buy to let

has a good forum

I would go and have an informal chat with a lettings agent in the area you plan to buy in. If you get a good one they will give you an assessment of the local market. Also make sure you have a good look around the area and talk to a few estate agents just to see what the market dynamic is. If properties aren't selling or letting quickly and there are lots of boards up they are probably overvalued..

Don't buy new build, they are usually 10-20% overpriced, which is OK when the market is rising quickly, but not so good if it does slow.

My personal approach is to buy homes that need a bit of basic work done to them - the 1 bed I have just taken on needed a new kitchen, redecorating and some repointing and repair to a brick storage area. Having just fixed everything for around 3500, I can say other similar properties are selling

12k more than I paid and renting for 650 pcm, with a mortgage of 480. It won't make a huge rental profit for now, but in 6/7 years rents will probably be 20% higher at which point I should be in quite a good position to just sit on it and wait for a new burst of capital growth. (Do take void periods, Council Tax on empties etc into account in your calcualtions).

The one thing I would say though is that you should play for the long term. As an example, if average salaries grow at 3% per annum, in 25 years they will have doubled. Conservatively the asset you have bought will have doubled as will the rent, meanwhile the mortage that other people have been paying for you will, if interest only, be the same in nominal terms but half in real terms. So in this example, with a 20% deposit, you might expect to get back 6 times your deposit in capital growth, and be making 800 PCM profit. Of course I haven't discounted the money value over time, but these figures would be roughly three times your deposit and 400PCM in todays terms assuming 3% compound.

Search the following forums -

hth

Daytona

...and useful pointers to news and articles on house prices, with some interesting links!

The worse thing I am finding about getting into the buy to let market, is findoing out what reasonable rent I and get for a property say at £130k. From what I can see in my area, the rent only just covers the mortgage and in some case falls short of paying the mortgage

redecorating

That means your gearing is too high. LTVs of more than 50% are likely to be fraught with danger, if you don't have other sources of surplus income. Also, there may be no increases in asset value, in the short term, to bail you out and mask a poor investment decision.

I don't know that it makes much difference in todays market in the south. The fundamental difference between price & rent being too large

-

7% rental yield, 130K price with a 85% LTV mortgage at 5.5% gives a net (of everything) yield of 1.8%

7% rental yield, 130K price with a 50% LTV mortgage at 5.5% gives a net (of everything) yield of 3.3%

HCIP/CPI is running at 1.5% Medium gilts are about 5.5% gross

Daytona

Assuming by rental yield you mean total income including voids, then in many parts of the south you're lucky to get that. In the area where I am looking (now only out of interest) rents are under 6% assuming no voids. (And somehow the new-builders have sold 75% off-plan with barely the foundations completed. IMHO these people are really going to struggle to get even 75% occupancy rates when all these flats are finished.)

tim

I know - I was being generous to illustrate the futility of BTL at anything near to or below that level.

Daytona

Thanks everyone for the advice. From what you say even if the figures do add up it would be wise to leave it a while.

Smokeyone