Getting into buy to let property business

[estebanrey]

that does not mean they would be offered a mortgage, and what about the deposit how many peopel ahve 30 to 50k in the bank..

Which was part of my point, it's not about the monthly cost but getting the deal in the first place. If there were far more available houses to buy in the country the banks wouldn't be able to be so choosy about who they give mortgages to.

also not everyone wants to be saddled with a 25year commitment...

Do these people think that in 25 years time humans will no longer need to live places? When you buy a house you don't have to live there for 25 years, you can still move you know. Also you can pull out at any time if you want and go back to renting, you won't get much back of course but still more then you get from renting which is basically just throwing money down the drain.

 

[dowie]

How do you work that out? The monthly cost of renting nowadays isn't too far off what a mortgage costs, most people renting could easily afford mortgage repayments (especially if they were cheaper like in the fantasy scenario) but they just can't get the deposit so they are forced to rent.

sort of like how most people could afford to drive a Porsche if they just insured it 3rd party fire & theft - they just can't afford the initial lump sum required to purchase it....

the deposit is quite a significant factor... unless you're happy for large chunks of the population to be in negative equity at the bank's expense... might as well just give everyone Porsches while we're at it.

FWIW I'd probably be able to rent my flat out for significantly more than the mortgage payments - there is a decent level of demand for rental property in London and not just because people can't afford to buy. Living somewhere short term also requires the use of the rental sector as does finding somewhere to live quickly.

 

[Greebo]

How do you work that out? The monthly cost of renting nowadays isn't too far off what a mortgage costs, most people renting could easily afford mortgage repayments (especially if they were cheaper like in the fantasy scenario) but they just can't get the deposit so they are forced to rent.

If renting was much cheaper than buying I would see your point but it's not.

Depends where you live. I have already stated that in my area a £200,000 house rents out for £600 a month but would cost you £50,000 in deposit, stamp duty and £800 a month in a mortgage.

That's a big step up from the monthly rent.......

 

[dowie]

Which was part of my point, it's not about the monthly cost but getting the deal in the first place. If there were far more available houses to buy in the country the banks wouldn't be able to be so choosy about who they give mortgages to.

erm they'd be just as choosy - if you created an oversupply then prices would drop, lots of people would be screwed, banks would take a hit and you'd have something similar to the sub prime crisis again

 

[estebanrey]

sort of like how most people could afford to drive a Porsche if they just insured it 3rd party fire & theft - they just can't afford the initial lump sum required to purchase it....

Not really the same is it. If the list price of a Porche was the same as a Vauxhall Corsa and the monthly repayments were only marginally more expensive over the same time period and the only difference between the two was the Porche required you to pay a third of the money up front whereas the Corsa was on 100% finance then you'd have a point.

But alas Porche's tend to be a lot more expensive than Vauxhall Corsas and require bigger overall payments.

A person who buys a Corsa probably couldn't even afford to rent a Porche, that's different to someone renting somewhere they should (in an ideal world) be able to buy only they don't have the deposit.

the deposit is quite a significant factor... unless you're happy for large chunks of the population to be in negative equity at the bank's expense.

Eh? How would they be in negative equity with no desposit? NE can only be caused by a slump in house prices, has nothing to do with how much of the loan you have left to pay. And given most of your deposit is doing nothing more than paying the interest of the mortgage the value of the house really doesn't come in to it.

If I buy a house worth £250K today on a 100% loan, it'll still be worth £250K tomorrow so how am I or the bank in negative equity?

 

[Jez]

Depends where you live. I have already stated that in my area a £200,000 house rents out for £600 a month but would cost you £50,000 in deposit, stamp duty and £800 a month in a mortgage.

That's a big step up from the monthly rent.......

Yield varies massively area on area, and what your purchase price actually ends up being. For example i exchanged on a town centre flat literally 2 days ago, it'll cost me around £120k all told (it requires a lease extension and renovation). Its rental value is around the £700-800pcm marker.

My point is that you cannot really comment with regard to yields, based on one area in isolation. As a landlord you obviously would simply buy elsewhere.

There is also the point that you are no doubt comparing optimistic internet advertised values with advertised rental rates (which are usually achieved). As someone in the market for a return you wouldn't generally look at these inflated owner occupier "hopeful" emotionally attached sales, rather you look at a run down place requiring renovation which has the real value add. You then have the exit route at any time should you decide to exit the property.

 

[edscdk]

If I buy a house worth £250K today on a 100% loan, it'll still be worth £250K tomorrow so how am I or the bank in negative equity?

the bank borroed the 250k from someone else so they will have to pay back more than the 250k

there is an admin cost associated with the bank borrowing hte money and lending it to you

also you can stop paying the mortgage on day one and it will take the bank a number of months to remove you from the property and resell it...

 

[estebanrey]

I'm too impatient to be a landlord, by the time you've bought the house and done all the work on it it's going to take 18-20 years of monthly rents just to break even.

Fine if you've inherited a lot of housing you don't have mortgages on then it just free money but I don't understand how newbies actually make any money in the short to medium term.

 

[Jez]

I'm too impatient to be a landlord, by the time you've bought the house and done all the work on it it's going to take 18-20 years of monthly rents just to break even.

No it isnt? How did you work that one out?

 

[Greebo]

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A Eh? How would they be in negative equity with no desposit? NE can only be caused by a slump in house prices, has nothing to do with how much of the loan you have left to pay. And given most of your deposit is doing nothing more than paying the interest of the mortgage the value of the house really doesn't come in to it.

If I buy a house worth £250K today on a 100% loan, it'll still be worth £250K tomorrow so how am I or the bank in negative equity?

In a falling market you would be very quickly into negative equity. In some areas house prices have fallen up to 13% in the last year. If you borrowed with a 100% mortgage when prices were at their peak, a mere year later you would have negative equity of over £30k in the example you gave.

So in the current housing market with house falling by their biggest margins ever (0.7% last month) anybody borrowing at 100% mortgage will be into negative equity before they have lived there a month.

And since repossessed house by lenders sell for less than market value in general, that is why you need a 25% deposit nowadays.

Of course, if you buy a house right at the bottom of a slump then you can win big time. But if you buy a £250,000 house tomorrow, the chances are it will be worth £1,750 less a month later, £3,500 less the next month etc. Who wants to buy a house in that market when on top of your £1500 mortgage payment (based on 100% loan) your house is going down in value by £1,750 a month so cost of buying is really £3,250 a month versus renting it for say £800 a month. That's a huge difference.

 

[Greebo]

Yield varies massively area on area, and what your purchase price actually ends up being. For example i exchanged on a town centre flat literally 2 days ago, it'll cost me around £120k all told (it requires a lease extension and renovation). Its rental value is around the £700-800pcm marker.

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True and some areas are much better for rental yields than others. But my point still stands that a lot of property has until recently being priced so high compared to rental income that it's not worth it.

Even the cheapest rundown one up one down terraced house in our area is £100k. That would need another £5k spending on it before renting it out as well.

Max rental income on a very good day would be £400 pcm. The returns just doesn't stack up but still better to buy two of them than one £200k house where I live.

 

[Jez]

Some areas, for various reasons, are just terrible and it definitely doesn't stack up at all. Someone i chat to frequently online (from this very forum) rents a property which is currently being advertised at ~£350k, for ~£1200pcm. Madness, no wonder the owner wishes to offload

However, do not make the mistake of taking advertised prices at face value. You mention a £100k house in your area for example. Is that house advertised at £100k on rightmove? Do you not think it would be realistic to assume that i could probably look to achieve a property with a similar rental value to that, for more like £70-80k if i were to come up with a cheque and make it known to all of the local agents that i will complete without finance complications within a few weeks with no survey? This would turn a property like that into a £90k proposition, still probably not worth it in this case as mentioned, but not as bad as it looks at first glance.

This is a bad example but is how every landlord i know would approach this. I wouldn't personally pay anything like that advertised openly online for anything. (Except in the case where you buy on emotion - your own house).

 

[estebanrey]

No it isnt? How did you work that one out?

How long does it take to pay a mortgage off normally? Until you've done that you're at a loss surely aren't you?

If I buy a house for £170k and spend 30k doing it up to rent out, I'd have to rent it out at £800pcm for 20 years before I've raked back the initial 200k paid for it.

In a falling market you would be very quickly into negative equity. In some areas house prices have fallen up to 13% in the last year. If you borrowed with a 100% mortgage when prices were at their peak, a mere year later you would have negative equity of over £30k in the example you gave.

So in the current housing market with house falling by their biggest margins ever (0.7% last month) anybody borrowing at 100% mortgage will be into negative equity before they have lived there a month.

Then why is anybody buying at the moment, including prospective Landlords? What you're saying is even if I were to buy a house in cash it would be worth less a week later so the 'problem' doesn't go away just because you can afford to spend more on the initial purchase on day one.

And what is so bad about negative equity anyway? Surely that happens with every other product you buy on HP as only houses and antiques retain their values. If I buy a brand new car for £30k, it loses 3-4k as soon as I drive off the forecourt but that doesn't stop people buying new cars or banging on about being in 'negative equity' when they do. Nor does it stop car dealerships from offering loans with little deposit up front.

I'm interested in people buying houses to live in, it shouldn't matter how much your house is worth once you've got it because all you should be interested in is living there, not bolstering some property portfolio.

If I were PM, I'd slash all house prices in half tomorrow. Who would get annoyed by that, no one who owns a house that they live in should care. The only people it would annoy is property developers and landlords.

 

[Jez]

How long does it take to pay a mortgage off normally? Until you've done that you're at a loss surely aren't you?

If I buy a house for £170k and spend 30k doing it up to rent out, I'd have to rent it out at £800pcm for 20 years before I've raked back the initial 200k paid for it.

I suggest that you dont look into this any further as a proposition

1) If you spend £30k on renovation work for almost any house, you are not the right person to be doing this.
2) If you even consider a £200k property with an expectation of only £800pcm in return then you are not the right person to be doing this.
3) You miss that even if you only break even through the term of any finance, you then own the property outright and have that hypothetical income of £800pcm for life - which is the goal of the entire idea.

 

[estebanrey]

I suggest that you dont look into this any further as a proposition

1) If you spend £30k on renovation work for almost any house, you are not the right person to be doing this.
2) If you even consider a £200k property with an expectation of only £800pcm in return then you are not the right person to be doing this.
3) You miss that even if you only break even through the term of any finance, you then own the property outright and have that hypothetical income of £800pcm for life - which is the goal of the entire idea.

Which is why I'm said I'm too impatient, even if you can get your money back in 10 years that one hell of a wait for someone with no other income.

As I originally asked, what is the average length of time it takes someone (nowadays) to pay off a mortgage? If you're claiming you could charge higher in rents then what it would cost in monthly mortgage repayments then you are causing the very problem I hate.

And I'm not looking into it as a proposition, I personally think home ownership should be a human right and not a privilege as it is now. I would personally make it illegal for any one person to own more than two houses if I had my way.

 

[Kimi]

Im in a situation where i bought a house 2 years ago, and now 2 years on, i hate everything about it, its a very nice house, well decorated, perfect living order, 5.1 in the lounge, nice garden, leather sofas, 50" TV, absolutely nothing wrong with the place what so ever. Still, i hate being there, it doesn't have the feeling of home for me.

Im considering renting it out, moving home for a year and using the rent to save and buy a new place, i dont really know how to go about this yet, i mean the way the place is it would probably command a nice rent if they want it furnished,

Does anyone know what difference in price is between furnished and unfurnished? on right move it says 895pm for 2 bed houses in my area, but doesn't mention if they are furnished or not.

 

[Jez]

Which is why I'm said I'm too impatient, even if you can get your money back in 10 years that one hell of a wait for someone with no other income..

Its hardly much of a wait to own something worth potentially hundreds of thousands of pounds or a pension for life. Many many people save into a pension fund for their entire working life for a worse return for example. You need to stop thinking short term and concentrate on the longer term.

As I originally asked, what is the average length of time it takes someone (nowadays) to pay off a mortgage? If you're claiming you could charge higher in rents then what it would cost in monthly mortgage repayments then you are causing the very problem I hate..

25 years is a "default" timeframe nowdays. Yes i am claiming the latter, and this is one way where you could make small amounts short term. That said i would always advise people to simply cover costs and plough absolutely as much capital as they can back into the finance to pay it off as quickly as possible. This then leaves you with that end goal of a life income and a valuable asset should you wish to exit.

And I'm not looking into it as a proposition, I personally think home ownership should be a human right and not a privilege as it is now. I would personally make it illegal for any one person to own more than two houses if I had my way.

Then it is a good job from many peoples' points of view that your opinion has absolutely no importance, then

 

[TheDean]

Yield varies massively area on area, and what your purchase price actually ends up being. For example i exchanged on a town centre flat literally 2 days ago, it'll cost me around £120k all told (it requires a lease extension and renovation). Its rental value is around the £700-800pcm marker.

Crikey - where is that???

 

[Jez]

Does anyone know what difference in price is between furnished and unfurnished?

I wouldnt bother going there. The answer is almost nothing (unfortunately for you)

 

[Paul11]

Does anyone know what difference in price is between furnished and unfurnished? on right move it says 895pm for 2 bed houses in my area, but doesn't mention if they are furnished or not.

there will be no difference in price (hardly)

the difference is if people want it furnished or unfurnished it would help it let