Renting a nice house - what am I missing?

[Largechris]

Looking to try out some different areas a few miles away to live in, selling our current house in Essex.

Should have 400K in equity from the sale. If I invest that in, say, 4 off BTL flats in Hull with a yield of 9%, minus voids minus tax, should clear say 5% net return.

Some nice houses I'm interested in locally appear to be available to rent at cheaper than what a 95% mortgage would cost for their total value - e.g. £2000 per month rental on a property that would be worth 500K on the market.

I know BTL is becoming less attractive but still seems like a decent income stream that would make renting a house work, particularly setup as a Ltd company?

The attraction would be having another income stream and being able to be flexible in future re downsizing, emigrating etc.

So.... what am I missing?

[springfan62]

Smiljan said:

You want to BTL to earn £20k a year while spending £24k a year renting? Why when you already have a home that's paid off?

And after tax his BTL income is even less, probably no more than £16k, then there are the voids and repairs.
And paying CGT on sale.

On balance ummm, not a great plan.

[Smiljan]

Ah, managed to delete my post somehow.

Just to add to what I said. £100k in Hull with get you a charming BTL in a lovely area



I grew up in the area, if you think property of this value will always yield easy, reliable rental from solid tenants I'd be amazed. Hopefully you've done your research.

I'm struggling to think why you'd want to do what you're proposing.

[Largechris]

Smiljan said:

You want to BTL to earn £20k a year while spending £24k a year renting? Why when you already have a home that's paid off?

4K (max and could be less) for the flexibility and eternal income stream seems like a good deal?

[Smiljan]

Largechris said:

4K (max and could be less) for the flexibility and eternal income stream seems like a good deal?

You still need somewhere to live though don't you or am I missing something?

[Largechris]

Smiljan said:

Ah, managed to delete my post somehow.

Just to add to what I said. £100k in Hull with get you a charming BTL in a lovely area



I grew up in the area, if you think property of this value will always yield easy, reliable rental from solid tenants I'd be amazed. Hopefully you've done your research.

I'm struggling to think why you'd want to do what you're proposing.

I haven't specifically looked at Hull in detail just that it normally figures quite highly for yields - e.g.

https://www.rightmove.co.uk/properties/125136875#/...

[Smiljan]

Just food for thought Chris that’s all. Hull does have some good areas but buy in the wrong ones and you are in for a world of pain.

Good luck whatever you decide to do in the end,

[superlightr]

Largechris said:

Looking to try out some different areas a few miles away to live in, selling our current house in Essex.

Should have 400K in equity from the sale. If I invest that in, say, 4 off BTL flats in Hull with a yield of 9%, minus voids minus tax, should clear say 5% net return.

Some nice houses I'm interested in locally appear to be available to rent at cheaper than what a 95% mortgage would cost for their total value - e.g. £2000 per month rental on a property that would be worth 500K on the market.

I know BTL is becoming less attractive but still seems like a decent income stream that would make renting a house work, particularly setup as a Ltd company?

The attraction would be having another income stream and being able to be flexible in future re downsizing, emigrating etc.

So.... what am I missing?

I own a letting business - we let/manage about 350 properties in the SE so shout if have any questions.

As others have said why Hull? each location will have its own micro climate for rents/desirability etc so getting the right location is key.

in Sussex and particular town Lewes was not affected by the property crash historically and have grown capital wise really well because of their mico climate they are in. Currently a 2 bed house will cost you about £320k (if you can find one !) and let out at about £1300pcm )if you can find one!) They are letting almost instantly we take them on. We do 12 mths TA so you will get the full 12mths rent less time at the start to market and its empty (Which we have on average less then 16 days void)

Capitals increases have been great and is where you will really make your money and rents are high. Getting the right tenants is also key and why some agents are better then others.

[Largechris]

superlightr said:

I own a letting business - we let/manage about 350 properties in the SE so shout if have any questions.

As others have said why Hull? each location will have its own micro climate for rents/desirability etc so getting the right location is key.

in Sussex and particular town Lewes was not affected by the property crash historically and have grown capital wise really well because of their mico climate they are in. Currently a 2 bed house will cost you about £320k (if you can find one !) and let out at about £1300pcm )if you can find one!) They are letting almost instantly we take them on. We do 12 mths TA so you will get the full 12mths rent less time at the start to market and its empty (Which we have on average less then 16 days void)

Capitals increases have been great and is where you will really make your money and rents are high. Getting the right tenants is also key and why some agents are better then others.

That's what I mean really, a 320k mortgage would have monthlies of about £2100, but you can rent it for £1300 ?

Hull has had high yields before, Bristol, Manchester is very very good but overheated.

[omniflow]

I've not done the maths, but it looks like you're comparing rental costs with the costs of a repayment mortgage.

Surely the comparison should be between rental costs and an interest only mortgage.

[Largechris]

omniflow said:

I've not done the maths, but it looks like you're comparing rental costs with the costs of a repayment mortgage.

Surely the comparison should be between rental costs and an interest only mortgage.

That's true, I was aware of it but I wasn't being too accurate due to the imminent rise in interest rates and also all the tax and void deductions. I was thinking more about cash flow.

[dmahon]

The numbers aren’t too silly.

I could invest £400k today and generate £30k a year no sweat in a low yield area using interest only mortgages.

£30k a year would rent a very nice place in the same area. Somewhere valued £1 million plus I suspect. So your plan gets you from occupying a £400k house to a £1 million house fairly safely.

It’s just an arbitrage because cheaper places yield more than nicer places and you can use leverage on the BTLs.

After fees, taxes, voids, headaches, risk etc it’s probably turns into a losing proposition financially.

Then you are also stuck renting. If you value the flexibility of renting though maybe the whole plan works out.

Edited by dmahon on Wednesday 3rd August 16:16

[TCX]

Largechris said:

Smiljan said:

You want to BTL to earn £20k a year while spending £24k a year renting? Why when you already have a home that's paid off?

4K (max and could be less) for the flexibility and eternal income stream seems like a good deal?

What your missing....is the same as many people from South east have mised ,thinking they can buy cheap in run down parts of country,you might get them rented,but invariably an areas cheap for a reason,Tennant's are likely to be scum bags,trash your place,and due to the other scum bags living in area,no one decent will want to rent them,cost,hassle n end up selling off just to get out of it,hth

[LooneyTunes]

dmahon said:

£30k a year would rent a very nice place in the same area. Somewhere valued £1 million plus I suspect. So your plan gets you from occupying a £400k house to a £1 million house fairly safely.

£30k for a £1m+ house? Either your market is very flat or the figures are out. I’d expect £40k+.

[dmahon]

LooneyTunes said:

£30k for a £1m+ house? Either your market is very flat or the figures are out. I’d expect £40k+.

3% yield is about right at £1m and cross referenced with my local area.

That said, even if you tweak the numbers, his plan does get him into a nicer rented house.

[LooneyTunes]

dmahon said:

LooneyTunes said:

£30k for a £1m+ house? Either your market is very flat or the figures are out. I’d expect £40k+.

[b[3% yield is about right at £1m [/b] and cross referenced with my local area.

That said, even if you tweak the numbers, his plan does get him into a nicer rented house.

It isn’t in my area, but the market is very thin at that level… although I do have one set of tenants that rent a £750k place but plan to buy cheaper BTLs to subsidise it so it is a plan that works for some people.

[Largechris]

dmahon said:

The numbers aren’t too silly.

I could invest £400k today and generate £30k a year no sweat in a low yield area using interest only mortgages.

£30k a year would rent a very nice place in the same area. Somewhere valued £1 million plus I suspect. So your plan gets you from occupying a £400k house to a £1 million house fairly safely.

It’s just an arbitrage because cheaper places yield more than nicer places and you can use leverage on the BTLs.

After fees, taxes, voids, headaches, risk etc it’s probably turns into a losing proposition financially.

Then you are also stuck renting. If you value the flexibility of renting though maybe the whole plan works out.

Edited by dmahon on Wednesday 3rd August 16:16

Very interesting thanks