Rental property - Buy now or wait for prices to come down?

[jenzo]

Hi all

Your advice please.

I am in a little dilemma.

Looking at purchasing rental property number two.

- Purely to rent
- Will achieve 5% yield per annum
- Rental demand in the area is and will continue to remain strong
- There are new developments in the area being made(old office blocks into 1 and 2 bed flats plus new build delvelopments)

Given the above, my main concern is pricing. Do I go for it and bet on a steady rental income and capital appreciation (over next 5+ years) or hold off – would you be factoring in a pricing correction imminently, with prices due to fall/start falling? The said property is in West London.

[klmhcp]

The first thing to bear in mind is how much of a drop can we expect? To my mind, it seems reasonable to expect no more than 10% drop over a couple of years - that being the case, with a 5% yield, it's still worth buying now.

If you're buying purely for income then I don't see the timing as that crucial.

[anonymous-user]

There is no crystal ball. Prices could correct or keep rising....no one knows.

[jenzo]

Appreciate the input.

And in no way was I looking for a clear cut answer/crystal ball type answer - merely an opinion for what one may do/anticipate given the circumstances.

[NickCQ]

Is the 5% net of everything (including the asymmetric taxes on BTL) and expressed on your all-in acquisition cost minus financing proceeds? If so then it sounds like a great buy, as I'd be happy with a net 5% even with no capital growth.

What's the sensitivity of that 5% to +50-100 bps on your mortgage rate w/o any rental growth?

[Ozzie Osmond]

5% is simply far too low - at that level you're more "property speculator" than "landlord".

Why don't you forget the BTL and buy yourself a more expensive house to live in - free from Capital Gains Tax?

[Sir Bagalot]

I'm sitting on my deposit at the moment. Prices increased an awful lot in Q4 last year for no real reason. Most areas are coming down, but not fast enough

[KTF]

People have been waiting for prices to come down for years. And they are still waiting...

[Thankyou4calling]

KTF said:

People have been waiting for prices to come down for years. And they are still waiting...

That very much depends where you are.

[klmhcp]

Ozzie Osmond said:

5% is simply far too low - at that level you're more "property speculator" than "landlord".

Why don't you forget the BTL and buy yourself a more expensive house to live in - free from Capital Gains Tax?

Why do say that 5% is too low?

[Shnozz]

5% does sound a bit close to the mark.

I am currently looking at parking spaces. Liquidity is my biggest concern but when comparing it to "standard" property it is looking attractive at around 12% yield, minimal management charge (essentially a peppercorn rent) and no maintenance or repairs to worry about.

[klmhcp]

Shnozz said:

5% does sound a bit close to the mark.

I am currently looking at parking spaces. Liquidity is my biggest concern but when comparing it to "standard" property it is looking attractive at around 12% yield, minimal management charge (essentially a peppercorn rent) and no maintenance or repairs to worry about.

Tell me more! From auction presumably? Are you up against home owners in the area? How do you price a parking space?

[Shnozz]

klmhcp said:

Tell me more! From auction presumably? Are you up against home owners in the area? How do you price a parking space?

Sold by a number of sources but speaking to managing agents/developers. Yes, aimed mainly at home owners in the area or in certain areas businesses. Some of the car parks stipulate they cannot be sold to non-property owners in that development and/or may have restrictions on letting of those spaces to non-tenants so these are additional factors. To be fair, those that stipulate spaces can only be let to tenants of the development usually carry that stipulation to over-demand of the rented spaces by those tenants anyway so its less of a supply/demand issue in some respects but the spaces do not have the benefit of external competition or a free reign to let a non-monopolised market dictate the price.

As for pricing, same as rental property IMO. Yield. Several factors in the purchase can be discounted which makes it more attractive but would otherwise have to factor in. At purchase, solicitors fees lower, not eligible for stamp duty. Minimal annual maintenance and management charge to discount from gross income. If you are borrowing to buy then discount the cost of borrowing and look at what the rental income is PCM.

Issues I foresee

1. Transient tenants (any more so than on a city centre flat?)
2. Admin of more tenants than, say, 1 or 2 apartments
3. Non-paying sitting tenants (again, a tow rope is perhaps easier than the same with someone living in an apartment)
4. Liquidity ("property" is easy to sell at the right price. Parking spaces on face value perhaps less so. My thinking is to create a documented portfolio with a decent number of years income and sell it as a single lot with proven record).