Buying a House for Investment?
Discussion
Dear all, hypothetically speaking if you had £20-30k would you advise purchasing a flat/house as an investment?
Just thinking very roughly here as something here in Birmingham would cost £150-170k (three bed house). Now it could be rented out at approx £650 PCM and the mortgage would at current rates cost around £1000 PCM. Is it worth doing if you consider the long term i.e. in 10 years it is expected to yield a return greater than inflation for example may be worth £220k from £150k paid for it?
Any alternatives to invest that sort of figure?
Many thanks
Just thinking very roughly here as something here in Birmingham would cost £150-170k (three bed house). Now it could be rented out at approx £650 PCM and the mortgage would at current rates cost around £1000 PCM. Is it worth doing if you consider the long term i.e. in 10 years it is expected to yield a return greater than inflation for example may be worth £220k from £150k paid for it?
Any alternatives to invest that sort of figure?
Many thanks
I think you need to be looking at 20% plus as a deposit to get a reasonable interest rate so your £20k would get you a £100k property.
What are the finance costs (interest only) on a BTL basis for £80k? Would your rental income cover that?
Include in your budget repairs, voids, professional fees, insurance etc.
I'd be quietly optimistic on the fact that in ten years time your £100k house will be worth more than £100k plus inflation.
I would however under no circumstances be looking at spending £1k pcm to yield £650. The 'investment' needs to stack up short term (ie as a bare minimum wipe it's own arse on a month by month basis) and hopefully long term offer capital growth.
What are the finance costs (interest only) on a BTL basis for £80k? Would your rental income cover that?
Include in your budget repairs, voids, professional fees, insurance etc.
I'd be quietly optimistic on the fact that in ten years time your £100k house will be worth more than £100k plus inflation.
I would however under no circumstances be looking at spending £1k pcm to yield £650. The 'investment' needs to stack up short term (ie as a bare minimum wipe it's own arse on a month by month basis) and hopefully long term offer capital growth.
mc_blue said:
Dear all, hypothetically speaking if you had £20-30k would you advise purchasing a flat/house as an investment?
Just thinking very roughly here as something here in Birmingham would cost £150-170k (three bed house). Now it could be rented out at approx £650 PCM and the mortgage would at current rates cost around £1000 PCM. Is it worth doing if you consider the long term i.e. in 10 years it is expected to yield a return greater than inflation for example may be worth £220k from £150k paid for it?
Any alternatives to invest that sort of figure?
Many thanks
Mortgages 'at current rates'. They won't stay the same. The only way they can go is up....Just thinking very roughly here as something here in Birmingham would cost £150-170k (three bed house). Now it could be rented out at approx £650 PCM and the mortgage would at current rates cost around £1000 PCM. Is it worth doing if you consider the long term i.e. in 10 years it is expected to yield a return greater than inflation for example may be worth £220k from £150k paid for it?
Any alternatives to invest that sort of figure?
Many thanks
In a lot less than 10 years you're going to be paying a lot more than 0.5% base rate +
You're also going to need (unless you can find a good lender) a 20% deposit for a BTL mortgage. That's around £34000, plus all the fees, stamp duty, solicitors, etc. Plus furnishing and preparations for letting, that will add another £2-3000 minimum.
So, you're looking at an initial deposit of around £38000 to get the place let.
A current BTL mortgage is going to be around 5% APR (4.5% over base rate), so a mortgage on £136'000 is going to be £560 interest only (IO) / £800 C&I repayment.
BUT when interest rates rise to 7% (which will happen in under 10 years), your repayments are going to be more like £1300 / £1400 per month.
If you can get yourself a 10 year fix, knowing that you're going to be selling in 10 years, then you can at least make proper plans.
Also, don't forget to factor that you're going to have a 1 month in 12 rental void, a re-decorate at least every 5 years, appliances, agency fees (normally a month's rent for every new AST that they move in), etc. Expect to get paid for 10 months in 12, and unless you want to be at the end of the 'phone to deal with the inevitable breaking boiler, take another 10% of the rental income for management too. This is all on 'average', I have places far better than this, and places a little worse.
This isn't supposed to put you off, there's good money to be made on property, but you really need to go in to this with your eyes wide open. A £170k property with a rental income of only £650 is a very poor investment, you can do a lot better.
A few other hypothetical figures;
2 bed terrace gets a monthly rental of £330 minus the agency fees. Average tenant stay is 2.5 years, so little rental voids. The house cost £26k, plus a £10k renovation. Monthly mortgage payment approx. £120 per month.
Another place, which has regular rental voids, is let for around 10 months in 12 on average. Monthly rental £950, the place cost £76k, plus a £12 renovation. Mortgage is around £300 per month.
I could go on, but there are far, far better prospects with property than what you're suggesting, you would do better to look further afield.
Also don't forget that you'll be paying CGT on your gains. I think based on the figures you're suggesting, you're very quickly going to end up funding the interest on your tenant's property, which is never a situation you want to be in as a landlord.... They should always be paying you, not the other way around!
B17NNS said:
Simpo Two said:
Losing £350pcm doesn't seem like my idea of an investment!
Are you suggesting that a million and one new build flat buy to letter's are wrong? 
If you bought the wrong ones, in the wrong places, then bad luck, it would have cost you a fortune. I've heard of stories both ways, most of the bad ones are people who got caught up thinking that £200k for a flat with a realistic rental income of £600 a month was a good idea. Obviously it was never a good idea, and if you had any brains you could see that....
maser_spyder - Thank you for the advice. Like I said I've done no preparation just thought about it off the top of my head. The prices and likely rental income are far more attractive. Would you suggest looking at the lower end of the market? What sort of areas and housing are you referring to?
Regards
Regards
mc_blue said:
maser_spyder - Thank you for the advice. Like I said I've done no preparation just thought about it off the top of my head. The prices and likely rental income are far more attractive. Would you suggest looking at the lower end of the market? What sort of areas and housing are you referring to?
Regards
Not necessarily lower end of the market, I started there because I was only 20 years old and a poor student. My first £6000 deposit took every last penny I had!Regards
Certainly go higher end, but for a £170'000 investment, you should be looking at a 8-9% yield, minimum. You can easily get this if you are careful on what you buy. This means you should be looking at a rental income of £1275 per month on a £170k house. Might not be easy in Birmingham!
Buy at auction. If you want to get a bargain, buy local places that are being auctioned in London. Buy places that need cheap renovations (structural can turn nasty so avoid this unless you're experienced).
You do normally get a better return from cheaper properties, but be prepared for grottier tenants!
As previously mentioned if you can get LTV at 70% a decent mortgage on BTL fixed for as long as possible and are in it for the long term 5 - 10 years + then yes your initial sum when you come to sell will be worth far more than many other investments, as we all know banks are givign nothing for your money at the moment.
Personally I would be buying a mint MK1 Escort or the likes locking it up in a garage and dusting the badboy off in 10 years time and sticking it in a collectors auction.
Personally I would be buying a mint MK1 Escort or the likes locking it up in a garage and dusting the badboy off in 10 years time and sticking it in a collectors auction.
BoRED S2upid said:
As previously mentioned if you can get LTV at 70% a decent mortgage on BTL fixed for as long as possible and are in it for the long term 5 - 10 years + then yes your initial sum when you come to sell will be worth far more than many other investments, as we all know banks are givign nothing for your money at the moment.
Personally I would be buying a mint MK1 Escort or the likes locking it up in a garage and dusting the badboy off in 10 years time and sticking it in a collectors auction.
That sure works, but if you're paying more in interest that you're collecting in rent, it doesn't really make sense....Personally I would be buying a mint MK1 Escort or the likes locking it up in a garage and dusting the badboy off in 10 years time and sticking it in a collectors auction.
Especially when there are plenty of properties out there that people will actually pay you (after interest) to live in.
maser_spyder said:
mc_blue said:
maser_spyder - Thank you for the advice. Like I said I've done no preparation just thought about it off the top of my head. The prices and likely rental income are far more attractive. Would you suggest looking at the lower end of the market? What sort of areas and housing are you referring to?
Regards
Not necessarily lower end of the market, I started there because I was only 20 years old and a poor student. My first £6000 deposit took every last penny I had!Regards
Certainly go higher end, but for a £170'000 investment, you should be looking at a 8-9% yield, minimum. You can easily get this if you are careful on what you buy. This means you should be looking at a rental income of £1275 per month on a £170k house. Might not be easy in Birmingham!
Buy at auction. If you want to get a bargain, buy local places that are being auctioned in London. Buy places that need cheap renovations (structural can turn nasty so avoid this unless you're experienced).
You do normally get a better return from cheaper properties, but be prepared for grottier tenants!
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