Buy to Let - What to consider?
Discussion
Definitely the right approach considering all scenarios etc. I haven't started (yet) but have a bit of experience. With the rate of return that you're hoping for, I'd be looking at London especially if you have the equity to start with. Obviously the markets change but long term its only going on way and as you say you're going in for the long term. The other thing to bear in mind is the added work the bigger that the portfolio gets. Management is fairly simple but can be very me consuming. Obviously there are other considerations - tenants for one. Starting out the main things are to do a lot of homework and get all the financials/legals very well sorted.
In terms of tax, I have no clue whatsoever.
Regarding how many to start with, I think it really depends on what you're looking at and where. Yield on two flats may be better than the same cash on one house but the flats will have service charges and its double the administration. However, the flats could be much easier to rent out and still provide a better return despite added costs.
As I said, lots to consider.
Going back to tax etc, I would guess that to some extent these things will depend on whether you are investing yourself or starting a Ltd co. to do it through but again really not my dept.
Theres a big auction taking place later on this week - Allsop on the 26th - I might be going along there as auctions can be a good place to buy.
Regarding how many to start with, I think it really depends on what you're looking at and where. Yield on two flats may be better than the same cash on one house but the flats will have service charges and its double the administration. However, the flats could be much easier to rent out and still provide a better return despite added costs.
As I said, lots to consider.
Going back to tax etc, I would guess that to some extent these things will depend on whether you are investing yourself or starting a Ltd co. to do it through but again really not my dept.
Theres a big auction taking place later on this week - Allsop on the 26th - I might be going along there as auctions can be a good place to buy.
jonnydm said:
Theres a big auction taking place later on this week - Allsop on the 26th - I might be going along there as auctions can be a good place to buy.
There are two in Scotland - one in Glasgow and one in Airdrie - which would be really very good bargains indeed if bought at the guide prices. The one in Kilmarnock seems very good too, but I don't know that area as well as the other two.Look at where the employment/income of the local area comes from.
Is it a good mix of private industry, small but reliable public sector, plenty of businesses on the up and up?
Or is it a town reliant almost entirely one one public sector employer that's guaranteed to be right in the firing line for cuts, propped up by a few local small businesses that are struggling already?
I am not a landlord (so take my advice with a hefty pinch of salt) but I get the impression that a few of the "bargains" out there are places where canny owners with an ear to the ground are divesting themselves of property ahead of the expectation of big redundancies and no replacement work within the next decade.
In other words, make sure it's a town where the locals will still be able to afford to rent from you at the current market rates in 2, 5, 10 years' time...
Is it a good mix of private industry, small but reliable public sector, plenty of businesses on the up and up?
Or is it a town reliant almost entirely one one public sector employer that's guaranteed to be right in the firing line for cuts, propped up by a few local small businesses that are struggling already?
I am not a landlord (so take my advice with a hefty pinch of salt) but I get the impression that a few of the "bargains" out there are places where canny owners with an ear to the ground are divesting themselves of property ahead of the expectation of big redundancies and no replacement work within the next decade.
In other words, make sure it's a town where the locals will still be able to afford to rent from you at the current market rates in 2, 5, 10 years' time...
groak said:
jonnydm said:
Theres a big auction taking place later on this week - Allsop on the 26th - I might be going along there as auctions can be a good place to buy.
There are two in Scotland - one in Glasgow and one in Airdrie - which would be really very good bargains indeed if bought at the guide prices. The one in Kilmarnock seems very good too, but I don't know that area as well as the other two.What worries me is that they are far away to get to regularly to sort things out and that finding tenants could take a while. Whats the market like for these? Any idea what they'll go for?
I'm tempted to make some calls though!
I would be looking for city centre houses, little 2 beds with small rear gardens. Most cities are overrun with new build flats and eventually all the tenants in the flats will be fed up and crave a garden, plus as petrol costs rise more people will be looking to rent closer to the city centres (or at least where i live they are!)to save driving..
My own rule of thumb was 'does the rent cover the mortgage at 10% interest rates'
My own rule of thumb was 'does the rent cover the mortgage at 10% interest rates'
jonnydm said:
Just had a look at those two as they'd previously been off my radar (look at Ground Rents for work and houses in SE/SW personally) but those are some impressive potential yields there.
What worries me is that they are far away to get to regularly to sort things out and that finding tenants could take a while. Whats the market like for these? Any idea what they'll go for?
I'm tempted to make some calls though!
The 5 bed in Langside Rd Govanhill can either be developed into an HMO (very lucrative if done right. £1000+pcm)or ( a lot easier and thus arguably better) a 1 x large DSS family flat. Properly occupied, you'd be looking at +/- £650 pcm. The 2 bed in Airdrie looks like £450pcm. Personally, I think you may be surprised to see how cheaply they go for. quite possibly lower end of valuation. If so, there's a quick capital gain to be made by flipping them into the next Glasgow auction. What worries me is that they are far away to get to regularly to sort things out and that finding tenants could take a while. Whats the market like for these? Any idea what they'll go for?
I'm tempted to make some calls though!
A lot of that will depend on how much you have to start and how much the houses are..
Minimum of 20% deposit at the moment for a BTL mortgage (there are companies asking for 15% but rates and fees are high...
Cheapest houses by me are £40k but you'll be looking at DSS tenants paying about £400pcm tops, city centre paying between £70-£80k and getting £500-£525 pcm
Minimum of 20% deposit at the moment for a BTL mortgage (there are companies asking for 15% but rates and fees are high...
Cheapest houses by me are £40k but you'll be looking at DSS tenants paying about £400pcm tops, city centre paying between £70-£80k and getting £500-£525 pcm
OP - I am in a similar position to what you are looking to be in. I have a 2 bed 2 bath flat that I own outright with a yield of about 5%
I get £450 a month (£50 of which goes to the letting agent) so I walk away with £400 a month for doing nothing. I haven't had any problems so far with regards to damage, however my brother who bought at the same time has recently had a small issue. It was all paid for out of the deposit from the tenants and his property has been re-let.
So far we have had good experiences and will be looking to buy again in the future, possibly borrowing but keeping gearing extremely low.
I get £450 a month (£50 of which goes to the letting agent) so I walk away with £400 a month for doing nothing. I haven't had any problems so far with regards to damage, however my brother who bought at the same time has recently had a small issue. It was all paid for out of the deposit from the tenants and his property has been re-let.
So far we have had good experiences and will be looking to buy again in the future, possibly borrowing but keeping gearing extremely low.
They probably wouldn't. They could well wipe you out if you borrowed too much but as you have already said you are being extremely cautious with the amount you are willing to borrow which is a good start.
I personally am looking at getting another property once I have about 30-40% for a deposit. this means that I will have the full equity in property 1 and 30-40% in property 2.
Provided you aren't struggling for cash at the moment, and it sounds like you aren't then you should be ok with the odd void (but do calculate it in when you are doing the sums) don't overdo it to begin with. Perhaps start with 1 property and no debt so that you can get a feel for how you feel comfortable borrowing in the future and to help you buy better next time around.
I certainly know I have learnt a lot by having such a safety barrier. I wouldn't have come unstuck by borrowing but I might have worried that I could.
I personally am looking at getting another property once I have about 30-40% for a deposit. this means that I will have the full equity in property 1 and 30-40% in property 2.
Provided you aren't struggling for cash at the moment, and it sounds like you aren't then you should be ok with the odd void (but do calculate it in when you are doing the sums) don't overdo it to begin with. Perhaps start with 1 property and no debt so that you can get a feel for how you feel comfortable borrowing in the future and to help you buy better next time around.
I certainly know I have learnt a lot by having such a safety barrier. I wouldn't have come unstuck by borrowing but I might have worried that I could.
I have BTLs, there are a few things to consider:
Tenants can be w
kers. As it's not their house you can be stuffed with repairs far in excess of a deposit, choose carefully, also remember any agent you use to vet propective tenants are only really interested in the fee they will get, not the long term security of your house.Might sound strange but don't get emotional involved when choosing a house, go for the best financial deal not necessarily the one you would want to live in.
You will pay tax on your rental income, the only relief you will get is on the mortgage interest paid. You can claim back invoices for repairs etc too.
Make sure your insurance is correct for BTL, don't skimp on this.
I'm sure there's more but it's been a long day! Don't forget if you buy a property you are likely to gain long term as house prices recover, so if you can make a resonable return now then things should be even better years down the line.
Dave
D_G said:
You will pay tax on your rental income, the only relief you will get is on the mortgage interest paid. You can claim back invoices for repairs etc too.
IIRC this is not quite true, you can also claim 10% of the rental income as 'wear and tear', on top of repair costs. Also any fees you pay are deductibles as well such as rental agency fees. If you manage and maintain it yourself you can also claim back reasonable mileage costs (say 45ppm).Have a chat with Graham at Martland BTL Mortgages, he's pretty clued up on what the markets are doing.
Shout if you need a tenancy agreement, sure I've still got one on the hard drive from when I was renting a place out. Just remember to credit check any tenant (there's lots of online credit search outfits for landlords, it's not expensive & can save you a load of grief) and get the deposit registered with the DPS asap.
Edited for formatting snafu.
Shout if you need a tenancy agreement, sure I've still got one on the hard drive from when I was renting a place out. Just remember to credit check any tenant (there's lots of online credit search outfits for landlords, it's not expensive & can save you a load of grief) and get the deposit registered with the DPS asap.
Edited for formatting snafu.
Kevin VRs said:
IIRC this is not quite true, you can also claim 10% of the rental income as 'wear and tear'
If, and only if, it is a furnished property.Kevin VRs said:
If you manage and maintain it yourself you can also claim back reasonable mileage costs (say 45ppm).
Err, no you can't. Your "business" in renting property out for an income IS the property itself, the only way to claim mileage back against the rent is for trips between your rental properties. Thus you need at least two properties to be able to make such a claim.stabbed rat said:
OP - I am in a similar position to what you are looking to be in. I have a 2 bed 2 bath flat that I own outright with a yield of about 5%
I get £450 a month (£50 of which goes to the letting agent) so I walk away with £400 a month for doing nothing. I haven't had any problems so far with regards to damage, however my brother who bought at the same time has recently had a small issue. It was all paid for out of the deposit from the tenants and his property has been re-let.
So far we have had good experiences and will be looking to buy again in the future, possibly borrowing but keeping gearing extremely low.
You mean £400 - tax obviously not £400 in your back pocket.I get £450 a month (£50 of which goes to the letting agent) so I walk away with £400 a month for doing nothing. I haven't had any problems so far with regards to damage, however my brother who bought at the same time has recently had a small issue. It was all paid for out of the deposit from the tenants and his property has been re-let.
So far we have had good experiences and will be looking to buy again in the future, possibly borrowing but keeping gearing extremely low.
Low gearing is a sensible way forward. We are due to complete Friday on our first B2L and as B2L is something I've wanted to do for years its only the falling prices that have made it possible but the gearing we have is as high as IMO it would be sensible to go. We have (had to) put 25% down and mortgage payments/insurance = 50% of the monthly rent. Sounds good but you only need a knackered boiler to wipe out a years profit. Going in eyes wide open on that score!
Looking forward to getting going with it but will be aiming for lower gearing on a second property we hope to buy before the end of the year.
Looking forward to the capital gains in 10/20/50 years time lol
Looking forward to getting going with it but will be aiming for lower gearing on a second property we hope to buy before the end of the year.
Looking forward to the capital gains in 10/20/50 years time lol
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