Buy to let sums - flat comparisons

ReportInvestor

How do the sums add up across the nation?

The boom in two-bedroom flats enables some instant comparisons of asking prices and rents on offer.

If people were to add prices and rents on similar developments across the country we could get a feel for the buy-to-let market nationally.

North Leeds ringroad - Two bed flats

150,000 - Price
7,500 - Rent (625 pm)
5% - Nominal return
0.0425 - Gross income after 15% agent fees
0.03825 - Gross income after a further 10% reduction for voids, expenses during voids, redecoration/repairs etc.

Incidentally these numbers mean that the rent (after these deductions) just covers the mortgage if borrowed at 5% after a 25% deposit.

Are these are the right numbers to use? If so, 3.825% does not seem a large income to me, although it could grow. So much depends on capital gain.

The North Leeds area is, nevertheless, prosperous and expanding since the city is the fastest growing in Europe. There are several other large developments being built so there will be other comparisons later in the year.

meanmachine_2

I'm not sure what you're asking.

Going by your figures, yes, any "investor" would have to rely on CGT for it to make any sense whatsoever. And since none of us can rely on that - particuarly in the shorter term, it sounds v risky to me.

All of these new build flats in areas outside of London just sound like a disaster waiting to happen, if you ask me.

I'd class myself as a young urban professional and an overpriced new build on a noisy ring road would be the last place were I'd want to live. But that's just me. And for once that's got nothing to do with the price. If they were flogging 'em off at £50K a pop, I'd still not be interested.

But you know the area and market much better than me.

Pheno

Yes it doesn't make any sense. They are either not very numerate or are relying on capital increase. In 2000 I bought 2 houses and rented them out. The yield was 11-12 %. In late 2003 the yield had fallen to 5% because the value of the houses had increased so much. So I sold them and cashed in on the capital which is now earning 5% with zero hassle or risk.

meanmachine_2

Pheno wrote:

Yes it doesn't make any sense. They are either not very numerate or are relying on capital increase. In 2000 I bought 2 houses and rented them out. The yield was 11-12 %. In late 2003 the yield had fallen to 5% because the value of the houses had increased so much. So I sold them and cashed in on the capital which is now earning 5% with zero hassle or risk.

That makes perfect sense to me.

How much would prices have to fall, or rents to rise - roughly - before you would make another purchase? And did you find BTL more of a hassle that it seemed before you indulged? I'm just curious.

ReportInvestor

meanmachine wrote:

I'm not sure what you're asking.

I'm hoping people could visit any new build flat developments near them and give us the advertised purchase price and the rental price on similar properties.

No need to do any sums unless you want to.

BTW North Leeds is a great place to live, and [probably] to buy a property for the long term. But I'm not primarily asking for opinions about that. As people have noticed, in Leeds the developers are relying on continued hopes of capital gains to flog their handiwork.

I'm more interested in creating a buy-to-let mini-survey of two-bed flats across the nation.

EdInvestor

You might want to factor in any "special offers" the developers are offering to bring the cost down.While this may not be reflected in the Land Registry, if all manner of appliances, carpets and other BTL requirements are provided free, and other costs are paid, the actual yield could be higher.

Are developers offering to find tenants for buyers in any new build complexes yet?They often do that for off-plan overseas buyers (rent guarantees can be for several years), so there's no reason they couldn't consider extending the service to locals if it means they can sell the flats.

Lemoncurd

Used to rent a luxury 2 bed appt in LB Richmond upon Thames (now approx 7 yrs old).
To buy one now costs around £280,000 - £300,000.
There are a number currently up for rent asking between £1200 - £1600 pcm (our landlord practically gave his away letting it to us at £950pcm for a few years after having it empty for a couple of months when asking £1500pcm)

So lets say
Cost £290,000
Rent £16800
But then there are management charges, in this case they pay for 24hr concierge, gym, security maintenance of grounds and buildings etc which must run into the thousands...

I wouldn't want to be a landlord in this particular development (and there were many of them). The asking prices of the appartments for sale have remained pretty much static over the last 4 years - if anything dropped a bit. The rents have slowly been coming down.

Pal

I've only just noticed this thread.

Surely the nominal yield on the purchase price is not really relevant. More relevant is the actual yield received by the investor on the 25% deposit they put down. I.e. how much profit do they make each year on the deposit, and is this higher than they could get putting the money in a savings account given that capital gains are likely to be hard to come by in the next few years?

Or is this what the figures were showing? Brain not working today.

Also, as Ed was indirectly pointing out, the initial costs of furnishing a BTL and the purchase costs (stamp duty, solicitors etc) has to be added to the deposit to work out the actual yield on the amount of cash invested. These costs might be significantly lower for a new build than an existing property given the incentives that are normally available from the builder.

ReportInvestor

You're right to suggest that buy-to-let is a geared investment and correct to say that the actual investment return is based on the deposit.

I'm not about to go into buy-to-let. I was more interested in using the state of the buy-to-let market to shed light on the overall property market, since new build flats offer direct immediate comparisons between prices and rents on offer.

Covering the mortgage through the rent seems to me to be the bare minimum for the amateur buy-to-let investor - so that's why I was focussing on that figure.

Pal

Fair enough.

GDB2222

In this area, Finchley, rents are more like 4% than 5% (that's gross before expenses and without allowing for void periods), unless you are looking at ex-local authority property where yields are higher.