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I'm fairly new at all this.
Before I bought my 2 buy to let properties (Oct 2003 and May 2004) I did a basic business plan for expansion but the more I think about it the more I convince myself it can’t be sustainable.
At present I get 1.4 and 1.5 rental yields and I am still on a reduce rate mortgage of 5.6%. So if I re-mortgage to buy more unless rents prices rise locally I can’t see how I can get 1.3 yield to satisfy mortgage lender.
I read some of these property forums and people often appear to do this far quicker then seems possible. Example:
£100k property, £80k mortgage, £375 repayments, £525 rent, 1.4 yield
Property value increases to £120k, £96k mortgage, £448 repayments, the rent would need to be £585 for a 1.3 yield
There no way I would be able to rent out the property for £585
Hoe do they do it!!!
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In the passed rents have always been high enough in almost every area to give the 85%LTV btl mortgages, it has changed over the last year or two since you've got into the property market.
rents will rise in theory in line with property prices and interest rates - they're all directly linked. property should always rent out for slightly more than a mortgage would cost - else there is no demand for a first time buyer to buy or a investor to buy and let - this property would then be deemed over valued and is likely to fall in value unless interest rates are reduced.
There are mortgage lenders out there that will lend 80-85%LTV irrespective of rental yield - they trust landlords to manage their cashflow.
feel free to ask any questions
regards Andrew Peers - andrewpfs@aol.com
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true sarah - but remember when the property increases by £20k that is put towards the next purchase and that should drive further income.
reasonable size and diversity is the key. in my view, reasonable size is around 10?
tom |
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Andrew, do you have any specific information lenders who will lend out 80-85% irrespective of rental yield. I am looking to buy in an area where a 2 bed house costs about 160K, rental returns (650-700). Whilst I have the money to put down the deposit etc, the few lenders I have talked to expect a 1.3 rental yield which means that for the amount I want to borrow (120-130K), I will need a rental income of >£800. Not possible in this area. I would like to buy my 1st property but can't put down a bigger deposit - could look for cheaper properties but rental returns will be much less |
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A few lenders will do it subject to status - ie prove income.
self cert BTL - you'll need to use UCB homeloans(nationwide) or Heritable Bank
you'll probably be best off going through a mortgage broker.
Having said that I am biased - I run and own a mortgage brokering firm.
feel free to get in touch and give me more info
regards Andrew Peers - andrewpfs@aol.com / 07734 050782 |
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interesting Andrew. who are heritable bank a part of? i have never heard of them.
tom |
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Tom/Andrew
Yes, when I buy my next property I will get a further income but I need to re-mortgage the other one to release the capital first. Do you think the bank will take this into account, bearing in mind there will be a gap between the re-mortgage and buying my next property.
I won't be re-mortgaging my first property until Sept this year, but I need lot's of advice from some of you more experienced landlords to help me decide were to go next.
I think I've made a big mistake by buying a new 2 bed apartment off plan. For a start the block of 9 were ready at the same time, 7 of which were bought by investors. My property was empty for 3 months, I had to lived on mucky fat sandwiches for ages. Also over the next few years there are plans to build over a thousand more 2bed apt's in my area, which must effect rent prices. When I first started with this I said would never sell a property but I'm not sure weather to cut my losses with this one and sell up.
All views appreciated.
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Hi Sarah,
I too bought an off plan 2 bed apartment in May last year. Since then I've decided to concentrate on the lower end of the property scale, like between £30000 and £45000 flats in Scotland. So now I want to sell my apartment to release the funds.Its taking longer than normal.
Its always a gamble with new builds in a block as other investors will be fighting for the tenants. But if you set the rent at a keen price, maybe only a fiver or even a tenner a month cheaper, tenants see this and if the same standard as the others, why not?? As long as your costs are covered you should get in before the others.
Dont worry, I'm sure even the best more experiened landlords have done this at one stage.
I've only decided to sell as I can make my money work better at the other end.
Regrads and good luck with what ever you do.
Simon |
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sarah, this is a tough one. you have really dived in at the deep end with off plan. mine own strategy for what it is worth is to buy tenanted hence why i am on this site so often. if not tenanted then in proven rental areas hence i have stayed away from off plan.
however, i have many friends that have made far more money than me over the last few years and they have been in the off plan market so to speak.
the choice is do you believe that there is the capital growth in the flat that warrants paying the shortfall or can you justify the additional money you put in as your pension for the long term as you will one day own the property outright and it will provide you with income.
if you answer yes to these then keep it or otherwise you might as well sell.
tom
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Thank you for your advice.
I have a lot of thinking to do before I make any rash decisions. I agree with Simon that the lower end of the market may be best for now with all these 2bed apt’s in for planning. I also need to do some research in my local area.
thanks again
Sarah |
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Sarah,
I think you have received good advice here. Best of luck whatever decision you make.
Julian |
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Hi guys another lender who disregards rental income and goes off a self cert income is TMB The Mortgage Business.
Alex |
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TMB is a very good lender, no questions asked, would recommend.
Raj: Save your deposit mate, I can get you a similar deal with no deposit required. If you are interested, email me at zubair@ip3.co.uk. You can invest your deposit elsewhere.
Sarah: Understand your predicament. If you have read Rich Dad, Poor Dad, you will know that you will always have some real good investments and some not so good ones. The aim is to learn and not make the same mistake. There are a lot of people in your boat at the minute, getting their fingers burnt with off-plan deals. My advice would be to sell at a price where you break even and get out and look on it as a lesson learnt and move on. The lower end with high yields is probably a good way to go, less risk, slow and steady. If you get the right areas, good capital growth as well.
Feel free to get in touch if you require further info. |
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Thanks for that Zunbair, the more I think about it the more I agree with you. I will probably sell it when my two year reduced mortgage deal ends. I might even sell both of my propoerties and start again.
My other is a 2bed town house with garden with parking for 2 cars. It's an ex-show house so it's lovely. My tenant would like to buy it but it's way over his price range. What do you think of selling half a property and renting half, is this possible? He's been such a great tenant and keeps it spotless I like to help him get on the property ladder, but I am in this to make money so would need to make sure I wasn't losing out. |
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This is one option Sarah. Lots of investors intentionally set up "rent to buy" schemes such as this. I haven't personally, but I bet someone on here does. I was talking to a chap that does this at the property networking club in covent garden (the Bar 38 one). One of his main skills he said was judging the people he takes on as tenants/ buyers. They put a deposit in up front and then pay installments on the cost of the house. Considering you know the tenants well now, that's one less risk for you. If the tenant stops paying, you get the house back.
Trouble is if they can't afford to buy the whole thing off you, they'll probably be pushed to buy some and rent the rest (while paying the mortgage on the other part).
Interesting to look into though.
John |
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Sarah: You have to treat it as a business and not let emotion get in the way. If he is a good tenant, keep him as they are hard to find. Tell him nicely it is out of his price range. Especially if it is a property which will give you good capital growth in the long term |
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zubair makes a great point - you musn't get emotional. treat as a biz and don't give away money!
tom |
