Lower end of buy-to-let market

[ywouldi]

Hi all,

I'm interested in buying a buy-to-let flat with a view to buying one every year or so for the next ten years. I have no company pension and have only recently started a private SIPP. The idea of this is to build up a portfolio of property that will allow for a small income and allow for a very long term investment. I am on a decent salary and am able to put away £1000 or so a month after all expenses and accounting for a good lifestyle which is how I'l be funding deposits.

1 bed flats in Luton, relatively near me, are available for between £50 - 60k and seem to rentable at £400-500 a month. £400 would be very competitive.

The yield would seem to be around 8% looking at some online calculators. This is based on interest only and the profts would be kept for the taxman and for maintenance and future investment.

I am slightly worried that letting at the lower end of the market would lead to problem tenants though I suspect this can be managed out to a degree.

I know that we are turning into a country of buy-to-let landlords now but I think it would be a useful part of my general invest policy.

Does anyone have any experience of this market and have any thoughts they could provide?

[Moominho]

I've seen a few of those 1 beds in Luton, the thing is they all seem to have pretty high ground rent/service charges (coming up to 100 pm), which is quite high on a income of 400pm.

But the Luton housing market in general doesn't seem bad value, especially taking into consideration the prices of property in the surrounding area. Luton is a hole though.

[z4chris99]

60k 75% Ltv so you need 15k plus survey and legals. say another 1500 per house

130% cover and 4.5% int so you need rental income of 220 net pm

if you reckon you can get 400pm gross

10% letting and management
landlords insurance
sinking fund for when st goes wrong
voids

not much income in it

[z4chris99]

60k 75% Ltv so you need 15k plus survey and legals. say another 1500 per house

130% cover and 4.5% int so you need rental income of 220 net pm

if you reckon you can get 400pm gross

10% letting and management
landlords insurance
sinking fund for when st goes wrong
voids

not much income in it

[eldar]

Depends on how you finance them, and keeping voids to a minimum. Buying with a mortgage will mean you miss the best cheap properties, short lease and the like that make mortgages difficult.

8% is a bit thin, a couple of rate rises could be a problem. You'll have to choose and manage tenants carefully, treat the good ones well.

[ywouldi]

z4chris99 said:

60k 75% Ltv so you need 15k plus survey and legals. say another 1500 per house

130% cover and 4.5% int so you need rental income of 220 net pm

if you reckon you can get 400pm gross

10% letting and management
landlords insurance
sinking fund for when st goes wrong
voids

not much income in it

No, there isn't and I'm not expecting much more than to cover the costs but with a more long term view of general property price increases and that in a few years time I could in theory have 10 or so places which would give me a liveable income should I decide to jack the main job in.

There are lots of flats advertised at 500pcm hence my assumption of £400 being an easily rentable figue. May be possible to get more...

Can I ask what the 130% cover means?

[ywouldi]

Something like this seems OK, in a reasonable nice area so would allow fairly decent tenants.

http://www.rightmove.co.uk/property-for-sale/prope...

I assume that the Guaranteed Rental Income schemes are a bit of a con. Presumably you get paid a lower monthly rent in return for the solid income?

[Moominho]

ywouldi said:

Something like this seems OK, in a reasonable nice area so would allow fairly decent tenants.

http://www.rightmove.co.uk/property-for-sale/prope...

I assume that the Guaranteed Rental Income schemes are a bit of a con. Presumably you get paid a lower monthly rent in return for the solid income?

93 year lease, which is no big deal but again may affect the mortgage. Also that's a studio not a one bed, it will go for around £350 a month. It looks a lot like this one available for rent: http://www.rightmove.co.uk/property-to-rent/proper...

I would say a property like that is worth buying with cash or a high % LTV mortgage but if not then the fees and the stress of management won't really make it worthwhile.

I'm sure some guaranteed rent schemes are okay, but all the ones I have seen so far are very dodgy...

[Moominho]

Just to add, I don't think your idea is necessarily a bad one, just that particular property.

[ywouldi]

Moominho said:

Just to add, I don't think your idea is necessarily a bad one, just that particular property.

Cheers, I was swayed by the fact it looks nice from the outside!

[Sarnie]

ywouldi said:

No, there isn't and I'm not expecting much more than to cover the costs but with a more long term view of general property price increases and that in a few years time I could in theory have 10 or so places which would give me a liveable income should I decide to jack the main job in.

There are lots of flats advertised at 500pcm hence my assumption of £400 being an easily rentable figue. May be possible to get more...

Can I ask what the 130% cover means?

How do you intend to repay the Interest Only mortgages?

[ywouldi]

Sarnie said:

How do you intend to repay the Interest Only mortgages?

As I don't need the profit (limited as it would be) I'd aim to hold the income in a separate account and then pay down the mortgage as and when the t&cs allow. Ultimately I would hope to be in a position to sell a couple of houses to repay the mortgages on the others.

I'm still looking into interest only v capital repayment, it's against my better judgment to go interest only but it would seem sensible to maintain cash flow into a working account for maintain acne emergencies as long as I'm restrained and can make sure that the capital is replayed from that pot once a year (or whenever)

[z4chris99]

what happens in a few years time when your 0.5% base mortgage is now 3% base

[Sarnie]

ywouldi said:

As I don't need the profit (limited as it would be) I'd aim to hold the income in a separate account and then pay down the mortgage as and when the t&cs allow. Ultimately I would hope to be in a position to sell a couple of houses to repay the mortgages on the others.

I'm still looking into interest only v capital repayment, it's against my better judgment to go interest only but it would seem sensible to maintain cash flow into a working account for maintain acne emergencies as long as I'm restrained and can make sure that the capital is replayed from that pot once a year (or whenever)

I was only asking as you said "This is based on interest only and the profits would be kept for the taxman and for maintenance and future investment."

Therefore if the profits are accounted for, you'd be relying on property appreciation which is obviously a risky unknown variable.

[pacoryan]

And inflation, his debt will reduce in real terms each year by inflation which is a worthwhile consideration on a 25yr+ project.

[NPI]

ywouldi said:

I am slightly worried that letting at the lower end of the market would lead to problem tenants though I suspect this can be managed out to a degree.

I know that we are turning into a country of buy-to-let landlords now but I think it would be a useful part of my general invest policy.

Does anyone have any experience of this market and have any thoughts they could provide?

I used to work with someone who owned a few really-bottom-of-the market properties and she said she wouldn't do it again, and she was a tough girl, with handily sized brothers available to "assist". Trying to do stuff legally and properly is a waste of time - her tenants generally don't have deposits and even if they do, they just stop paying the rent a bit before they want to leave.

They're generally useless people who will call her out for the slightest thing. If you use a management company then presumeably you'd have to pay for that.

[Centurion07]

NPI said:

...Trying to do stuff legally and properly is a waste of time - her tenants generally don't have deposits and even if they do, they just stop paying the rent a bit before they want to leave....

But look where it can get you:

http://www.dailymail.co.uk/news/article-2379698/Mu...