Buy to let flat

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Discussion

Matttrakker

Original Poster:

630 posts

146 months

Sunday 26th February 2017
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I'm sure there'll be plenty of you lot who have been here.

I'm considering a buy to let flat but I'm new to this, not sure where to start.

I'm tempted by a flat as I think it'd be easier to look after.
I'd like to buy it outright. I can get a flat in Rushden about an hour from me for about£100k.

It's a 1 bed professionals flat it'd be about £600 pm
I get the pitfalls of being a landlord but know little about the financial side of things
Is it worth doing?

I deal with civil disputes between tenants and landlords in my job, but many of these involve no one ever having considered a contract!

covmutley

3,012 posts

189 months

Sunday 26th February 2017
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7.2% yield before void periods management costs, stamp duty, maintenance costs.

And the government is coming after the buy to let landlord.

I don't have the money anyway, but if I did I don't think it would go on a btl at the moment.

I'm sure capital value will go up, but surely we won't see the double digit rises if the last decade or so? Or maybe I'm wrong?!


Matttrakker

Original Poster:

630 posts

146 months

Sunday 26th February 2017
quotequote all
I completely see your point, I'm in two minds as have seen the crap side of it through work over and again.
Without going into too much detail

I'm thinking hedge my bets by it being bought outright I'm not costing myself anything in void periods
I'm looking for a decent fairly new build flat which would generally be rented by a single working 20-30 yr old
Close to the station and main arterials. Try and minimise risk really.

I'm not looking to be a property magnate, just beat a savings account, without a big risk

dogz

332 posts

255 months

Monday 27th February 2017
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No one can answer that question but you as to whether its the best thing to do

You need to weigh up the costs and benefits before you jump in. The tax man is chasing the BTL landlord with less relief on mortgage interest (not relevant to you) and 3% an extra stamp duty amongst other things

I've already got a number of BTL's and will continue to purchase more as I see this as my pension fund

If you invested your £100k what would you realistically get elsewhere - I'd wager it will be no where near £7,200 even after accounting for deductions

I'd also consider carefully whether a house or flat is best. With a flat you are at the mercy of the management company and service charges tend to only go one way (up!)

Best of luck!

markwindsurf

1 posts

85 months

Monday 27th February 2017
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Matt, we have a couple of flats that are about 30 mins from us in Leamington and whilst they have been great earners up till now and would not sell them and as Covmutley says the rules are all about to change; my one massive recommendation is buy local, ideally 5-10 mins away, nothing ever goes wrong with a tenant or flat a convenient time or day.
We have tried corporate lets which were okay but private letting is easier, find a local agent that is willing to source and vet tenants for a fee and then collect yourself or that will be 10% off the top.
If you have the money to buy outright you would be better buying multiples as this reduces your exposure to empty properties as long as you can find a reasonable mortgage, have a great adviser if you need one. If you are quick I think btl interest only mortgages are available still, you are then relying on capital growth to pay off of course.
My views only of course.

Eric Mc

121,764 posts

264 months

Monday 27th February 2017
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And don't forget the Capital Gains Tax hit you will get when you eventually dispose of the flat.

And quarterly accounting to HMRC for your rental profits is only one year away.

XJ75

436 posts

139 months

Monday 27th February 2017
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Yield is useful for comparing different properties, but if you want to compare the investment against other non-property investments you need to calculate your ROI.

Assuming £5k of purchase costs and £100 a month of ongoing fees, buying cash your ROI is based on £105,000 (purchase price + costs):

((600 - 100) * 12) / 105,000 = 5.7%

If you were to mortgage on a 75% LTV @ 2.5%, your ROI would be based on £30k (£25k deposit + purchase costs):

(((600 - 100) * 12) - 1,875) / 30,000 = 13.75%

Both routes give you a better ROI than leaving the cash in the bank, but you can see how leverage (i.e. the mortgage) gives you a better ROI.

ymwoods

2,177 posts

176 months

Monday 27th February 2017
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I'm looking to do the same, but am holding back for a while to see what the Goverment comes up with to punish people that own a few properties and then rent them out. I have a few friends that own a few properties (one owns 8) and they rent them all out but even they have said to hold back until we know for sure what is happening.

One good thing at the moment though is I think the house prices are low...if they end up punishing Buy to Let then I can see the house prices going down again if they dont do something to also help first time buyers to keep the demand there. If they dont do much about anything then I would say the prices would probably go up a little as investors start buying again.

covmutley

3,012 posts

189 months

Monday 27th February 2017
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dogz said:
If you invested your £100k what would you realistically get elsewhere - I'd wager it will be no where near £7,200 even after accounting for deductions
My dad has a similar amount invested in funds and over the last few years he has averaged 8%. That is before fees, but fees are very small. And he doesn't have to do anything but sit back.

I have a couple of grand invested in a US share fund and that is up 30% this year.

I think bp shares pay a dividend of over 6%.

I'm not aiming this part at you dogs, but I do think some people buy a btl as a vanity project. Lady in my work has one so I asked her what yield she gets and she didn't know.

ChasW

2,135 posts

201 months

Monday 27th February 2017
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Beware of new builds. One of my kids has had a nightmare as a tenant in a nearly new build with 4-5 floors. The issue is water leaks. They are already on rent reduction and may have to move out. The plumbers working on the fix advised her that it's not uncommon for such teething problems to occur in the first few years. I can't imagine the owner is too happy either.

dogz

332 posts

255 months

Monday 27th February 2017
quotequote all
covmutley said:
dogz said:
If you invested your £100k what would you realistically get elsewhere - I'd wager it will be no where near £7,200 even after accounting for deductions
My dad has a similar amount invested in funds and over the last few years he has averaged 8%. That is before fees, but fees are very small. And he doesn't have to do anything but sit back.

I have a couple of grand invested in a US share fund and that is up 30% this year.

I think bp shares pay a dividend of over 6%.

I'm not aiming this part at you dogs, but I do think some people buy a btl as a vanity project. Lady in my work has one so I asked her what yield she gets and she didn't know.
The trick is to have a balanced portfolio. Property is a large part of my portfolio but I've still got other asset classes

I've got some stocks which are up over 100% but this is high risk stuff and could disappear in a heart beat

My personal view is that we are a small island where land is at a premium and it can't just be made. Buy wisely in terms of location and property type and you are onto a winner

Personally I've made loads more on property capital appreciation never mind income yield than any other investment

Some people like bricks and mortar, others like shares, other like to stuff it under the bed - you just need to go with what works for you based on your appetite for risk

BTL is far from a vanity project. It's a business and should be treated as such.

dazwalsh

6,095 posts

140 months

Tuesday 28th February 2017
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I would tread carefully, central government has it in their heads that landlords are the cause of the housing crisis and are after blood. There is a some punishing new reguations and tax changes due imminently to try and force out the smaller landlords.

audidoody

8,595 posts

255 months

Tuesday 28th February 2017
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I've been in BTL for 15 years. Had two properties. Unloaded one last year. Will be unloading the next one in the next 12 months.

Factor this:

1. BTL will involve you mentally 24/7 (with dozens of issues from 'why is my rent late' to finding out that the best-vetted and referenced tenant will still cause you problems)
2. You will need instant access to reliable tradesman (plumber, heating guy, carpenter etc)
3. Unexpected repairs and legal costs will eat up much of your profit
4. The government will help itself to around 28 per cent of your capital profit and is clamping down on capital allowances.
5.. You will dread the phone ringing at night and at weekends and when you are on holiday.
6. Rented property is illiquid. It will take you a year to get tenants out and cash in if you need money in a hurry

There is nothing around that will return you seven per cent and let you sleep at night.

But my punt would be £35,000 in a stocks and shares ISA (£15k now and £20k on April 6). Double if you are married.

My 10c worth

Matttrakker

Original Poster:

630 posts

146 months

Wednesday 1st March 2017
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Thankyou everyone for your thorough answers, I'm not going to rush into this with everything very much up in the air to what will happen over the next few months, certainly more negatives than I had considered. I'll go away and have a good think