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Could you give me a beginers guide to buying a buy to let

(25 Posts)
BLOO3Z Tue 14-May-13 11:01:37

I am really keen on buying a buy to let to give me a income/pension.

My budget isnt huge but I am seeing a reasonable amount of 3 bed houses to buy in the area I currently live in, they are shockinly expensive for the areas Im looking in, this is stretching my budget, so I am looking in the area I used to live in which is eight hours driving time away.

However I do know that area better than the one where I live now.
Would I be mad to buy somthing so far away as I realize managing it will be hard whereas a house close to home will be easier but is going to cost me at least forty grand moreshock

Is anyone on here a distant LL and do you manage the property yourself or pay a agency to do so?

Sunnyshores Tue 14-May-13 11:28:00

Day to day, its not about property investment, but about being a Landlord....this isnt for the fainthearted, even if you're making money the hassle can be endless.

First, I'd be very clear about what return you want to make from the property. You say you want it for an income - do you have a specific amount that you want to make from it? And is that from now (rent-mortgage-maintenance etc) or 25 years later when you have paid off the mortgage?

Mortgages are incredibly low at the moment, they will go up, profits will fall.

Legislation on landlords keeps increasing, sometimes it costs money, always it takes up more of your time. Tenants can be a bloody nightmare, it takes experience and rigorous vetting procedures to get good tenants. You'll need to find tradesmen you can trust... I could go on and on... angry

I'd start at the begining and do your sums - unless you're willing to do HMOs or can buy a house hugely under market value I would suggest you're unlikely to see large monthly profits if you are also paying a mortgage.

LadyKooKoo Tue 14-May-13 11:42:15

I wouldn't have a property that was eight hours from me. Fair enough if you have a huge property portfolio but not for just one.

Sunnyshores Tue 14-May-13 11:53:42

Sorry, my first post was very negative, but so many people get into BTL thinking the money will just roll in each month, whereas its a longer term slog.

There is money to be made if you buy the right property at the right price, for now I wouldnt worry about where it is - if its making enough money you can get it managed.

You need to run through some financial scenarios, so, here's a link to knowing what the repayments will be (assume 5% now):
www.moneyextra.com/mortgages/calculators/what-will-my-repayments-be.php

and what they'll be when rates increase (assume 8%, maybe 10%):
www.moneyextra.com/mortgages/calculators/what-will-my-repayments-be.php

Thats your gross profit from rents. Then take off 10% of the rent for maintenance, £150 for insurance, assume only 11 months rent per year. That will give you a basic net profit to look at. Is that the income/return you wanted?

BLOO3Z Wed 15-May-13 10:06:43

Thanks for info family are trying to put me off buying one so far away, I can definitely see advantage of a house which is close..I am looking at this as a very long term investment.. Rent in my area seems to be really good 750 pcm for 3 bed too higher than where we used to live. Going to view 2 houses on Friday. I'm not rushing into this...it's a frightening amount of money to invest.. How do you vet Tennents? Is there companies who will do this, am thinking if house local I can manage tenency myself rather than pay agency...

BLOO3Z Wed 15-May-13 10:09:58

Hmos? What is that

LIZS Wed 15-May-13 10:18:44

HMO = House of Multiple Occupancy ie. you let rooms individually. Have a friend with several btls the first of which came about through circumstance rather than design and she now lives many hours away . She hopes to sell it soon (although CGT an issue) as she has to pay a local agent for day to day issues which is less viable financially and manageable than the local ones which she can organise herself.

BLOO3Z Wed 15-May-13 10:32:33

Ok thanks I'm just looking at three bed family houses as seems to be not so many 3 beds on rental market here..
But lots of one bed an two bed...then just big jump to four bed and huge houses..
So hoping I have read into correctly.

BLOO3Z Wed 15-May-13 10:36:10

Ok thanks I'm just looking at three bed family houses as seems to be not so many 3 beds on rental market here..
But lots of one bed an two bed...then just big jump to four bed and huge houses..
So hoping I have read into this correctly.
I am willing to drop the rent in the hope of attracting a long term tennant. I have lived in several multi occupancy houses that was enough to put me off buying one..

BLOO3Z Wed 15-May-13 10:36:57

Oops posted too soon sorry

Sunnyshores Wed 15-May-13 11:17:27

So have you worked out what profit you'll get per month if the morgage rates go up?

RCheshire Wed 15-May-13 11:31:24

As Sunny says, do your sums. BTL may be the right investment choice for you but often it's not the best choice.

In : Monthly Rent*12
Deduct: Maintenance (5-10% of rent)
Deduct: Management if necessary (5-15% of rent)
Deduct: Void (assume 1 month per year minimum)
Deduct: Insurance (couple of hundred -liability & buildings)
Deduct: Mortgage interest (but take into account tax relief)
Deduct: Income tax on the remainder
Risk - allow for risk that you cannot predict the value of the property at the point you will want to sell it - and I know that's a way off.
Risk - govt/tax policy has been favourable to BTL over recent years; that could reduce/change at some point.

To give you an example, I am currently a long-term (2yr) tenant in an agent-managed property paying £1500 pcm who asks for very little in the way of maintenance. My landlord net return is ~3.5% based on the current value of the house (which in turn is £40k less than he paid for it 9 years ago - he overpaid).

Please make sure you have fully compared (both for risk and return) with other investment choices. Also please ensure all your eggs aren't in one basket - few people would put all their savings into shares, or all into bonds - don't put everything into one investment vehicle.

RCheshire Wed 15-May-13 11:32:31

How did I miss higher interest rates off that list....I'd assume paying 6% mortgage interest in the future if I was a 'glass half full' person and 8% if a 'glass half empty'.

specialsubject Wed 15-May-13 13:51:58

in addition: legal expenses insurance, gas certificate and maintenance, deposit protection (low cost but must be done), tenant vetting/credit checks, possible rental protection insurance.

OP - try to get a reliable agent involved. The industry isn't regulated but one belonging to a trade association is a slightly better bet.

SconeInSixtySeconds Wed 15-May-13 13:55:49

And entry cleans and entry inventories.

Adds another 350 pounds a year or so to expenses.

BLOO3Z Wed 15-May-13 14:43:58

Working my budget out I can do this without mortgage by buying one to do up, this does not faze me, but hopefully buying house which I can add value to. I currently can't see any other investments which will give me a possible 8,000 pa return and without huge risk...

I am very aware that I need to buy in the correct location if I need to sell this. Am very aware too that I may be blowing my dcs inheritance here...am I mad to be doing this?

TerrysNo2 Wed 15-May-13 14:48:07

I don't think you're mad to be doing it, especially if its mortgage free. You just need to look at the figures very carefully and work out if the return is worth it (compared to say, a high interest savings account).

There is a reason so many people buy to let!

sugarplumfairy Wed 15-May-13 14:56:06

I have two properties that I let out, one is a 4 bedroomed terrace house, and the other a two bed flat. The house makes only 50% more than the flat, yet cost twice as much.

The house was a renovation that didn't sell so we have rented it out instead.

I would like to sell the house and buy two more flats, this would give us a better yield, for the same amount of investment.

Also the flat has always had a professional couple in it, who are hardly there. The house appeals to families, this means more hassle, things getting damaged, more issues etc.

I would not buy another house as a buy to let, too much to go wrong.

RCheshire Wed 15-May-13 14:57:28

It's not mad at all. You just need to make sure you've done all the sums first.

If you're buying outright (i.e. no mortgage) then the question becomes less about mortgage interest costs and more about what that same money could be earning elsewhere.

For me, particularly if you're a higher rate taxpayer, I would make sure (even with currently v low rates - they won't stay there forever) your cash isa allowance is fully used first. Then you need to assess risk against alternative investments. For example a decent chunk of my money is in bonds paying between 6% and 12% - obviously with varying degrees of risk. Look at what risks you are happy with, opportunities for diversifying and (hard bit!) predict the future - rent rises/falls, interest rates, property values...

specialsubject Wed 15-May-13 16:24:26

as there is no such thing as a high-interest savings account, and won't be until the government can see that funding for lending isn't working, then it isn't a mad idea at all. You just need to understand and budget for all the issues.

Sunnyshores Thu 16-May-13 12:09:40

OK, a cash purchase is obviously going to be profitable. You just need to find a property in the right location, right price, good resale potential.

When you own the house, its all about being proactive, making sure you have good tenants, making sure they keep the property in a good condition, making sure maintenance is done as soon as and done well, keeping yourself up to date with legal requirements. I joined NLA (£100pa) and thats been invaluable for advice and recommending good suppliers.

If you're buying with cash, auctions are an option, always good properties available needing work.

Have you looked at the sums - one house brought with cash vs 2 houses brought with cash/mortgage?

Just another point re flats - personally I havent been able to make flats work as well as houses, because the maintenance charges are usually high and resale or relet you have to rely on the neighbours to have their properties quiet, clean, no junk in communal halls etc to give the right impresison. I also found that the tenants were generally younger, less responsible and moved on quickly with new partners, or children.

BLOO3Z Thu 16-May-13 19:10:04

sugarplum and sunny Ive discounted flats totally and just been looking at houses as I thought that maybe a three bed house would have a longer term tennant as aposed to a flat, I agree that the flat would probably be less maintenance involved I could see that..

but then I can see a house selling quicker here as lots of flats on the market here at present.

Im still playing with the figures for this and hope to keep some for investment if I manage to get the right house.. Good point re the ISA

I think my gut feeling is to buy local which eats into my budget but its looking like buying further afield is going to give me too much trauma in the future. Thanks once again for the info all you wise mners.

HerRoyalNotness Thu 16-May-13 19:24:54

We have a BTL in the North East and use a property manager to manage (who also happened to be a friend). It costs us 500quid per year for their service. They organised the tenant, (who has lived in it for 5years now!), and also gas/elec checks and any repairs.

If you're looking at that area, I can recommend him.

BLOO3Z Sat 18-May-13 15:14:31

Herroyal Thanks that sounds reasoable I am still debating this with dh as he still thinks Im mad to be looking further away..

BLOO3Z Sat 18-May-13 15:20:40

SUNNY just had a look at the nla site it looks good especially for the legal tennacy forms. Thats now bookmarked.

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