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Whether to Invest - that is the question..


Phil

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Hi all

I have read many questions and replies on this forum and think it is great to have such a facility for landlords and tenants alike to get advice. I am considering investing in 1 or 2 buy to let properties and would greatly appreciate some advice on a question I have.

I am finding the yields available are quite low as prices across the UK have risen considerably and rentaals remain relatively low. Eg buy to let properties (2-3 bedroom terrace or semi) in my area seem to be around £140K, with rental yields of around £480-£500 pcm. I think this gives to a yield of around 3.5%. Cap growth seems to be around 6% but obviously cannot be guaranteed. Do these figures stack up for a long term investment ?

Thanks

Phil :P

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Hi Phil,

Phil and Kirstie (Location, Location, Location) advise that you should invest if the yield is 5% or more. The logic behind this advice is that the rental income should be broadly covering the mortgage interest.

If you achieve 5% yield then the only risk is that the property is empty (rather than let) and all the capital growth (even 3% a year delivers 100% capital growth over 20 years) is free.

So, if you can get the rent to cover the mortgage and you choose a location that has a plentiful supply of tenants - there is never a bad time to invest as long as you are looking at this over the long term - 20 years or so .....

Good luck,

Mark

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Mark

Thanks for the advice. In terms of getting to the 5% target, I seem to be struggling. I live in Leicester and most 3 bed semi's or terrace seem to be renting at upto £500pcm, costing 140K. Do you have any tips how I can achieve 5%. Is there something I am missing ?

Phil

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Hi Phil

I guess the only way to hit the 5% target in the Leicester market is to increase the initial deposit.

If you could put £20,000 deposit down then your mortgage would be £120,000 (based on the house prices and rent you discuss). £500/month rent would generate £6,000 per annum which is a yield of 5%.

Another important factor is reducing on-going costs by trying to find tenants yourself (rather than giving a percentage of your profits to a letting agent).

Are you sure you are only able to get £500/month back for a £140,000 investment?

If so, perhaps Leicester is not the best home for your money and you should seek other areas with a better yield.

Mark

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Hi Phil,a couple of options maybe to look at purchasing up north,where house prices are lower(in some areas) or look at buying a property that you can rent out as seperate rooms that way you can maximise your roi.Beware though that there's a lot more regs. with h.m.o's.Good luck Adam

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