But-to-let advise please

pollocmc

It really does worry me that what, until recently, was a commercial venture undertaken by professional landlords, has become the latest investment bandwagon, like dot.com.

All investments carry some risk, but what is your contingency plan should both your current home and this new investment lose £15K over the three year period? Gearing can go in two directions, and if it turns negative you could be screwed.

I'm in a similar (sort of) position to the OP in wanting to enter the BTL market except that I have about 80K cash through a house sale (long sad story) and a 90K (probably 60-70K now) endowment that is due to pay out in 15years. As long as I keep my job, I'll be able to top up any payments by 1K and I have the opportunity of getting a RTB council house for 15K with market value of 50K (as long as relative doesn't snuff it!!). Now in my area, I could get a two bed flat for about 80K including costs and minor upgrades. So my thoughts were this. buy one flat plus the RTB. Live in flat and put it up for Let (staying with parents at the mo.) Use the 1K a month to pay off the 15K for the RTB as quickly as possible. If I get the flat let, move back in with parents. Then buy another one and do the same after releasing equity from the first. The rent on each of these would be about 450+ pcm. Therefore, hopefully, in three years time, I'd have two 80K flats with total £80K mortgage with a potential rental income of £900pcm minus say £200pcm for costs and empty month, and I'd have paid off the RTB all going well. The RTB would then become another let when (not if - we all die sometime) relative no longer needs it . (I know all this sounds heartless but relative is encouraging me to do this!).

Draw Breath.

Now where does all this get me? I'd liek to build up a bigger portfolio of properties eventually. Problem is I am averse to taking big risks with what essentially will be my pension, childrens inheritance. I know the advice is to borrow as much as you can at 20% deposit. This would give me a 400K mortgage, 5 properties to let and no sleep. So how would I build on this sensibly looking for short-medium term growth but an actual monthly income not essential.

OR

Should I pack in my job and use the money to go back to Uni for four years and become a pharmacist or a dentist (an option that is not totally ruled out)

Your advice would be most welcome as I may need a wake up call.

Oh and what kind of mortgage could I get. I think I want a flexible interest only mortgage that allows for a property portfolio and monthly overpayments!! Does such a thing exist?

pollocmc

Conrad

Ive sold all my B2Ls over the last 12 months.
With investment you need to understand a basic principle; 'Buy on the rumour, sell on the news'. Now that B2L is big news and everyones at it, I made the decision it was high time to bail out. The last property sold has dropped 15% in value in the last 12 months. This unstoppable motion is spreading and will really be big news over the next 12 months. There is lots of new development flooding the market, and too many people are trying to sell to too few buyers.

My Stock Market Unit Trusts have gone up over 30% in the last 24 months, because I carried on buying into the SM when it was unpopular. You need to wait until property becomes unpopular (no - one was buying after the last crash), or if u do buy now its going to be long wait for any returns IMO.

Any true investor is not currently buying property in the UK. Buying abroad is far better, for example land (no rent hassle) in up and comming areas such as the Cape Verde islands. Bulgaria etc are not for me.

gallygirl

A few points -

1. The seller is not paying the maintenance out of the goodness of their heart - assume it is a developer? 80 x 12 x 3 = £2880 they are overcharging for a start.

2. 3 years is not a long time.

3. Costs involved in purchasing will be higher than you think. And could you afford to pay mortgage for 6 months if you had a void period.

4. If you want to know more about pitfalls and costs of mortgages you should be doing your own research - not relying on others. I don't mean to sound harsh, but you sound financially naive and you could get yourself into serious financial problems if you do this.

In general I think BTL's can still be a good deal - prices may drop but I can't see them dropping by 25% or more as a lot of shares can. And over 25 years they can pay their own mortgage off - so for 15k investment you could have 100k - plenty people who've invested in shares would be happy with that. And that's with no capital growth.

But, I can't stress enough, you need to do your own research into this and then ask more informed questions of others - don't rely on others advice, that's how lots of people on here (me included:eek: ) ended up on here in the 1st place.....

Good luck!

Conrad

ali007 wrote:

A few points -

.

In general I think BTL's can still be a good deal - prices may drop but I can't see them dropping by 25% or more as a lot of shares can. And over 25 years they can pay their own mortgage off
Good luck!

This is not correct, or everyone would pile - in to the 'free magic money train' including pension providers.

Look, currently you will find the rent will just about cover the INTEREST ONLY and maintainance costs. It wont pay - off the capital at all.
Prices are steadily falling and in any market sentiment is the key factor. Sentiment towards property is changing for the worse. No party goes on forever. Sentiment changed in Japan and peoperty prices have fallen for 15 years, despite that being a more crowded and far richer country.

All the wise property investors stopped buying a while ago and indeed many are selling. Dont be the last mugg in the investment queue left holding a 'hassle' asset that is falling in value.

Prices can EASILY GO UP (as they have since 1995) so we must regonise THEY CAN JUST AS EASILY FALL. Its all about sentiment.

Best of luck.

PS - if u do buy, what ever you do dont buy newbuild, they are really suffering as there is massive oversupply of new - build to let and for sale.

GDB2222

The BTLs that professional landlords buy are often not at all attractive properties. I own a small portfolio of high rise council flats, bought under RTB, and then repossessed in the early 90's. These yield around 7% to 8% based on current valuations, which could just about make some money for the OP. However, I have loads of probs with skint tenants not paying rent, housing benefit not being paid (or being clawed back by the Council), and sky-high maintenance costs.

I would sell and invest in the stock market, but these flats were bought a while ago and the CGT would be a problem. I would not buy the same again in today's market, and still less would I buy more mainstream property at the moment.

HTH.

G

eurows

Are you all stark raving mad. Buying at a peak is a surefire way to financial ruin. You have not got any money to buy to let. What is you borrowed the money. Interest rates went up (unlikely), house prices fall sharply (very likely), you struggle to get a tenant (possibly). You then go from being in a comfortable position to getting yourself in debt.

Why are people obsessed with having another house. I would wait and see what the market does. Its unlikely to go higher and more likely to go down over the next 5 years. In which case you could of saved up a deposit for a buy to let and then buy at a cheaper rate.

This countries obsession with getting into debt is really starting to scare me. I want to buy a second house but I have no money - where can I borrow it.

Borrow money out of your own house (which in 5 years may not be there to borrow) and then put that money into another overpriced house.

CRAZY

eurows

BTW Bovis Homes have already being dropping their houses by 10%. Meaning that all them people who put a deposit into their homes prior to that have lost their deposit straight way. Why would you buy a second hand home when a new one is 10% cheaper.

25% off now doesnt look too unlikely. Look on Nethouseprices. I have seen this happening already on houses bought a year ago and sold recently.

AuntyJean

eurows wrote:

Are you all stark raving mad. Buying at a peak is a surefire way to financial ruin. You have not got any money to buy to let. What is you borrowed the money. Interest rates went up (unlikely), house prices fall sharply (very likely), you struggle to get a tenant (possibly). You then go from being in a comfortable position to getting yourself in debt.

CRAZY

I do not have much choice. My husband wants a divorce and is living in our marital home. I walked out with what I could fit into a taxi.

He now wants to sell up. The house as it stands has been valued at £130K. It will need a new kitchen (he is leaving the white goods which are 2-3 yrs old) and new bathroom (complete including tiling and shower). The rads all need changing and the combi working fine but about 12 yrs old.

If I buy him out and take out a mortgage for £80K I could do the house up and let it out. The income (I have been told by an estate agent who lets a house in the same street) would be £595pm less 10% for them managing everything. To pay interest only on £80K over 15 yrs will be £345pm. The only other costs I envisage will be insurance (approx £500) and gas/elect checks £60pa).

In other words I would not make a bean but at the end of 15 yrs I would only owe £80K. i could then either sell up to pay off the £80 or find some other way of mortgaging the property (perhaps at 65 I could take out another short term btl mortgage leaving the tenants in situe).

If I sell, I would get £65K less fees and have to find somewhere to store my personal possessions that I left at the house (there is no room where I am living now, unless I spend a couple of grand converting the loft). In addition, I cannot be sure that my relationship will last until the day I die and I could become homeless (I am living in my partners house).

The 'movement/disposal' of my personal possessions is clouding my judgement at the moment as is the fact that I may need somewhere to live at some time in the future.

Any observations please?

meanmachine_2

Hmmm, what to do...

I'd probably just sell, bank the £65K less expenses in a high interest account, which gives you an emotional buffer/secuirity blanket, so that if your new relationship does break down you won't be penniless.

What you're talking about is an investment - where best to put your money. I'd guess that property is at its peak. No more easy money there, so in today's climate it's not such a great bet.

You have a roof over your head. You put your items in the loft, sell off any you really don't need (ebay etc), bank that money as well.

In fact, I can see many positives in your situation. BTL doesn't sound like the answer to me, but others might disagree.

GDB2222

AuntyJean wrote:

If I buy him out and take out a mortgage for £80K I could do the house up and let it out. The income (I have been told by an estate agent who lets a house in the same street) would be £595pm less 10% for them managing everything. To pay interest only on £80K over 15 yrs will be £345pm. The only other costs I envisage will be insurance (approx £500) and gas/elect checks £60pa).

In other words I would not make a bean but at the end of 15 yrs I would only owe £80K.

I think you may be underestimating the costs/risks quite a bit. Look at the latest ARLA report on residential lettings. They do an interesting quarterly survey of things like void periods. Last time I looked, the average void period each year is a bit over one month. That is the average period between lettings - you could have a bad patch and not let for several months. You need a cash float to cover contingencies like that. Apart from losing rent for that void period, the owner has to pay 90% of full council tax for that period.

Also, you mentioned a 10% cut for the agent for managing the property. Most agents that I know charge VAT on top of their 10%, so that's more like 12%. Also, for managing, rather than just finding tenants, most agents charge 15% + VAT, ie nearly 18%.

I am not clear whether you are letting furnished or unfurnished? Either way, you need to allow for new carpets every 3 to 5 years, redecoration throughout every 3 to 5 years (including outside). If furnished, the furniture will need replacing over the same time-scale. You can lengthen these periods, but then your rent will suffer, with lower rent and longer voids.

Get quotes for all these items, so you know what you are actually letting yourself in for. Allow for one-third or one-fifth of the redecs and so against the annual rent. Do your sums very, very carefully, and make sure that all your known outgoings are covered with a decent margin on top.

If not covered by the rent, how are you proposing to make up the shortfall? Or are you going to get repossessed right when property prices are at their lowest, so you lose the lot?

Finally, your mortgage costs are the highest single item. I strongly recommend that you get advice on this AND LOOK AT FIXED RATE MORTGAGES. Not just fixed for a couple of years, but fixed throughout your 15 years time-scale.

My own view remains that property prices will fall, but at least if you check your annual inome meets your annual expenditure you may avoid a complete disaster.

Just to give you an idea what you are letting yourself in for, I have done a rough income and expenditure comparison. You may disagree with the figures, but then I do not know your property.

Rent for 10.5 months per year 6248

Outgoings:
Mortgage interest 4140
Council tax on void periods - say 150
Agent's fees at 15% + VAT 1101
Redecs say 25% of full cost 500
Repairs 500
New carpets say 25% of full cost 500
New furniture say 25% of full cost 500
Insurance 500
Gas/electric checks 80
Total outgoings 7971

Does not look like a paying proposition to me.