Buy to Let Newbie questions

Discussion in 'UK Property' started by mimosa49, Mar 8, 2015.

  1. mimosa49

    mimosa49 New Member

    Hi, I've just found this useful forum and this is my first post

    i'm after a little advice please. Ii have been left a decent amount of money which i am wondering how best to invest and am considering buy to let.

    I'm able to spend around £80-£90k cash on a property and am wondering

    1) is it better to buy a house than a flat

    2) should i opt for a university town for student rents or a seaside flat for holiday rents

    3) near my hometown i can only buy a mobile home for that money so would be looking probably 1.5 hrs drive away, if it were agent managed is that do-able?

    or is there some other way i should be working it in order to possibly gain another BTL property in the reasonably near future? I'd like some income from this but also longer term would hope values would raise at least a little. it has to be better than bonds or accounts - doesn't it?

    Probably the first of very many questions Im sure. thanks in advance
  2. Barny

    Barny Member

    Hi Mimosa,

    I've been thinking about your questions overnight since I saw your post so apologies for the detailed reply but often easier to be full and frank rather then answer briefly which then needs further updates to answer questions that arise as a result.....

    So, to answer your questions, my view would be the following. Bear in mind this is only my opinion and what I'd consier doing if I was in a similar position so others may disagreee or have an alternative idea.

    1) Flats are generally cheaper than a house so that's a bonus, but with the majority of flats being on a Leasehold agreement, you will need to pay ground rent, maintenence and buildings insurance to the person/company who holds the main Leasehold license. These rates vary massively depending on size, age, location, etc so always an important question if looking at any flat.

    2a) Personally I'd stay away from students. Yes, it may be managed and a company would view it occasionally but I'd say there is always a higher risk of damage, stains, etc from anyone 18-22 than a more professional person / couple in the mid to late 20's or older.
    2b) a Holiday rent would be good but with something like this, depending on the area, you'd possibly only see business between April - September in UK so in those 6 months you'd have to ensure you'd have all your bills paid, as well as having a reliable agent to book it out for you, inspect and clean, etc. Or, if you're local, this could all be something you do and could save money without an agent but going alone you'd have to try to fill all the bookings privately.
    For me, I'd stay clear of Student and / or Holiday rentals at this stage for you.

    3) Whereabouts are you from? With your comment regarding that amount only getting a mobile home would make me think you're more likely from the South-East / London region?

    If this is to be your first BTL investment, the more local the better as you will probably be wanting to monitor it, do an occasional drive by, stay up to date with agents, etc and for peace of mind, the more local the better. If you are like I was when first looking at BTL, I was abit wary of spending all my money in one go, therefore I'd suggest, and that is assuming you're happy to not spend all of your money in one go, to find a property worth £125k max (no stamp duty to pay!) and pay 25% deposit, which is approx. £31k so with mortagge and solicitor fees, round that up to £35k. You'll then still have £45k to use elsewhere. Obviously if you were to get something for £100k then again, 25% deposit and you'll have approx. £50k remaining.

    You can then see how things work for 6 months, watch the market and see what properties become available both locally and slightly further afield and then if you're happy with the process and the income you generate, you could then use that remaining money to buy atleast 1, if not 2, more BTL properties.

    This example is on a "3 year cycle" using 80% LTV, 20% deposit and interest only mortgage and aimed at initial income and not equity increase in the BTL properties.
    I have a BTL flat in Peterborough, this was purchased last year for £70k, on this I paid 20% deposit (14k) so have a £56k mortgage and get £500/mth rent. After mortgage, agent fees, insurances, etc, I make £200 a month profit. Therefore mathmatically speaking, if local to an area with similar prices and monthly rents, you could have 4 flats in this area using nearly £60k of your £80k, possibly using £15k for fees, decoration, etc but you'd probably still have £5k or more available sitting in your account after. As a monthly income, on an interest only mortgage, even if you made £150/mth per flat, you'd be making an additional income of £600+ per month.
    Property value increase is slower there but with an estimated rise of flat value of about 5% per year, at the end of year 3, you could have an 4 £80k flats, each with £24k equity (£14k as original deposit, plus £10k capital growth) and you could have rental income of £20k plus from them in that period. Depending on fee's etc, if you were to then remortage each flat to the 80% LTV barrier again, you could then free up approx. £15k in each and have another £60k to play with, reinvest that in 2 £110k BTL properties, and after fees, again you could still have £10k+ leftover. For me, the majority of my profit per month goes straight into making overpayments on my main residential as the value increase over the last 3 years have been near to 10% so that puts me in a good position for that too.

    Also, I would prefer to have 4 BTL properties as above rather than 1 BTL property with all money invested mainly for safety of not having a tenant. The returns from 1 "big" BTL would probably be similar to that of the 4 combined but if I didnt have 2 tenants in my 4 the other 2 would cover the loss which looking for a tenant whereas for 1 BTL, if you had no tenant, you;d have to cover the loss out of your own pocket.

    Hope that all makes sense and again, this is only my opinion and similar theory to how I've approached my BTL properties and so far has worked ok for me.

    Good luck to you though and looking forward to hearing how you proceed.

    Last edited: Mar 9, 2015
  3. Jeff Djevdet

    Jeff Djevdet New Member

    Hey Mimosa,

    I'd put my little bit into the conversation from my recent blog post that is about buy to let, but I think Barny has covered a lot here - Impressive!

    - Choose Your Property Carefully

    You need to consider the location, the availability of potential tenants, the type of tenants you want to attract, and access to transport and amenities.

    For young professionals, modern city centre properties might be perfect. For families, suburban properties with parking and gardens will get better results.

    - Do The Maths

    Before buying a property to rent, always look at the potential annual returns.

    To work out your potential profits, subtract what you pay each year in mortgage interest from what you earn in rent, divide by the amount you paid in deposit and any other fees, multiply by 100 and that is your yield.

    Remember to allow for tax, maintenance costs, management fees and insurance, as these will impact on your return.

    - Get A Professionally Prepared Tenancy Agreement

    This is your protection against wayward renters, as it sets out the rights and obligations of both you and your tenant.

    While you can find standard agreements on the web, according to the Saga Legal smooth moves guide it’s worth investing a little extra to have it prepared by a qualified conveyancer, to ensure you save yourself a lot of potential hassle in the future.

    - Check Your Tenants’ References

    You wouldn’t let a complete stranger move in with you, nor should you let one move into your buy-to-let property.

    Make sure your new tenant can afford the rent by doing a credit check and asking for employer details, and request references from previous landlords to see if they have ever defaulted on payments. You could even ask for a guarantor to protect you against unpaid rent.

    - Handle Tenants’ Deposits Properly

    Any deposit on an assured shorthold tenancy (the standard rental tenancy) has to be put in a government-backed tenancy deposit scheme (TDS) within 30 days of receipt.

    They will protect your tenants’ deposit and hold onto it for safekeeping in the event of any dispute. Your tenant will be able to demand up to three times the deposit in compensation if you don’t use the scheme.

    - Chase Rent Arrears Early

    Contact your tenants as soon as a payment becomes overdue, as the longer you allow it to go unchecked the less likely you are to get the money.

    A solicitor can provide valuable support resolving payment disputes and helping with eviction procedures if the situation doesn’t improve.

    - Get Landlord Insurance

    Standard home insurance policies will not provide enough cover for a rented property.

    Dedicated landlords’ insurance adds important features to protect you and your investment, such as public and property owner’s liability cover (in case your tenant is injured due to a fault in the property), legal cover (in case of disputes) and loss of rent cover (in case of defaults).

    The latter is especially important if you rely on the rent to cover your buy-to-let mortgage. Always check the policy to see what is included.

    - Do A Property Inventory

    To protect yourself and your tenants from potential disputes at the end of their tenancy, make sure you complete a detailed inventory of what’s included in the property when each tenant moves in or out.

    Similarly, prepare a full ‘snagging list’ of any scuffs, scrapes or damage and take photographs if necessary.

    - Appoint A Property Manager

    Unless you have the time and the inclination to manage the day-to-day details of your property, you will need a property manager or letting agent.

    They will be your point of contact with your tenant, and if they aren’t up to the task it could reflect badly on you and potentially jeopardise future rentals.

    For complete peace of mind look for someone who is a member of the National Approved Letting Scheme.

    - Be Aware Of The Dangers

    Finally, you should always be prepared for the worst. Keep in mind that things can go wrong and you will need to budget for repairs.

    If property prices fall will you still be able to hold on to your investment? Do you have enough money in the bank to pay your buy-to-let mortgage if you can’t find a tenant straight away?

    A useful guide is to allow for your property standing empty for two months of the year.

    Hope that helps a bit more!

    - Jeff :)
  4. totallyproperty

    totallyproperty Administrator Staff Member

    Great first post thanks Jeff! Looking forward to you being a part of our community...
    Have you done an introduction in the introductions forum? Would love to hear about what you do e.t.c.

    Also great response Barny!
  5. Jeff Djevdet

    Jeff Djevdet New Member

    Thanks totallyproperty, appreciate the kind words.

    I've gone a head and made an introductory post just for you! :laugh:

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