BTL: 1 bed flat - advice needed

BusinessPioneer

Hello
There is a flat in my area up for £60k market value, its an end of terraced upstairs flat with council neighbours below and next door. Owner has moved to a different area so wanting a quick sale. We know of him from the area and he'd be prepared to take £57k.

I am looking at this as my 1st buy to let. When I am looking at the LTV is the figure of the property value 60k or 57k I will get it for?
A similiar downstairs flat in the area is up for £375pcm. 

I am looking at a £15k deposit and then monthly repayments over 25yr £169pcm. Based on £375pm I make this £206pm profit before other costs such as Landlord insurance (approx £15pm). I would ideally like to self manage but being recommended to get it managed but think this will significantly eat into profits. 
I know this won't be a massive earner, but think it's a good way to get onto the investment ladder.

Also, I am concerned people are saying a 1 bedroom flat will be hard to sell in the future
p.s. This flat I am looking at is a leasehold with 93yrs remaining.
Just wanted some advice/guidance, will my profit margin be too slim?

[Deleted User]

BusinessPioneer said:

Hello
There is a flat in my area up for £60k market value, its an end of terraced upstairs flat with council neighbours below and next door. Owner has moved to a different area so wanting a quick sale. We know of him from the area and he'd be prepared to take £57k.

I am looking at this as my 1st buy to let. When I am looking at the LTV is the figure of the property value 60k or 57k I will get it for?
A similiar downstairs flat in the area is up for £375pcm. 

I am looking at a £15k deposit and then monthly repayments over 25yr £169pcm. Based on £375pm I make this £206pm profit before other costs such as Landlord insurance (approx £15pm). I would ideally like to self manage but being recommended to get it managed but think this will significantly eat into profits. 
I know this won't be a massive earner, but think it's a good way to get onto the investment ladder.

Also, I am concerned people are saying a 1 bedroom flat will be hard to sell in the future
p.s. This flat I am looking at is a leasehold with 93yrs remaining.
Just wanted some advice/guidance, will my profit margin be too slim?

The value for LTV would be the lower of what you purchase the property for and what the lender values it at. 

You’re not calculating your profit correctly, at least not how HMRC will calculate your profits as capital repayments are not a business expense. 

The gross rental yield isn’t bad and yes a 1-bedroom property probably won’t sell as well as a 2-bedroom property further down the line. 

Who is advising you to use an agent and what is their reasoning for doing so? 

If the property is in England or Wales you could do worse than to read the sticky at the top of the board. Tenancies in Eng/Wales: Guides for landlords and tenants. 

niceguyed

You've only mentioned the cost of lending and landlord insurance. I presume you're aware of your other costs that will rapidly eat into your margins. e.g. leasehold costs such as service charges, maintenance issues, electrical/gas certs, EPC, lease extension (when it arrives), referencing/credit checks of tenants if self managing. Notwithstanding potential void periods and non-payment of rent and associated legal fees should you be unlucky.
I can't imagine much capital appreciation in a one bed flat so it really the investment you think. I'm out of the game now after being an accidental landlord, I can't tell you what a relief that was after selling up this year. In recent years it has become anything but easy money. You need to do a thorough breakdown and work out your net yield. I'd hazard a guess you could do better with less risk in stocks and shares.  

Thrugelmir

BusinessPioneer said:

I am looking at a £15k deposit and then monthly repayments over 25yr £169pcm. Based on £375pm I make this £206pm profit before other costs such as Landlord insurance (approx £15pm)

Of the £169pm only the interest element is tax deductible. Your net rental income is subject to income tax which may take the shine off your idea. As the net after tax cash generated may not be sufficient to fund the repayment of the mortgage. If it were that easy everyone would own a second property.

BusinessPioneer

 niceguyed said:

You've only mentioned the cost of lending and landlord insurance. I presume you're aware of your other costs that will rapidly eat into your margins. e.g. leasehold costs such as service charges, maintenance issues, electrical/gas certs, EPC, lease extension (when it arrives), referencing/credit checks of tenants if self managing. Notwithstanding potential void periods and non-payment of rent and associated legal fees should you be unlucky.
I can't imagine much capital appreciation in a one bed flat so it really the investment you think. I'm out of the game now after being an accidental landlord, I can't tell you what a relief that was after selling up this year. In recent years it has become anything but easy money. You need to do a thorough breakdown and work out your net yield. I'd hazard a guess you could do better with less risk in stocks and shares.  

Cheers Ed for your input. Yes, other costs, didn't want to list them all. I don't have an exhaustive list, but building them up slowly. I just wanted to outline and jot down my thoughts really. I can't see a lot of growth on a 1 bed flat, it could just end up being a sitting tenant for life and then selling for £5k profit after 25years (probably run into inflation, so maybe neutral).

I am told it's quite a stressful experience, especially if you get the wrong tenant - I sense some of that with you selling up this year. There is a lot more red tape/legislation (I guess for a good thing, to stop cow boys).

I am doing quite well on Stocks and Shares (up 40% since April 20), but appreciate I bought everything low and some high growth stocks like Telsa, Plug Power, Green Energy related etc.
I've got a managed portfolio giving me a return of 12% p/a too right now on high risk and finally a crypto currency portfolio.
I was thinking moving into L2B and building up a property portfolio would be the logical next step to help me grow my passive income streams.

[Deleted User]

BTL is not a passive investment. 

BusinessPioneer

Lover_of_Lycra said:

BusinessPioneer said:

Hello
There is a flat in my area up for £60k market value, its an end of terraced upstairs flat with council neighbours below and next door. Owner has moved to a different area so wanting a quick sale. We know of him from the area and he'd be prepared to take £57k.

I am looking at this as my 1st buy to let. When I am looking at the LTV is the figure of the property value 60k or 57k I will get it for?
A similiar downstairs flat in the area is up for £375pcm. 

I am looking at a £15k deposit and then monthly repayments over 25yr £169pcm. Based on £375pm I make this £206pm profit before other costs such as Landlord insurance (approx £15pm). I would ideally like to self manage but being recommended to get it managed but think this will significantly eat into profits. 
I know this won't be a massive earner, but think it's a good way to get onto the investment ladder.

Also, I am concerned people are saying a 1 bedroom flat will be hard to sell in the future
p.s. This flat I am looking at is a leasehold with 93yrs remaining.
Just wanted some advice/guidance, will my profit margin be too slim?

The value for LTV would be the lower of what you purchase the property for and what the lender values it at. 

You’re not calculating your profit correctly, at least not how HMRC will calculate your profits as capital repayments are not a business expense. 

The gross rental yield isn’t bad and yes a 1-bedroom property probably won’t sell as well as a 2-bedroom property further down the line. 

Who is advising you to use an agent and what is their reasoning for doing so? 

If the property is in England or Wales you could do worse than to read the sticky at the top of the board. Tenancies in Eng/Wales: Guides for landlords and tenants. 

Thanks for clarity on LTV. 
I guess I was looking at the numbers raw, I didn't actually think of this. It would probably take me into the 40% bracket when I add this and my main employment. However, I have also heard about setting up as a Ltd business and to pay myself dividends for the property. I heard that also would reduce personal risk. Obviously one for an account, but I am all ears.
I am skeptical if it is an "easy sell" on in the future. It was initially up for rent for a week or so, before moving to a For Sale. I know the buyer moved about 30 minutes away, so think he just wants it gone. It was up for £65k but now £60k, and he's willing to take £57k. I'd need to get structure checked etc, incase there is something hidden and the reason for the fast sale. But as I know of him, adds a +1 to the trust (got to still be careful!).

The person who is advising against self managing is a friend. She owns 6 properties. She said at first she used to self manage them but then had issues collecting rent, late payments, finding tenants, calls about a broken boiler at 2am in the morning and she said outsourcing it although eating into her profits was the best thing she ever did. She does however live out of the country and "want an easy lifestyle" whereas I think you need to work on these things personally to get the most out finanicially and for development.

BusinessPioneer

Lover_of_Lycra said:

BTL is not a passive investment. 

I guess when I say passive, I won't need to think about it daily constantly, like a full time job.
I'm not expecting it to be autopilot

BusinessPioneer

Thrugelmir said:

BusinessPioneer said:

I am looking at a £15k deposit and then monthly repayments over 25yr £169pcm. Based on £375pm I make this £206pm profit before other costs such as Landlord insurance (approx £15pm)

Of the £169pm only the interest element is tax deductible. Your net rental income is subject to income tax which may take the shine off your idea. As the net after tax cash generated may not be sufficient to fund the repayment of the mortgage. If it were that easy everyone would own a second property.

Thanks for sharing. I didn't think about this. It may tip me into the 40% so eats into profits for sure. All being well, and tax aside, do you have an opinion?

[Deleted User]

Landlording can be a torture at times, even for the best of us. For that money, and for a bunch of other reasons, no way!

niceguyed

As Lycra says, BTL is not passive, even if you get an agent involved which then adds cost. One large maintenance issue or rogue tenant could easily put you into a huge loss that could take years to recoup. Once you've worked out your net yield is that really worth the risk for 3-4%? Maybe for some if you benefit from capital appreciation but I'd say that's unlikely on a one bed flat. 
Let me paint a picture for you. I purchased a new build flat when I was young and naive in 2005 but ended up being an accidental landlord because of the crash. To cut a long story short we let the property for 10 years and I did the math when we sold up in Jan and we didn't make a dime despite it being let with the same tenants. You know what, it could have been far worse. The seasoned pros on here are a better guide than me but from where I'm sitting you need to question if it really is a logical step.