I want to BTL, can someone reality check me?

OnlyGuyWhoLikesTwix · 25 September 2018 at 11:45AM

I'm considering looking at a buy to let. Here is the nitty gritty.

Where I am now:
Own home: £140k mortgage (£690 per month on my mortgage, currently overpaying it)
Own home value is £210k thereabouts.
My salary is £47k per year

The property I'm looking at is a 2 bed on the market at £290k. It actually used to be my old house ergo why my interest, however I reckon I could get it at about £280k as it's been on for a while.
The rental income on this 2 bed property is about £900 per month. I would be looking to rent that one out and stay where I am. I have good credit, no balances on credit cards, no missed payments, etc. I don't have anything in savings (but can correct that by just not overpaying my own mortgage for a few months)

Do these figures even slightly sound plausible? I have never rented anything out before so I'm totally new at this so if I'm missing anything, please say!

Brighty · 25 September 2018 at 12:15PM

Buy to let lenders will want the rent to cover as much as 145% of the yearly interest at an approx 5.5% interest rate. Therefore, you'll not likely be able to get a BTL mortgage of much more than £135k on a £900 a month property. So where will you get the other £145k from?

Brighty

getmore4less · 25 September 2018 at 12:46PM

Gross yield 3.8%

Not high enough for a rental business.

OnlyGuyWhoLikesTwix · 25 September 2018 at 1:17PM

I kind of figured it would be unrealistic in fairness.

Thanks for the extra information though; gives me a starting point to start learning about this as I want to do this when I get my mortgage paid off.

AnotherJoe · 25 September 2018 at 1:23PM

OnlyGuyWhoLikesTwix wrote: »

I kind of figured it would be unrealistic in fairness.

Thanks for the extra information though; gives me a starting point to start learning about this as I want to do this when I get my mortgage paid off.

Why are you overpaying your mortgage? The money you are using to do that would return far more if put into a pension.

OnlyGuyWhoLikesTwix · 25 September 2018 at 3:53PM

To be honest, lack of faith in pensions as a whole. I tend to prefer tangible assets and the idea of using a BTL later on in life to fund later life is more appealing to me. Plus in my calculations and the amount I'm putting away, I'll be done with my mortgage in 7 years (or so), my house is increasing in value all the time and not having to rely on a full time job before 45 is equally as appealing.

Pixie5740 · 25 September 2018 at 4:04PM

How much are you overpaying your mortgage by that if not overpaying it for a few months would give you enough savings for the BTL deposit + £12,400 in SDLT + solictors fees + survey(s) + other costs associated with setting up a BTL?

Have you any idea what legislation landlords must comply with?

pjcox2005 · 25 September 2018 at 4:19PM

The point above is a good one and can be drawn out further, as it's a second property you'd pay an extra 3% on stamp duty, so that along with a 25% deposit is significant savings.

If you don't trust pensions (which are just a wrapper in effect) then I would suggest no overpaying and building up some savings - either regular savers, high interest accounts or a stocks and shares isa are all likely to pay more than the interest you've currently saving. It would also mean access to cash in an emergency or as a deposit if you do go into BTL once you understand it better - quite a bit of research required.

enthusiasticsaver · 25 September 2018 at 4:28PM

OnlyGuyWhoLikesTwix wrote: »

To be honest, lack of faith in pensions as a whole. I tend to prefer tangible assets and the idea of using a BTL later on in life to fund later life is more appealing to me. Plus in my calculations and the amount I'm putting away, I'll be done with my mortgage in 7 years (or so), my house is increasing in value all the time and not having to rely on a full time job before 45 is equally as appealing.

I would urge you to look at pensions again. It is the most tax efficient way of saving and the single reason why my husband and I retired at 58 instead of 66 is because we both had good occupational pensions which we overpaid into. The unattractiveness of the tax side of BTL plus the hassle of maintaining properties (other than our home) and coping with dodgy tenants meant we went down the overpaying pension, mortgage and investing route to fund our retirement.

dimbo61 · 25 September 2018 at 9:08PM

BTL for most people is now dead in the water !
The costs involved with 3% stamp duty on top of normal stamp duty.
Legal fees, setting up fees with the BTL mortgage and many other costs mean you need a big wedge of money to start
As others have pointed out the yield on this property is rubbish and you need a 25% deposit plus £££££ for all the other Bits before you spend a penny on getting a property ready to rent.
Gas safe certificate, EICR, smoke alarms, CO alarms, preparing an inventory, finding a tenant and looking after the property or paying 10% + VAT to a Letting agent
Easy way to make money you must be kidding.
New HMO rules come into force on 1st October which make life a little harder and costs about £1,000 per property.

OnlyGuyWhoLikesTwix · 25 September 2018 at 9:33PM

Pixie5740 wrote: »

How much are you overpaying your mortgage by that if not overpaying it for a few months would give you enough savings for the BTL deposit + £12,400 in SDLT + solictors fees + survey(s) + other costs associated with setting up a BTL?

Have you any idea what legislation landlords must comply with?

I meant I would stop overpaying for a few months (currently overpaying £950 per months) to shore up enough for mortgage payments in case of no tenant. However I can probably see that's a little nieve and I'm not yet in a position to think of doing this yet.

As for your second question, not right now no but I have time to research it a little I guess

I want to BTL, can someone reality check me?

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