Best way to finance property valued under 50k

GDB2222

You’re probably underestimating the effect of voids and expenses. It depends a lot whether you would manage the letting yourself or get an agent. Also whether you would do all the maintenance yourself or employ tradesmen. 

AdrianC

KO_Dub said:

AdrianC said:

£400/mo rent on a £40k property is 12% raw yield.

Just pause and wonder about why these absolute investment-gold-bargains haven't been snapped up already...?

Yeh, I mean these are questions I've been asking myself.

And...?

There are DEFINITELY going to be experienced investors in the area with £40k of liquid cash available. So why don't they consider these places the "guaranteed goldmines" that you do? What do they know you don't...?

Remember, they'll be paying lower management fees, have tame local trades, and won't be paying mortgage interest, so their return will be WAY better than yours.

Own it inside 7-10years, with very marginal profits within that time, most of which could be absorbed, on paper atleast, through costs etc...

What you mean is that you're basing all of your long-term profit on property values rising rapidly... So, umm, how come they haven't before now?

Look, no BtL investor with a clue goes for the gamble of long-term property values. They're icing. EVERYBODY knows that the only sane way to treat this business is to look at the actual rental yield. You've just gone from it being 12% to "very marginal". Yet your faith that this is a brilliant investment is unshaken. Sounds to me like you're working backwards from the end decision and coming up with whatever justification you can. Good luck. You're going to need it.

Also - think about how the fixed-cost items relate to a low-value property. The costs of sale and purchase - legals, survey. The costs of maintenance - boiler. The costs of tenancy legals. But they're a bigger percentage of your rental income, so a bigger effect on the bottom line.

MovingForwards

My home is an ex-rental, I paid less than my seller did when he got it in 2008.

Have you had a look at the sold property prices around 2005 - 8 for these bargain properties, if any did sell. 

I'm sure @AdrianC can list other key dates.

Are these properties still a bargain if they drop to that?

Cheap properties get very cheap during market issues, if they get sold at all. Whilst no-one can say what the markets will do over the next 5 years, history is a starting point. Property doesn't always go up in price.

I also agree with the other comments. If these properties are £50k why are the locals not snapping them up to live in? Minimum wage for 21 - 24 year old is £8.20, 35 hour working week, that would give them a mortgage of up to £67,158 plus their deposit. That makes them easily affordable on one NMW income.

macman

Just put your cash into low-risk stock market investments at 3% and save yourself a lot of anguish.

KO_Dub

MovingForwards said:

My home is an ex-rental, I paid less than my seller did when he got it in 2008.

Have you had a look at the sold property prices around 2005 - 8 for these bargain properties, if any did sell. 

I'm sure @AdrianC can list other key dates.

Are these properties still a bargain if they drop to that?

Cheap properties get very cheap during market issues, if they get sold at all. Whilst no-one can say what the markets will do over the next 5 years, history is a starting point. Property doesn't always go up in price.

I also agree with the other comments. If these properties are £50k why are the locals not snapping them up to live in? Minimum wage for 21 - 24 year old is £8.20, 35 hour working week, that would give them a mortgage of up to £67,158 plus their deposit. That makes them easily affordable on one NMW income.

Hi, yes, these properties are at or around that bottom rate of 10-12 years ago. So little drop left in the value. I don't know why I should feel the need to explain myself but I'm surprised by the aggressive nature of some comments. Not yours btw 'moving fwd'. I would personally doubt though that buying a property is high on the agenda of minimum-wage-earning 20 somethings in this part of the world, but maybe I'm wrong. And regarding why everyone else isn't snapping them up... Who says they're not? I know most of you guys are experienced in the field we're discussing here and I'd be daft to ignore some of those viewpoints, but there seems alot of bias on here from people who clearly don't know the market in northeast England that I'm looking at. And the figures giving a 12% yield are fact. I'm being misquoted left right and centre above and nowhere have I conveyed any 'unshakeable confidence' etc etc... quite the opposite, if my comments are read. I'm not suggesting that the properties or tenants are ideal... If I wanted to try and guarantee that I'd invest in a nice 3-bed semi with a big mortgage. Anyway, seems any helpfulness ended after about 3 replies on this forum. I'd suggest some on here should probably get out a bit more rather than trolling forums for people less knowledgeable (in this area) than themselves. Ta

KO_Dub

AdrianC said:

KO_Dub said:

AdrianC said:

£400/mo rent on a £40k property is 12% raw yield.

Just pause and wonder about why these absolute investment-gold-bargains haven't been snapped up already...?

Yeh, I mean these are questions I've been asking myself.

And...?

There are DEFINITELY going to be experienced investors in the area with £40k of liquid cash available. So why don't they consider these places the "guaranteed goldmines" that you do? What do they know you don't...?

Remember, they'll be paying lower management fees, have tame local trades, and won't be paying mortgage interest, so their return will be WAY better than yours.

Own it inside 7-10years, with very marginal profits within that time, most of which could be absorbed, on paper atleast, through costs etc...

What you mean is that you're basing all of your long-term profit on property values rising rapidly... So, umm, how come they haven't before now?

Look, no BtL investor with a clue goes for the gamble of long-term property values. They're icing. EVERYBODY knows that the only sane way to treat this business is to look at the actual rental yield. You've just gone from it being 12% to "very marginal". Yet your faith that this is a brilliant investment is unshaken. Sounds to me like you're working backwards from the end decision and coming up with whatever justification you can. Good luck. You're going to need it.

Also - think about how the fixed-cost items relate to a low-value property. The costs of sale and purchase - legals, survey. The costs of maintenance - boiler. The costs of tenancy legals. But they're a bigger percentage of your rental income, so a bigger effect on the bottom line.

AdrianC said:

KO_Dub said:

AdrianC said:

£400/mo rent on a £40k property is 12% raw yield.

Just pause and wonder about why these absolute investment-gold-bargains haven't been snapped up already...?

Yeh, I mean these are questions I've been asking myself.

And...?

There are DEFINITELY going to be experienced investors in the area with £40k of liquid cash available. So why don't they consider these places the "guaranteed goldmines" that you do? What do they know you don't...?

Remember, they'll be paying lower management fees, have tame local trades, and won't be paying mortgage interest, so their return will be WAY better than yours.

Own it inside 7-10years, with very marginal profits within that time, most of which could be absorbed, on paper atleast, through costs etc...

What you mean is that you're basing all of your long-term profit on property values rising rapidly... So, umm, how come they haven't before now?

Look, no BtL investor with a clue goes for the gamble of long-term property values. They're icing. EVERYBODY knows that the only sane way to treat this business is to look at the actual rental yield. You've just gone from it being 12% to "very marginal". Yet your faith that this is a brilliant investment is unshaken. Sounds to me like you're working backwards from the end decision and coming up with whatever justification you can. Good luck. You're going to need it.

Also - think about how the fixed-cost items relate to a low-value property. The costs of sale and purchase - legals, survey. The costs of maintenance - boiler. The costs of tenancy legals. But they're a bigger percentage of your rental income, so a bigger effect on the bottom line.

Hi Adrian. Not sure what you're beef is... But instead of misquoting me, and making snidey good luck comments, and aggressive remarks,  you might be better served trying to be helpful, not trolling this site, or just moving on. Never did I say anything about a goldmine. 12% 'yield' can still be marginal 'profit' when its all going off a short term mortgage... The figures leading to that 12% are absolute fact. Maybe brush up on your maths AND English. I don't have any unshaken faith in the BTL market either, hence why I'm on here. I'm also not relying on any lightning fast surge in property values... A 10yr term or maybe more is hardly that anyway. And who says lots of guys with cash to burn are not buying many of these properties... Because that's exactly what I've seen happen at the auctions. Listen, you don't know the market I'm looking at, you've chosen to overlook the fact that i would like an asset at the end of this (if I choose to do it at all), and you're making incorrect assumptions. I'll take the couple of remotely helpful things you've pointed out, of which I was aware anyway, and forget the rest of your nonsense. Have yourself a g&t there if you manage to get down off your high horse. Ta

KO_Dub

GDB2222 said:

You’re probably underestimating the effect of voids and expenses. It depends a lot whether you would manage the letting yourself or get an agent. Also whether you would do all the maintenance yourself or employ tradesmen. 

Cheers, yes if I do eventually go into the market I'll get it managed, atleast til I find my feet. But that is with a friend of a friend and mate's rates so not so bad. Decorating and some maintenance I could do myself but again have good pals who are tradesmen so... Also, whether realistic or not, in my calculations I'm allowing for 600-900 worth of work p/a.? I'm hoping that's over-egging it to be honest. Insurances, fees etc I know all take their toll. And no doubt some surprises but all part and parcel. And all very small figures relatively speaking so no bank-breaking going on if things go wrong. That's my thinking anyway. If anything though being on here is quite discouraging. Maybe the guys who've been in it for years and seen the cash cow disappear over the hill just have that bad aftertaste.... There has to be something good to be taken from owning property. I guess it's about not over exposing yourself. And getting some luck with tenants. I'd be happy to make a small rolling profit and a few k at the other end. I have almost everything in stocks and shares... A little bit of diversity is surely a good thing... 

hazyjo

Sounds like you'd already made a decision.

Please do come back and let us know how it's all going. In no way being smug, it would just be really helpful to have this thread to point people to as we do have threads about cheap properties in the north every so often on here.

Cakeguts

Worst decision ever to buy a buy to let property based on the fact that you can only afford the cheapest properties on the market and without doing any form of research into how well they let, the type of tenant and how much you will need to spend between each letting in order to make them habitable again.  

GDB2222

KO_Dub said:

GDB2222 said:

You’re probably underestimating the effect of voids and expenses. It depends a lot whether you would manage the letting yourself or get an agent. Also whether you would do all the maintenance yourself or employ tradesmen. 

Cheers, yes if I do eventually go into the market I'll get it managed, atleast til I find my feet. But that is with a friend of a friend and mate's rates so not so bad. Decorating and some maintenance I could do myself but again have good pals who are tradesmen so... Also, whether realistic or not, in my calculations I'm allowing for 600-900 worth of work p/a.? I'm hoping that's over-egging it to be honest. Insurances, fees etc I know all take their toll. And no doubt some surprises but all part and parcel. And all very small figures relatively speaking so no bank-breaking going on if things go wrong. That's my thinking anyway. If anything though being on here is quite discouraging. Maybe the guys who've been in it for years and seen the cash cow disappear over the hill just have that bad aftertaste.... There has to be something good to be taken from owning property. I guess it's about not over exposing yourself. And getting some luck with tenants. I'd be happy to make a small rolling profit and a few k at the other end. I have almost everything in stocks and shares... A little bit of diversity is surely a good thing... 

I’m glad you have thought about that bit of it. You didn’t include those figures initially, so perhaps people thought that you were ignoring expenses?  I suspect that you may be underestimating the cost of upkeep, but I’m a cautious person. You should also allow for void periods - around one to two months a year is the average. And a bad tenant can really wreck the place.  There are some pitfalls, eg you’ll probably need to rewire the place before letting it, even if the wiring is in good condition.