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Thread: Entering BTL with eyes wide open.

  1. #1

    Entering BTL with eyes wide open.

    Apologies for probably asking questions asked many times before but as a novice to the world of BTL I would really appreciate some advice before I take more specific advice from any advisor. I’ve spent a great deal of time looking into the rental market locally to me and also trying to understand the many potential pitfalls of moving into this area and how best to mitigate them. (The most useful & consistent advise seems to be, be a good landlord by looking after the tenant and property). It doesn't scare me but only fools rush in!

    I have a target of a minimum of 3 BTL properties, all bought and paid for in 15 years as not only a supplement to my retirement income but also a better future for my kids. Income stream is not important at present.

    I’ve 200k to invest plus a 25K contingency fund and I already have a number of other types of investments, so certainly not putting all eggs in one basket!
    I have a number of potential scenario’s in my head and probably many others I haven’t even considered, the most basic being should I just buy outright or take the mortgage route.

    What are the best, most efficient options with a 15 year plan in mind (if indeed workable!)
    Many thanks in advance for any advice, even if it's don't do it!

  2. #2
    There are many issues arising from your questions. My wife and I bought 3 BTL houses over the last 2 years and generally are pleased with the way it's going. Unlike you, we've done it to provide retirement income, so are not too worried if capital values fall in the short/medium term.
    We have a very small mortgage on only one house as we don't like to be too indebted (probably too cautious). We get about 5-7% yield pre-tax, which is clearly better than any building society. 2 houses are let to students (more work but higher yield) and the other to a family. We see it as a business, not a hobby, and it does take some time to manage. I could go on - as I said, there are many facets to this. Oh, and do join either the RLA or NLA, both very helpful organisations.

  3. #3
    A great place to get sensible answers would be Property Tribes' forum, or Property 118. Both are stuffed to the gills with professional investors.

    My basic bits of advice:
    Use light gearing to enable you to have a bigger portfolio but keep mortgage costs low - capital in the bank is a better protection than equity in a property.

    Use professionals to manage aspects of the business that they will do better than you can.

    Consider mult-lets for higher cashflow (but you say you don't need that right now).

    Buy cheap and add value.

    Talk to a specialist letting agent (not a sales agent with a sideline in lettings) about what to buy so that it will let well.

    Don't buy what you would want to live in yourself - people like you aren't your target market.

  4. #4
    Judging by experiences of relatives who have gone into BTL and of a house nearby which was recently trashed by apparently good tenants (and the agent did nothing to help despite warnings from neighbours) I wouldn't touch BTL with a barge pole. My nephew is an unintended landlord and his parents look after the property and the income after expenses just about equals the interest only mortgage. There are easier ways to earn 10000 before tax (5% of 200K) without this sort of hassle and still give you time to get a part time job in Tesco.

    Don't forget the other issues like the govt reducing housing benefit which is effectively propping up rents, CGT on second homes, Vince Cable's plan to tax large property portfolios, falling house prices, interest rates can only go one way (up) if you go the mortgage route.
    Overall I would class BTL as high risk for a low return.

  5. #5
    All of the profit from UK residential property was made in the 10 years to 2007. 6 years on the land registry sold prices are nowhere near the 2007 peak and 10 years from now they still won't be at the 2007 level because the current interest rate bubble that is sustaining the current 20% over valuation of UK residential property wont be sustainable beyond the medium term. Eventually interest rates will be 6 % higher than they are today and house prices will be back on their long term track of 3 x 25000 average salary, i.e. 75000 for a 3 bed semi in in the West Midlands. Currently they are being advertised at 150000 so they are double their long term correct price.

    How many years will it be before the average salary doubles to 50000 to catch up with overpriced 3 bed semis in the West Midlands? It will probably be more than 10 years from now.

    It doesn't matter whether the purchaser is buy to let or first time buyer there is no more money to be made in UK residential property, except, maybe, in London.

    I bought a 3 bed semi for 20000 in 1985. I sold it in 2001 for 67000 and purchased a 5 bed detached for 250000 which I sold for 315000 in 2008. I was offered 360000 for it in 2006 which I sadly refused.

    As I had repeatedly re-mortgaged during the 10 year boom I had sadly fell off the property ladder in 2008 with no deposit to get on it again.

    I refuse to pay more than 75000 for a 3 bed semi so I relocated to Thailand where I bought a nice 75 sq metre 2 bed apartment for 50000 with 2 years interest free credit from the developer.

    My maintenance fee is 30 a month and I pay 30 a month for electric and 20 a month for the broadband and that's it. My total cost of living is 80 a month and I can sell my apartment if I want to.

    I hope this puts in perspective how ridiculously over priced the UK housing market is both in terms of house buying and renting.

    Miles Shipside from Rightmove was talking balderdash earlier this week when he suggested UK property prices had recovered to within a "grand and a half" of their 2007 peak. What he didn't tell you was that the prices his customers advertise their properties at bear no relationship to the prices they sell them at and, indeed, only the ones who advertise at a very low price indeed get viewings and only his customers who get viewings actually sell their properties.

    So lets examine what constitutes a very low price, one that is low enough to create a viewing of the property which is a prerequisite for a sale?

    Well based on the experience of selling my mom's property last year if there are 10 similar properties for sale in a particular area and they are all advertised on Rightmove at 399000 none of them will receive a viewing. These sellers will need to compete with each-other in a Dutch auction of repeated down valuations until one of them steels the market in a particular Rightmove price point which will probably be a good 25% below the 9 unsold properties that Mr Shipside asserts are within a grand and a half of their 2007 price.

    For me leaving country for a decade while the property market returns to its long term average of 3 x average salary for a 3 bed semi in the West Midlands is a matter of principle. I just don't believe in being overcharged to live.

    So if house prices are set to remain at current overvalued levels for at least another decade while interest rates slowly creep back to normal levels, how can buy to let or even buy to own be a good investment?

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