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potential newbie landlord does this sound ok


dollydimples

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I am new here..... so please if my questions or ideas sound rather niave to you seasoned landlords please be gentle with me...lol..

to cut a very long story short... been wanting to move to somewhere with land etc... but just cant afford it,

so i thought i would step my toe into the world of buy to let... to see if i could increase my income to save for my ideal property.

we curently have a mortgage on our property.... and we are both self employed ( i have been self employed for 4 years and the sole director in my ltd company) each year we have built the business by buying more equipment transport etc, so you can imagine our profits are of bare minimum

I have seen, and spoken to a build society that will do buy to let mortgages with a 25% deposit, and look at hte potential income of the B.T.L property rather than our earnings

I have seen a a few properties that are just under 50k ..

so if i bought one of these properties.... 25% deposit 15k, leaving a 35k B.T.L mortgage....

interest only mortage would work out approx £125 per month

Landlord insurance approx £230 per year....

Rent would be anything between £400- £450..... so if we work it out at the £400 for now..

Agent will take between 10 - 12.5% ( depending on which agent we use...

with the tax etc.... how much would i make per month/year on this property...?

I have seen 2 houses in 2 diff areas, and both are in areas with a high % of rented accomadation... so i dont think the houses would be empty for month before they are rented out

so basically how does the above sound/look?

I am not looking to increase/make my money by the proerty going up in value, purely the income made from renting the property

Any thoughts and advice i would be extremely gratefull...

thanks....

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It doesn't sound a very good idea.

* I doubt you can get a 75% BTL mortgage at 4.28 % much more likely to be 5%+ so monthly repayments will be around £150 for a £35K loan. Annual cost £1800

* Agents fees of 10-12.5% will be plus VAT so annual costs might be £720

* Insurance £230

Don't forget your one off up front costs of:

* Survey

* Legal costs for buying

* Mortgage application fees

* Costs of preparing, decorating, furnishing property ready to let

* EPC certificate

* Gas cert

* Electrical checks

Then you need to make allowances for:

* Repairs & maintenance

* Voids....utility costs/ loss of rent etc

* Bad debt/ tenants

* Rent guarantee insurance

* Deposit protection

* Transport, postage, telephone, capital expenditure

* If leasehold.....service charges & ground rents

* Tax on profit

* Loss of interest on your £15K depost

* etc etc

Your yield after tax & expenses is likely to be in the low single figures and hardly worth the effort.

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It doesn't sound a very good idea.

* I doubt you can get a 75% BTL mortgage at 4.28 % much more likely to be 5%+ so monthly repayments will be around £150 for a £35K loan. Annual cost £1800

* Agents fees of 10-12.5% will be plus VAT so annual costs might be £720

* Insurance £230

Don't forget your one off up front costs of:

* Survey

* Legal costs for buying

* Mortgage application fees

* Costs of preparing, decorating, furnishing property ready to let

* EPC certificate

* Gas cert

* Electrical checks

Then you need to make allowances for:

* Repairs & maintenance

* Voids....utility costs/ loss of rent etc

* Bad debt/ tenants

* Rent guarantee insurance

* Deposit protection

* Transport, postage, telephone, capital expenditure

* If leasehold.....service charges & ground rents

* Tax on profit

* Loss of interest on your £15K depost

* etc etc

Your yield after tax & expenses is likely to be in the low single figures and hardly worth the effort.

thank for thoughts, we are vat registered, this venture would be part of our exisiting business.

for these 50k properties.... with rental value of between £400-£450 per month, how would they be profitable? or do experienced landlords make small amounts on rental, but got loads of them?

I have the option to buy more houses in the future

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we are vat registered, this venture would be part of our exisiting business.

I don't see how that will boost your profit from rents.

You can't charge vat on rents for residential property but you are liable to pay it to your agents.

for these 50k properties.... with rental value of between £400-£450 per month, how would they be profitable? or do experienced landlords make small amounts on rental, but got loads of them?

I have no idea. Perhaps existing landlords bought them for less than £50K or don't have mortgages.

What makes you think these or any other properties ARE profitable? The big problem for many experienced landlords at the moment is the costs of borrowing money. High interest rates, very large arrangement fees.....sometimes 3 or 4 % and onerous terms & conditions. The UK is full of property that looks extremely good value but many of us won't borrow at the current offerings.

I take it you don't think property is going to suffer further falls in value then ?

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Hi,

Some simple maths then ..... rental income per annum = £4,800, mortgage expenses per annum = £1,500 per annum, letting agent costs per annum (at 10%rent +VAT) = £576, Insurance = £230. Profit = £2,494 per annum.

OK - so you have to factor in gas safety certificates and EPCs and repairs etc etc ..... but the point is that you are still making money every month AND you will enjoy the long term capital growth "for free".

The point is ...... as long as the property creates more income each month (than costs) then "it washes it's face".

After 15 years and, certainly, by 20 years - the property will double in value (or more) .. at which point you sell it and then you have all that capital growth as your return for investing in property .....

Hope that helps

Mark

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we are vat registered, this venture would be part of our exisiting business.

I don't see how that will boost your profit from rents.

You can't charge vat on rents for residential property but you are liable to pay it to your agents.

for these 50k properties.... with rental value of between £400-£450 per month, how would they be profitable? or do experienced landlords make small amounts on rental, but got loads of them?

I have no idea. Perhaps existing landlords bought them for less than £50K or don't have mortgages.

What makes you think these or any other properties ARE profitable? The big problem for many experienced landlords at the moment is the costs of borrowing money. High interest rates, very large arrangement fees.....sometimes 3 or 4 % and onerous terms & conditions. The UK is full of property that looks extremely good value but many of us won't borrow at the current offerings.

I take it you don't think property is going to suffer further falls in value then ?

a building society offered me a rate of 4.59% on a buy to let mortgage..

yes it was the rate on the agents fees and set up charge we could claim back, and y es i did know there was no vat on rent charged..

I personally think we havent seen the bottom of the property price slump.... and you can see this by the sellers dropping the asking prices on a regular basis..... who knows where it will all end. and where the house prices will even out and find stable price level.... but when ever you buy houses, whether to rent out or for yourself, its a gamble.... I have read over the years that on average a house will have a good increase in value over 7 - 10 years....so i should imagine the savvy landlords are in it for the long haul, not just for a short time...

just out of interest Richlist, how many houses have you got rented out?

so basically you are saying, dont bother there is no money in renting houses out? even for the long haul?

I really do appreciate your comments.... as with my business before i have done anything major etc... i ALLWAYS look at hte negative of what could go wrong etc before i look at what good prospects could be....glass allways half empty with me, not half full, and so far ( touch wood) this outlook as served me well

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Hi,

Some simple maths then ..... rental income per annum = £4,800, mortgage expenses per annum = £1,500 per annum, letting agent costs per annum (at 10%rent +VAT) = £576, Insurance = £230. Profit = £2,494 per annum.

OK - so you have to factor in gas safety certificates and EPCs and repairs etc etc ..... but the point is that you are still making money every month AND you will enjoy the long term capital growth "for free".

The point is ...... as long as the property creates more income each month (than costs) then "it washes it's face".

After 15 years and, certainly, by 20 years - the property will double in value (or more) .. at which point you sell it and then you have all that capital growth as your return for investing in property .....

Hope that helps

Mark

thank you mark.....

so this looks like a good first buy to let investment? The way i was looking at it, if the property was empty for a while, i could still cover all commitments without it putting any financial pressure on us....

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Hi dolly,

On the information you provide ... the investment seems OK to me ....

You will always find investments that generate more yield (ie: higher monthly income compared to monthly debt) .. but with higher yield comes higher risk ...

My advice, start small, buy 1 property .... rent it out ....... then buy a second etc etc .....

Also ... try and learn the ropes of being a landlord .... and - eventually - cut out the cost of the letting agent as you are giving away 12% of your income for their services .... in the beginning the LA will be invaluable .... over time ..... the LA will be a cost that can be gotten rid of ..

Good luck

Mark

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Hi dolly,

On the information you provide ... the investment seems OK to me ....

You will always find investments that generate more yield (ie: higher monthly income compared to monthly debt) .. but with higher yield comes higher risk ...

My advice, start small, buy 1 property .... rent it out ....... then buy a second etc etc .....

Also ... try and learn the ropes of being a landlord .... and - eventually - cut out the cost of the letting agent as you are giving away 12% of your income for their services .... in the beginning the LA will be invaluable .... over time ..... the LA will be a cost that can be gotten rid of ..

Good luck

Mark

thank you mark..... great solid, constructive advice....

everyone's got to start somewhere, in what ever they do, business, hobby etc...

we just come back from seeing one property... and basically it just needs a dam good scrub, and painting throughout, the sellers didnt even try and make it look presentable... there were kiddies drawings over the wall....lol.... we have a booking to see another property tomorrow, so will see what condition that one is in.....

the one we seen today, if i make an offer it will be alot lower than what they are asking, as she let it slip they have been trying to sell it for 4 years, off and on, but wouldnt budge on what the various estate agents valuation....its been with this estate agents for 4 months, and no offers, even at a reduced price of just under 50k...

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a building society offered me a rate of 4.59% on a buy to let mortgage..

OK.......but how much is the mortgage application fee ?

I personally think we havent seen the bottom of the property price slump.... and you can see this by the sellers dropping the asking prices on a regular basis..... who knows where it will all end. and where the house prices will even out and find stable price level.... but when ever you buy houses, whether to rent out or for yourself, its a gamble.... I have read over the years that on average a house will have a good increase in value over 7 - 10 years....so i should imagine the savvy landlords are in it for the long haul, not just for a short time...

Yes, most of us are in it for the long haul BUT isn't it a much bigger risk if you buy in a falling market. This time next year the same house might be 5% or 10% or 15% lower. Even at todays reduced selling prices its difficult to make a profit from rents. There is currently no capital appreciation so therefore very little point in buying.

just out of interest Richlist, how many houses have you got rented out?

I have a few but I mainly let flats.

so basically you are saying, dont bother there is no money in renting houses out? even for the long haul?

No I'm not saying that. I'm suggesting you approach the subject cautiously. Many new landlords make lots of mistakes and one of the biggest is getting the arithmatic wrong by not considering all of the costs. Under estimating and conveniently ignoring the basic costs mean they arrive at an unrealistic return on their investment. Take your £15K deposit.....which is very likely to turn into £17K by the time you have paid legals and set up costs etc.......if you invested that money instead of using it to buy a property you could get say 5% + tax free with no risk if you were to invest that money in Gov' Bonds. Thats £850 which you need to include in your calculations. Most people conveniently ignore that loss of return on the money invested in their property business.

Some of my properties were bought more than 10 years ago for a fraction of todays costs and with mortgages at 0.5% above bank base. You can't get either of those now.

Good luck.

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everyone's got to start somewhere, in what ever they do, business, hobby etc...

No you haven't GOT to start at all.

In my opinion the time to get into BTL was a few years back. Its difficult to make a decent return now without buying BMV, renovation projects, properties suitable for conversion, those with hidden value or larger plots of land that can be split up etc etc non of which are entirely suitable for a new entrant. I'd suggest you have missed boat or at least missed the best seats on the best boat.

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a building society offered me a rate of 4.59% on a buy to let mortgage..

OK.......but how much is the mortgage application fee ?

I personally think we havent seen the bottom of the property price slump.... and you can see this by the sellers dropping the asking prices on a regular basis..... who knows where it will all end. and where the house prices will even out and find stable price level.... but when ever you buy houses, whether to rent out or for yourself, its a gamble.... I have read over the years that on average a house will have a good increase in value over 7 - 10 years....so i should imagine the savvy landlords are in it for the long haul, not just for a short time...

Yes, most of us are in it for the long haul BUT isn't it a much bigger risk if you buy in a falling market. This time next year the same house might be 5% or 10% or 15% lower. Even at todays reduced selling prices its difficult to make a profit from rents. There is currently no capital appreciation so therefore very little point in buying.

just out of interest Richlist, how many houses have you got rented out?

I have a few but I mainly let flats.

so basically you are saying, dont bother there is no money in renting houses out? even for the long haul?

No I'm not saying that. I'm suggesting you approach the subject cautiously. Many new landlords make lots of mistakes and one of the biggest is getting the arithmatic wrong by not considering all of the costs. Under estimating and conveniently ignoring the basic costs mean they arrive at an unrealistic return on their investment.

This is why i am asking for constructive advice, and not jumping in without hopefully asking the right questions and finding some constructive advice..... Yes i totally agree properties could do down by 5 - 10- 15% but over time they WILL go back up, how long that will take noone knows, but throughtout history, the recessions, booms and busts etc property prices have allway go back up, i think the cycle is approx 10 years, same with recessions......

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everyone's got to start somewhere, in what ever they do, business, hobby etc...

No you haven't GOT to start at all.

In my opinion the time to get into BTL was a few years back. Its difficult to make a decent return now without buying BMV, renovation projects, properties suitable for conversion, those with hidden value or larger plots of land that can be split up etc etc non of which are entirely suitable for a new entrant. I'd suggest you have missed boat or at least missed the best seats on the best boat.

I think you miss read what i said..

please read that quote again, and you will see i wasnt just talking about property...

Even people which havent got the best seats can still see and injoy the show and get their moneys worth.....

Have i missed the boat? who knows..... but maybe you have alot more expectations, and poss alot more to lose than me.....

I must admit.... I am all up for unbiased opinions... and i do take on board what you have said, but flip did does sound as though you do not want anyone else buying properties to let.....

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I must admit.... I am all up for unbiased opinions... and i do take on board what you have said, but flip did does sound as though you do not want anyone else buying properties to let.....

OK here is my final attempt to persaude you......

I'd like to think I'm unbiased......after all, what you spend your money on is unlikely to affect me in any way. I'm merely responding to your original post.

It seems to me that you are more easily swayed towards agreeing to any positive comments that support your plan than you are to accepting the more negative aspects suggested by me. My comments are factual, can be supported, usually by examples, are based on MY experience and I'm happy to discuss any of the negatives aspects of your plan that I have posted on this thread.

Of course if you have already made up your mind and are only looking for those who agree that your purchase makes perfect sense you don't need me to throw a spanner in your works.

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I must admit.... I am all up for unbiased opinions... and i do take on board what you have said, but flip did does sound as though you do not want anyone else buying properties to let.....

OK here is my final attempt to persaude you......

I'd like to think I'm unbiased......after all, what you spend your money on is unlikely to affect me in any way. I'm merely responding to your original post.

It seems to me that you are more easily swayed towards agreeing to any positive comments that support your plan than you are to accepting the more negative aspects suggested by me. My comments are factual, can be supported, usually by examples, are based on MY experience and I'm happy to discuss any of the negatives aspects of your plan that I have posted on this thread.

Of course if you have already made up your mind and are only looking for those who agree that your purchase makes perfect sense you don't need me to throw a spanner in your works.

As i have said..... we all have to start somewhere, and as Trenners has pointed out.... its not going to make me a huge profit, ( but the way i work, at the end of the day a profit is a profit) and it is quite a low risk one to start off with, this ( if i do go ahead with it) will give me the expereience, and i will be able to learn from the hic-ups and mistakes, with this property, and then if nothing drastically goes wrong, then i can move on to the next property with a bit more experience under my belt....

OR i could go and blow all my savings( and more) on a brand new range rover ( 60k plus) and lose at least 20k on it the minute i drive it off the forecourt.....

from your experience, etc how much did you pay for each flat, and how much mortgage have you got on them, and how much rent do you get? etc

I have read/heard the ideal no of rental properties to have is 9 ( or anything above this) as this will then cover house which are empty etc

Trenner How many properties have you got ? if you do not want to post that info, i dont know if you could pm me...

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Hi Dollydimples,

I, personally, have 15 properties - 1 x 2 bed flat, 8 x 2 bed semi-detached houses, 6 x 3 bed semi-detached / terraced / detached houses.

I started with 1 property about 13 years ago ... and steadily added to the portfolio over the years ......

Some of my tenants start in "the flat" ... then move to a "2 bed" with their partner ... then move to a "3 bed" when they start a family etc ... some of my tenants have been with me for years and years and years ..... meaning I have ZERO void periods .... so I maximise my income (by letting the property for as many days as I can in a year)... and minimize my letting costs (as my tenants rarely move out or change).

I also manage about 200 properties on behalf of other landlords using the same principle ... ie: minimum voids ... maximum income ... maximum profit ......

There is never a wrong time to invest in property AS LONG AS you are proposing to hold the asset for a minimum of 15 / 20 years .......

The properties that I bought 13 years ago have over doubled in capital value already ....

Good luck on your investment ....

Mark

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WOW....Trenner....you really have worked this out over the years.

Hope you dont mind me picking your brains...

but do you have all your properties in the same area?

do you do furnished? part furnished or unfurnished?

would you mind if i pm'd you with a property details not the one we have seen, but one that you could give me your opinion on, its going to auction, and could pay for it cash

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WOW....Trenner....you really have worked this out over the years.

Hope you dont mind me picking your brains...

but do you have all your properties in the same area?

do you do furnished? part furnished or unfurnished?

would you mind if i pm'd you with a property details not the one we have seen, but one that you could give me your opinion on, its going to auction, and could pay for it cash

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Hi Dolly,

All of my properties are in the same area - in fact all 8 of the 2 bed houses are in the same road!! A lot of landlords take this approach. Not only do you get to know 'common faults' on the houses - eg a faulty boiler pcb board at one property usually indicates that the same problem will be happening shortly at the other 7 houses - but you can save loads of money as you send your maintenance men out to fix faults at xx, yy and zz. Gas safety tests are usually cheaper as well as I send the engineer from property to property at agreed times.

Also .... it is easy to monitor my portfolio by doing a 'drive by a couple of times a week .... and you also get a really good feel for property prices .... and also a feel for what kind of tenant is likely to rent the properties. Mine are in a good school catchment area and close to a good doctors surgery .... all of these points appeal to couples and young families. My properties have equal sized bedrooms - popular with couples and families,

In other words ....... I know my rental market well. I rent out property that appeals to my target segmebt of tenants and .... as a result .... I have very few void periods. In fact, a few years ago, I managed to rent out every property - all 15 of them - for every day in the entire year PLUS I managed to achieve 2 extra days rent from tenants moving out and new tenants moving in .... on the same day.

That really is minimising your voids and maximising your income,

Feel free to email me - mark@mlettings.com will find me .........

You must be brave buying at auction ...... happy to discuss more offline .....

Mark

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Hi Dolly,

All of my properties are in the same area - in fact all 8 of the 2 bed houses are in the same road!! A lot of landlords take this approach. Not only do you get to know 'common faults' on the houses - eg a faulty boiler pcb board at one property usually indicates that the same problem will be happening shortly at the other 7 houses - but you can save loads of money as you send your maintenance men out to fix faults at xx, yy and zz. Gas safety tests are usually cheaper as well as I send the engineer from property to property at agreed times.

Also .... it is easy to monitor my portfolio by doing a 'drive by a couple of times a week .... and you also get a really good feel for property prices .... and also a feel for what kind of tenant is likely to rent the properties. Mine are in a good school catchment area and close to a good doctors surgery .... all of these points appeal to couples and young families. My properties have equal sized bedrooms - popular with couples and families,

In other words ....... I know my rental market well. I rent out property that appeals to my target segmebt of tenants and .... as a result .... I have very few void periods. In fact, a few years ago, I managed to rent out every property - all 15 of them - for every day in the entire year PLUS I managed to achieve 2 extra days rent from tenants moving out and new tenants moving in .... on the same day.

That really is minimising your voids and maximising your income,

Feel free to email me - mark@mlettings.com will find me .........

You must be brave buying at auction ...... happy to discuss more offline .....

Mark

thanks mark....

I will email you if you dont mind...

i had seen a flat that is going to auction, that we could have bought outright, and would have only been approx £50 a month less than a rent on a house, but thinking about it now, i should imagine flats are more or less short term let, and in the future, i should imagine hosues are quicker to sell

The house we went to see yesturday is a no-goer for us...but we have seen another house on-line in the same area that we seen the first one.... but i am gettting conflicting historic info between rightmove ( using property bee) and zoopla

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Hi Dolly,

I let out all my properties - unfurnished - and I never, ever, consider buying leashold flats or coach houses or mainsonettes as you have to deal with the management companies ..... and all their rules, regulations and high maintenance charges!! I became director of the management company (that runs the block that my flat is within) to over come this problem.

I never pay cash for a property as, by example, £50k spent buying 1 property could be better invested as 2 x £25k deposits on 2 properties or even 4x £12.5k deposits on 4 properties.The bigger the portfolio -the less binary your investment is. Ie buy 1 house and it is either let or empty (and earning no money). Buy 2 houses and you have to be pretty unlucky for them to both be empty at the same time etc

Looking forward to your email.

Mark

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Hi Dolly,

I let out all my properties - unfurnished - and I never, ever, consider buying leashold flats or coach houses or mainsonettes as you have to deal with the management companies ..... and all their rules, regulations and high maintenance charges!! I became director of the management company (that runs the block that my flat is within) to over come this problem.

I never pay cash for a property as, by example, £50k spent buying 1 property could be better invested as 2 x £25k deposits on 2 properties or even 4x £12.5k deposits on 4 properties.The bigger the portfolio -the less binary your investment is. Ie buy 1 house and it is either let or empty (and earning no money). Buy 2 houses and you have to be pretty unlucky for them to both be empty at the same time etc

Looking forward to your email.

Mark

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Nice one Trenners some amazing advice... gotta say as much as Richlist knows his stuff he is only ever negative and doesnt really offer any positive advice so pretty useless if you want any constructive help. I became a landlord and due to helpful advice from a lot of very nice positive people on forums have turned around a very cr*p position into a very good and profitable one.

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I agree Sammye, Trenner has giving me some excellent advice, but not only that he has made me think in a diff mind set when it comes to looking for properties.

He is also given me his time and experience... which i feel a bit quilty as i can not repay him, except if he wants advice in my line of business ( recycling)

Even though Richlist sounds negative all the time, he has VERY constructive and good points to seriously look at,

With any business there are ALLWAYS those hidden costs that people seem to miss etc,,, and those are the costs that add up and eat into yuor profits..

Sammye, how many houses have you got, and what are your experiences on renting?

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