Buying a house to let… Current climate

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  • Buying a house to let… Current climate
  • wrightyson
    Member

    After reading all the posts regarding debt/credit etc I thought I’d ask “the mind” their views on this one!!
    We’ve been pondering over the idea for a while, is now a good time?? We’re looking at possibly 70k purchase with 60k of that being mortgage, after looking at the figures the rental will cover the mortgage but not much more. We’ll obviously have to pick up buildings insurance etc and maintenance but that shouldn’t be an issue.
    Or do I just buy a new car??

    don simon
    Member

    I would have thought that if you can go in like a cash buyer, in this case, mortgage in place and no chain, then it’s a buyers market. If the repayments aren’t going to be a stretch, neither now nor in the future, go for it. Start making silly offers, if the seller is struggling and under pressure you could come away with a bargain.
    I also have a feeling that someone will be along to tell me I’m either AWESOME or wrong! 😉

    Premier Icon Harry_the_Spider
    Subscriber

    Fixed rate or variable mortgage?

    If you go variable can you afford it when the interest rates go up?

    yossarian
    Member

    Mortgage rates are pretty decent at the moment. I’d go for it if I were you. We’ve just moved and doubled our square footage in a better location – the extra 50k on the mortgage is costing us an additional £50 a month on our previous mortgage that we took out in 2007.

    Nationwide have some good deals.

    wrightyson
    Member

    It’ll be fixed, we’ve done a major overhaul of our finances down to everything from petrol to beer to car maintenance and we have 200 a month to spare, or literally waste. With that we’ve factored in everything we can think of with our current house that will go up! Our current home mortgage has another 4 yrs fixed to run I have 50% equity ish, but wouldn’t touch any of that! The main worry would be if it didn’t rent then we have to cover the mortgage which we could afford to do six out of twelve months we think!! I have no pension, I’m 35 and this is all I can come up with???

    Premier Icon geoffj
    Subscriber

    I would think you’ll need a bigger deposit than £10k on a £70k house for a buy to let mortgage.
    Interest rates are only going to increase. Could you afford it with interest rates at 10%?

    wrightyson
    Member

    My thoughts aswell regarding the buy to let Geoff, however don’t think interest rates will hit 10%, also I’d go fixed.

    M6TTF
    Member

    If you can afford it then go for it. The number of people renting is at an all time high. There’s more renters than properties in a lot of areas ATM.

    What do you know about letting properties? I have lost count of the amount of aggrieved landlords who have entered into the buy to let market trying to make money, only to have been left with headaches.

    its not always the attractive cashcow it appears…

    wrightyson
    Member

    As I say i don’t really see it as a short term cash cow, perhaps somewhere that’ll increase in value whilst someone else pays off the mortgage. Then leave me with a bit of cash say in 15 years? Fook knows, I look back and now know I should never have sold my first house nine yrs ago, got buy to let sorted on that and bottled it, put all the money into this place. Hey ho, no regrets and all that

    FunkyDunc
    Member

    You will be lucky to get a mortgage on 10%. 20%-30% the norm, and I am sure I read recently that it is becoming increasingly difficult to get buy to let mortgages, esepcially if you are new at it.

    I used to make roughly 50% profit on a house I rented out £420 per month rental. To be honest I never really noticed the additional income it made me. I also had a good tennant. If I had had stressful tennants I would have definately not done it.

    I wouldnt imagine your going to make much money on a house that costs £70k, even after 15 years, although who knows.

    Oh yeah and then keep the house 3+ years and your liable for capital gains.

    I’d take my £200 a month and save it in the bank or buy nice things with it.

    Why not just pay off your mortgage quicker, rather than taking a gamble on the price of another house? If the value of houses goes up, then you still have a higher value asset relative to that, whereas if they go down or stagnate, you at least haven’t chucked all your savings into some expensive to maintain secondary project.

    If you buy it, and your rental only just covers the mortgage, then if prices don’t rise you’re just paying for someone else to live in a house (maintenance etc isn’t cheap).

    When you say about your mortgage costs – you do mean a repayment mortgage I’m assuming, as obviously this would be a complete idiot plan on an interest only one?

    When you say the rent you’d get would only just cover the mortgage, you have factored in periods between rentals haven’t you (if you guess at something like 10 months a year you’d be getting rent)?

    nickf
    Member

    I never exceed 70% on BTL – it means that you have sufficient excess cash to cover void periods, repairs to leaky taps, insurance, paiting the outside etc. Unlike your own house, you have to keep a rental place in really good condition to get the best price and keep good tenants.

    All of which means that unless you can find another £10k of deposit (or another £5k, and chip the vendors down by £5k as well), I’d probably advise against it.

    Also, BTL mortgages are harder to find, and potentially more expensive. You’d do better to increase the borrowing on your own house (to 70% or so) and use the cash from this to increase the deposit on the BTL. You want to have enough mortgage interest and other costs to pay on the proporty so that the rent only just covers them, ensuring that you have no tax liability.

    Bear in mind that this is a LONG TERM deal, and you should not figure on being able to access the cash at any time in the next decade. As said before, this is absolutely not a cash cow. You’re taking on a substantial amount of risk, and at times you’ll question why you did it. Then again, when you sell it in 15 years time, you’ll have a good slug of capital which, with a little ingenuity and assuming laws haven’t changed, will be free of tax.

    yu wil need a bgger deposit. 20% minimum and that only givces you access to a small range or mortgageswith huge arrangement fees of thousands. 25% de[osit imporves things a bit.

    When you do your sums remember agents fees if you are going to use them – it can be a large amount. Also do your sums on receiving 9 or maybe 10 months rent a year to allow you some contingency.

    If the sums add up on rental – 15% fees x 9 months a year then yes its a good idea as I am sure your capital will grow over ten years – assuming a the house is in a decent location with owner occupier potential

    Remember also that rental will go up over time.

    Premier Icon FuzzyWuzzy
    Subscriber

    If the rent only just covers the mortgage I’d steer well clear (especially on your proposed LTV), even if you can get a decent length fixed rate. You’ll need to figure in maintenance expenses and the property being unoccupied for periods and probably a lot of other small expenses that soon add up.

    LHS
    Member

    What TJ said. I’ve got 5 houses on the go at the moment and as a minimum for the investment you are talking about:

    80%LTV, more likely 75%
    You need at least £5k sitting in the bank for emergencies.
    Work on receiving 80% rental a year
    If using a management agency they will take a minimum of 10%.

    If all the figures work out in your head and its a long term >10year investment then do it. If not then pay £10k off your current mortgage, or look at investing it in a managed fund.

    uwe-r
    Member

    As people have said

    LTV is going to be 70% max so you will need a bigger deposit and i would work on having a years mortgage + 1 or 2 grand put aside for emergencies / repairs.

    I would also point out that, at that level you are looking at, looks like the lower end of the market where returns are better on paper but you have to work harder for it. Expect poor paying tenants and high turnover if you are offering very cheap property to rent. This will take up a lot of your time.

    Premier Icon midlifecrashes
    Subscriber

    The worry I have is you say the rental will cover the mortgage and not much more. You need to factor in Landlord insurance £250, gas servicing and inspection £50+, and costs to prepare between tenants, which usually means at least lick of paint to a couple of rooms even when there is no actual damage, just wear and tear so it looks fresh enough to let. Then changing the locks, making sure utilities are switched over correctly. So what you need is a good tenant who wants to stay for years and years, and they can be tricky to find. So as well as the money, factor in a fair bit of your time to sort this sort of stuff out. If you have an agent fully manage, including repairs you will never make money on it. I have four places and they do currently make money, but they are basically there as a pension, since Equitable Life threw ours away. If you do do it, get somewhere low maintenance with stuff like UPVC and durable flooring, solid kitchen units otherwise you’ll be endlessly replacing them. I’d be surprised if BTL mortgage would be available at the LTV you have though. Good luck.

    wrightyson
    Member

    Cheers for all the advice folks looks like its worth hanging on for a bit then. Hopefully it’ll be a good yr for us workwise and well have a better deposit.

    Macavity
    Member

    As with all things property
    it is locationloca……….

    http://blogs.thisismoney.co.uk/2010/10/how-much-does-it-cost-to-rent-in-your-area.html
    take the time to research the market and find out how easy / difficult it is to for people to rent in the area that you are buying a house in and how much people will pay to rent.

    So……

    £70k house

    £60k morgage

    prices dropping ~5% pa (loseing £3.5k pa)

    intrest 5% pa (paying (£3k pa)

    Rent is say ~5%pa (getting paid £3k)

    I’d stick the £200 a month in a savings account (you’re still below the ISA threshold even if you put it all in) then if/when things pick up in 2 years time you’ll have another £5k to play with and not have lost £6k+* renting out a house.

    *the rent covers the deperciation, you’ve paid the mortgage, an agent has made a fortue from his fee’s and you’ve paid for all the maintenance and buildings insurance!

    CaptJon
    Member

    Sod the sums, can you live with being part of the bourgeoisie ?

    loddrik
    Member

    No, don’t do it. The last thing the world need is more bloody buy to let landlords. First time buyers find things tough enough as it is. Makes my blood boil. It’s all about greed and me me me.

    Premier Icon cb
    Subscriber

    Don’t do it! I’m a reluctant landlord and its a bloody nightmare. Its a drain on your time and more expensive than you would ever imagine. Good tenants and things can be simple – bad tenants will cost you in terms of cash and stress.

    flip
    Member

    Pay off your own morgage 😉 or get a pension..

    Simples.

    ScottChegg
    Member

    get a pension

    They are not the safe bet they used to be.

    flip
    Member

    They are not the safe bet they used to be.

    Nor is property.

    rob2
    Member

    Pay off your mortgage or buy shares in any primary based industry as a long term pension

    For what it’s worth I do a lot of work with the treasury and the bank of England want to raise rates to manage the cost push inflation but have been ‘told’ no major changes can happen next year then expect some unpleasant rate increases at which point I’d not want to have money in property

    But no one can predict the future 🙂

    Put it into a new bike!

    Lawmanmx
    Member

    sod the house and enjoy yer new found wealth 😉 …. my ex missus rented her house out and it cost her more heartache and stress than it was worth, she’s struggling to sell it now 🙁

    Premier Icon NZCol
    Subscriber

    I’d overpay your mortgage or save it up instead of risking it on numbers that, to me, look marginal. We’ve just got out of 2 of our rental properties as they were about to start costing us money and they have made the big jump in capital gain. They are also an utter ballache when you have annoying tenants.

    Premier Icon Blackhound
    Subscriber

    Use your common sense and think about it before jumping in.

    Mrs B and I bought one 12 years ago and the income just covered the mortgage so a small loss with insurance etc. Over the next few years rent went up and the mortgage stayed much the same or dropped and we overpaid and it was paid off 2 years ago.

    We do not let to students or the unemployed, though this can of course change during the tenancy. No problems with tenants to date and current one has been in 2.5 years.

    One way to look at is if over 20-25 years the rent covers the mortgage costs the house will have been ‘free’ even if the selling price is exactly the same as you originally paid for it. Any capital increase is a bonus but maybe can’t be guaranteed going forward – even allowing for the supposed shortage of housing stock.

    Premier Icon tomaso
    Subscriber

    There was an article in the FT this week saying a cheap house (to FT readers) to rent out was a sound investment.

    nicko74
    Member

    perhaps somewhere that’ll increase in value whilst someone else pays off the mortgage

    Yeah, you might want to look *really* long term for that… 🙄

    djglover
    Member

    We looked at this when we had a windfall from sharesave but we opted to pay our own mortgage off, it was 2008 and the market was doomed though. My best mate has a BTL and he doesn’t break even over a year, dont forget management fees, maintenance, and 2 months a year vacant could break you. His was his own house that he bought in 2001 too after he relocated. He just spend 3 grand on decorating and new furniture :-0 and took a weeks holiday to do some of it himself.

    Sod that!

    godzilla
    Member

    We have a couple of buy to lets and they can be a nightmare..
    Worst case is your house gets trashed every six months, it takes time to clean costs a fortune to re carpet and You struggle to get the rent from your tenant. My last tenant and her stinking dog smashed my cooker, and made a right mess. The damage she did cost me around a grand to fix thats not including the time the house was out of action.
    My advice would be think long and hard about it, if your soft tenants take the pee, and if you accept Dhss they pay directly to the tenants and it takes 8 weeks of non payment to get paid direct. on the other hand buying while prices are at there lowest will yield the best long therm profits.

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