Buy to let issues

[98elise]

jw673 said:

98elise said:

Also just to correct your figures, you a not making 5.7% gross yield, its 6.8%.

£625 x 12 = £7500.
£7500 / £110,000 x100 = 6.8%.

Thats not the whole story though. You have invested 27.5k. Based on your mortgage you are probably seeing £300 pcm gross profit. You are therefore getting a gross return of 13% on your investment.

£300 x 12 = £3600
£3600 / £27,500 x 100 = 13%

this is because your investment is leveraged through the mortgage.

the premise of batmanbegin's post is that:

batmanbegins said:

but like anything "gross" its misleading

£300 x 12 = £3600
£3600 - £2929.31 = £670.69
£670.69 / £29,000 x 100 = 2.31%

98elise said:

Compare that to a cash investment!

http://www.moneysavingexpert.com/savings/best-cash-isa#manipulate

2.85% Tax Free Cash NISA

98elise said:

This is also ignoring capital growth, and rent increases which means you returns should grow at least in line with inflation.

This is also ignoring property damage, void periods, non-payment of rent and the delights of the eviction process.

My point was his initial gross calculation was wrong, and also if you look at ROi you end up with a gross of about 13%. The pitfalls you've listed would of course be used in the net calculation, but my experience is that if you choose your tenants well, then you avoid any of those issues.

I'm also buying 1 a year as a pension plan. I'm in year 4 and on my 4th property. I've actually owned 6 in that period but two were flats at the lower end of the market, and didn't really fit my stategy (even though they were good cash generators).

I've had no voids, no damage and minimal repairs in that time. Each property generates 300-350pcm, so about 3.5-4k per year in gross profit. We bank on 3k net per property, and thats what we're getting.

For around 100k cash invested, we're getting 12k net income. The capital gain should ensure that the 100k is also growing with inflation.

We could of course have a dodgy tenant that ends up costing me a couple of k one year, but that still beats cash at 2-3%.

BTL isn't for everyone. Its a business and you need to commit time and money to it, but i believe its a sound long term investment.

[CrouchingWayne]

Bit of a sidetrack, when starting this chain how does it work? I presume you have paid off your own home or your own income covers the payments, then do you just need the initial BTL deposit & mortgage to get the first year started then once you have a tenant the bank sees that the rent services the BTL so is happy to lend again, assuming you gather another BTL deposit the next year?

[98elise]

CrouchingWayne said:

Bit of a sidetrack, when starting this chain how does it work? I presume you have paid off your own home or your own income covers the payments, then do you just need the initial BTL deposit & mortgage to get the first year started then once you have a tenant the bank sees that the rent services the BTL so is happy to lend again, assuming you gather another BTL deposit the next year?

You don't need to have paid off your own home. Each BTL is assessed by the bank on its own merits. You just need the deposit, and a set minimum income. The mortgage surveyor will assess if the rent will cover the mortgage.

As long as you have the next deposit, you can keep buying. You don't need additional personal income, as each BTL needs to stack up financially in the banks eyes.

Some banks will only want to have a certain number of BTL mortgages with 1 person. Mine are all with different banks, as they just happened to be the best deal at the time.