BTL - is it worth it?

BTL - is it worth it?

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Discussion

BoRED S2upid

19,641 posts

239 months

Wednesday 8th April 2015
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boyse7en said:
I've got one property which I let out which has been absolutely fine. Same tenents for 10 years now, fitted a new bathroom suite about 5 years ago.

I've been thinking of taking on another place, but so far can't make it add up so I've resisted. Obviously depends on your circumstances, but local to me a property worth £130,000 rents for about £600pcm. By the time you take off insurance, gas service, etc etc, then the rent will just about cover the mortgage interest payments but won't cover repayments.
That's exactly what I was referring to above if the rent can't cover capital repayments just interest then your relying on the house price going up to make any money there is very little point in it.

oldnbold

1,280 posts

145 months

Wednesday 8th April 2015
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BoRED S2upid said:
What's the thinking on purpose built student flats / apartments like this :

http://www.rightmove.co.uk/new-homes-for-sale/prop...

Lots of these for sale in most big student cities.
I have noticed these, but the returns look to good to be true, so they probably are. scratchchin

I also avoid appartments because the service charges can rise without warning and really hurt the yield and the property value.

I'm also not sure how easy it would be to move these things on if you needed to, it could be another timeshare type nightmare waiting to happen. I would advise anyone considering them to do a lot of research first.

oldnbold

1,280 posts

145 months

Wednesday 8th April 2015
quotequote all
BoRED S2upid said:
boyse7en said:
I've got one property which I let out which has been absolutely fine. Same tenents for 10 years now, fitted a new bathroom suite about 5 years ago.

I've been thinking of taking on another place, but so far can't make it add up so I've resisted. Obviously depends on your circumstances, but local to me a property worth £130,000 rents for about £600pcm. By the time you take off insurance, gas service, etc etc, then the rent will just about cover the mortgage interest payments but won't cover repayments.
That's exactly what I was referring to above if the rent can't cover capital repayments just interest then your relying on the house price going up to make any money there is very little point in it.
As has been said it doesn't work for everyone. But the point in it for me is that my BTL's have allowed the wife and I to retire in our early 50's, along with my final salary pension.

I'm only interested in the income stream, any capital gains made will probably only benefit my kids.

Cheib

23,110 posts

174 months

Wednesday 8th April 2015
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1 said:
Cheib said:
There's no way on earth that justifies a refurb...we're talking say an extra £200 a month just not worth the outlay. I reckon a refurb worth doing would be £10k.
£200pm for £10k sounds well worth doing. Get the refub done, keep tenants longer/attract better tenants and get 24% return. Sounds like a pretty good investment to me.
£10k is probably too low if I am honest. Thinking about it I'd need new kitchen and bathroom and a few other bits. Doubt I'd get out for £10k. Still not a disaster I suppose but it's the ball ache and also dealing with it all. We're about to move house (hopefully) and take on a full on refurb....think I'll get that out of the way first.

Phooey

12,574 posts

168 months

Wednesday 8th April 2015
quotequote all
BoRED S2upid said:
boyse7en said:
I've got one property which I let out which has been absolutely fine. Same tenents for 10 years now, fitted a new bathroom suite about 5 years ago.

I've been thinking of taking on another place, but so far can't make it add up so I've resisted. Obviously depends on your circumstances, but local to me a property worth £130,000 rents for about £600pcm. By the time you take off insurance, gas service, etc etc, then the rent will just about cover the mortgage interest payments but won't cover repayments.
That's exactly what I was referring to above if the rent can't cover capital repayments just interest then your relying on the house price going up to make any money there is very little point in it.
So wouldn't the sensible thing to do be - take out repayment mortgage (75%) and let the tenants rent (£600/pcm) pay the loan? For a 25% deposit (32.5k) you are basically owning £130k, yes?

98elise

26,373 posts

160 months

Thursday 9th April 2015
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BoRED S2upid said:
boyse7en said:
I've got one property which I let out which has been absolutely fine. Same tenents for 10 years now, fitted a new bathroom suite about 5 years ago.

I've been thinking of taking on another place, but so far can't make it add up so I've resisted. Obviously depends on your circumstances, but local to me a property worth £130,000 rents for about £600pcm. By the time you take off insurance, gas service, etc etc, then the rent will just about cover the mortgage interest payments but won't cover repayments.
That's exactly what I was referring to above if the rent can't cover capital repayments just interest then your relying on the house price going up to make any money there is very little point in it.
You don't need to be covering repayments (I don't even think you can get a repayment BTL mortgage). Its a leveraged investment so as long as you are making a reasonable return on your initial investment then its worth it. A 6-7% yield will actually give you a 10-14% return on your cash investment.

Capital growth is then a bonus to stop your cash from being eroded by inflation. Even if house prices just keep growing in line with inflation, your capital growth is also leveraged.

This occurs without the need to pay a penny in repayments.

We invested 100k in 4 BTL's (@6-7% yield) about4-5 years ago. We clear around 12k profit each year, and property has inflated by about 25%.

In those 4-5 years my 100k has returned around 50k cash, and if I were to sell today the cash has also grown by 100k (or 100%)

Show me another investment vehicle that can give me the same returns, even if there had been no inflation?

The flip side is that you can have a bad tenant, and you can have repairs, but that's down to your choices/management.

Sheepshanks

32,528 posts

118 months

Thursday 9th April 2015
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98elise said:
The flip side is that you can have a bad tenant, and you can have repairs, but that's down to your choices/management.
I'm sure there are other factors as well. smile

At least you have a few properties to spread the risk - having one, and that going bad, would be a nightmare for most people.

gibbon

2,182 posts

206 months

Thursday 9th April 2015
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Sheepshanks said:
I'm sure there are other factors as well. smile

At least you have a few properties to spread the risk - having one, and that going bad, would be a nightmare for most people.
I don't agree, though I know I am probably in the minority, four properties equal four times the admin, hassle, white goods / repair costs. Not for me thank you.

98elise

26,373 posts

160 months

Thursday 9th April 2015
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gibbon said:
Sheepshanks said:
I'm sure there are other factors as well. smile

At least you have a few properties to spread the risk - having one, and that going bad, would be a nightmare for most people.
I don't agree, though I know I am probably in the minority, four properties equal four times the admin, hassle, white goods / repair costs. Not for me thank you.
It depends on your investment principals. I'm currently looking to buy a small block of flats (4) that will gross just over 7%. For the same money I could buy a single big house.

Personally I've found the admin and repairs to be minimal, so its a small risk vs many months trying to get a bad tenant out.



Singh911

956 posts

240 months

Thursday 9th April 2015
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The hassles can be managed - you mention white goods, these can be put on cover through british gas around £12 a month for three appliances.

Nothing beats the performance of property once you factor in the advantages of leverage.

Over the last 3 decades, shares have gone up (without dividends reinvested) by 433%.
Over the same time frame, property has gone up 402%.

Now if one started with say £30,000. In shares that would be worth £159,900, a healthy gain of £129,900. Dividends at an average of say 3% pa adds another £60,000 - A total gain of £189,900

If one used the same £30,000 as a 25% deposit on a property, therefore buying one for £120,000; over the same period, that would be worth £602,400. A gain of £572,400. Lets say for now that the rent is around 5% of value. That adds another £416,000 of rent, interest only at say an average of 6% pa takes off £162000. Total gain £826,400

Property outstripped shares over the last 30 years by £636,500 based on starting capital of £30,000.

This is if you did nothing else. Most savvy investors would draw down on the equity built up over the years and perhaps have added another property every 4-5 years. The returns on that bear no comparison whatsoever with any other investment vehicle.

Yes it can be a hassle, but so can getting up in the morning.



Edited by Singh911 on Thursday 9th April 12:59

Zippee

13,440 posts

233 months

Thursday 9th April 2015
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Just to jump in on this topic I'm looking at my first BTL, likely in or around Long Eaton near Nottingham so good for E/Mids airport, M1, Nott City etc.
2 bed semis rent for around £550-600 pcm and sell for £130kish. Putting down a circa 30k deposit would allow me to at least break even on repayments and other expenses but I'm looking for longer term to help fund retirement so I'm not fussed about profit now. Am I being daft though?
The area lets extremely well and I've had several long conversations with agents (though I'm aware they'll be biased).

metrofour

98 posts

183 months

Thursday 9th April 2015
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Zippee said:
Just to jump in on this topic I'm looking at my first BTL, likely in or around Long Eaton near Nottingham so good for E/Mids airport, M1, Nott City etc.
2 bed semis rent for around £550-600 pcm and sell for £130kish. Putting down a circa 30k deposit would allow me to at least break even on repayments and other expenses but I'm looking for longer term to help fund retirement so I'm not fussed about profit now. Am I being daft though?
The area lets extremely well and I've had several long conversations with agents (though I'm aware they'll be biased).
No,as it suits you-I'm the opposite,I have 3 BTL on interest only as I want the cash now and any increase in value is a bonus down the line. it's also more tax efficient. Most important is the yield, ideally not less than 6pc.

Zippee

13,440 posts

233 months

Thursday 9th April 2015
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metrofour said:
No,as it suits you-I'm the opposite,I have 3 BTL on interest only as I want the cash now and any increase in value is a bonus down the line. it's also more tax efficient. Most important is the yield, ideally not less than 6pc.
An interest only mortgage would be around £400pcm for me, rent of £550 less agents fees of 7.5% so around £100pcm 'profit' obviously subject to tax. Presume I'd be better off doing it this way and making lump sum payments off the mortgage? Apologies if these are daft questions but as a first timer into this theres a lot to learn.

Phooey

12,574 posts

168 months

Thursday 9th April 2015
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Zippee said:
An interest only mortgage would be around £400pcm for me
How much more for 'repayment'?

Zippee

13,440 posts

233 months

Thursday 9th April 2015
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Phooey said:
How much more for 'repayment'?
This is based on 2 5yr fixed rate options from Nationwide so I may be able to get lower, just an idea for now. I'd be putting in 30-35k as a deposit.

metrofour

98 posts

183 months

Thursday 9th April 2015
quotequote all
Zippee said:
An interest only mortgage would be around £400pcm for me, rent of £550 less agents fees of 7.5% so around £100pcm 'profit' obviously subject to tax. Presume I'd be better off doing it this way and making lump sum payments off the mortgage? Apologies if these are daft questions but as a first timer into this theres a lot to learn.
Seems expensive-I put down 30pc and borrowed £109k,my interest only payment is £220 pm, rent is £900-that's with Virgin who seem really competitive.IMO if you're 30mins away or less manage it yourself, things get done faster, tenants will be happier- having it managed gives no 'extra powers' if it goes wrong anyway...anyway back to your point,if you're not making much and you don't need the cash the put it on repayment.

metrofour

98 posts

183 months

Thursday 9th April 2015
quotequote all
Zippee said:
This is based on 2 5yr fixed rate options from Nationwide so I may be able to get lower, just an idea for now. I'd be putting in 30-35k as a deposit.
That rate is pretty poor IMO in that realistically rates may well not be that high anyway in 5yrs time-personally I'd fix for 2 years,or better still a variable tracker as rates probably won't even be 0.5pc for 12m or more given where we are with inflation.But you're new so I can understand you might not want any element of perceived 'risk'.So do what you feel comfortable with.Worst case if you fix at that rate,it will have gone up a bit in value and your tenants would of paid the mortgage down a bit in the meantime.

Phooey

12,574 posts

168 months

Thursday 9th April 2015
quotequote all
Zippee said:
Phooey said:
How much more for 'repayment'?
This is based on 2 5yr fixed rate options from Nationwide so I may be able to get lower, just an idea for now. I'd be putting in 30-35k as a deposit.
Cheers.

I'm in a similar situation. Modern (up to 15yrs old), non-council estate, low-maintenance, 2/3 bed houses in South Nottinghamshire (NG13) sell for between 150-200k. Rental - between 600-750pcm. My thinking is to deposit approx 30-35% and mortgage (repayment) the remaining 65-70%. At current rates the tenant's rent would easily be meeting the loan payment. I have savings for void periods, repairs etc. No short-term profit - but your tennant/s are basically buying your pension. That's the way i see it anyway..


ps - i don't have any BTL's, yet. Still learning / researching smile


pps - i personally would pay the extra for repayment and 'own' the property if only doing a few BTL's


Edited by Phooey on Thursday 9th April 17:52

Zippee

13,440 posts

233 months

Thursday 9th April 2015
quotequote all
metrofour said:
Seems expensive-I put down 30pc and borrowed £109k,my interest only payment is £220 pm, rent is £900-that's with Virgin who seem really competitive.IMO if you're 30mins away or less manage it yourself, things get done faster, tenants will be happier- having it managed gives no 'extra powers' if it goes wrong anyway...anyway back to your point,if you're not making much and you don't need the cash the put it on repayment.
Thanks for that, out of interest where in the country did you purchase? £900 pcm rent on a £150k house seems pretty good.
I'll take a look at Virgins BTL rates in the meantime. I live 1.5 hours away from Notts (Inlaws live there) and I was originally considering M/Keynes but the equivalent properties are a lot more expensive.

metrofour

98 posts

183 months

Thursday 9th April 2015
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Zippee said:
Thanks for that, out of interest where in the country did you purchase? £900 pcm rent on a £150k house seems pretty good.
I'll take a look at Virgins BTL rates in the meantime. I live 1.5 hours away from Notts (Inlaws live there) and I was originally considering M/Keynes but the equivalent properties are a lot more expensive.
I'm London zone 4,it's a flat at that price.But to put it into perspective my first BTL is a house near Northampton I paid 182k for 10 years ago that rents for £850....but is worth £185k now at a push-so I learned a hard lesson-location,location,location! doesn't have to be London or SE but you really need to look at yield plus growth IMO,less so however if it's repayment as you will at least have 'something' at the end-buyers down here tend to rely on growth over a term but some like me, need both growth and yield-and with the new pension laws it can only push prices up at around the 150k mark, as where else can you get 6-7pc on that?