repairs 10% £480
Voids £400
Cancel tax £580

Total after costs £1960

Profit £1960 divided by amount invested £17500

11.2%

AdrianC

Once again... You are NOT just investing £17,500.

Assuming your £75/mo mortgage interest relates to a £20k 4.5% BtL mortgage, then you're investing £37,500.

Care to show us what the sort of <£40k property in NI that you're looking at looks like? And explain how you're going to get £400/mo rent for it...? How much are you allowing for voids and bad debts?

Rjhsteel

AdrianC wrote: »

Once again... You are NOT just investing £17,500.

Assuming your £75/mo mortgage interest relates to a £20k 4.5% BtL mortgage, then you're investing £37,500.

Care to show us what the sort of <£40k property in NI that you're looking at looks like? And explain how you're going to get £400/mo rent for it...? How much are you allowing for voids and bad debts?

The interest is already included in costs? Does it have to be included again then?

googler

Rjhsteel wrote: »

The interest is already included in costs? Does it have to be included again then?

"An interest-only mortgage allows you to pay just the interest charged each month for the term of the loan. You don’t have to repay the amount you’ve borrowed until the end of the term."

You have to repay the capital (£20k) at the end of the term.

So, whilst currently, you're only paying the interest, over the term of the mortgage, you have to find the £20k over that term, so that you can pay this to the lender. Or finance it by other means. So that's part of your investment. No?

So £17.5k + £20k = £37.5k.

Rjhsteel

The value of the property is 60k.
So eventually would remortgage so £15k deposit. £45k on the mortgage.

Rjhsteel

All the calculators and articles I've read dont mention adding the mortgage amount left....

googler

Rjhsteel wrote: »

All the calculators and articles I've read dont mention adding the mortgage amount left....

... but surely you agree that if the bank lends you £60k over 20 years, and in that time you pay them only the interest on that loan, let's say that's £20k for a round figure, £75 pm over 20 years, that you still owe them the £60k that they loaned you?

After 20 years, you owe them the lump sum of the loan plus interest, but you've paid only the interest over the 20 years.

60+20 = 80, but deduct the 20 you've paid, and you still owe 60

Whether you fund that by remortgaging or by paying the lump sum off ....

steampowered

Your calculations are missing mortgage lender fees.

You normally need to pay £1-2k to set up a mortgage, and again to remortgage at the end of your interest rate fix (unless you are prepared for your interest rate to double/triple).

You are also missing VAT on the letting agent fees.

You are also missing the income tax you will need to pay on the rent.

Also worth bearing in mind that interest rates are at historic lows right now, so the mortgage cost is likely to increase in future.

Rjhsteel

steampowered wrote: »

Your calculations are missing mortgage lender fees.

You normally need to pay £1-2k to set up a mortgage, and again to remortgage at the end of your interest rate fix (unless you are prepared for your interest rate to double/triple).

You are also missing VAT on the letting agent fees.

You are also missing the income tax you will need to pay on the rent.

Also worth bearing in mind that interest rates are at historic lows right now, so the mortgage cost is likely to increase in future.

These figures aren't detailed. Vat is included for the property company btw.
And income tax cant be factored in until any expenses eg office, travel etc are eventually worked out so an actual figure isn't possible to work out.