Buy To Let Blog
Not our comments but Buy To Let Blog Comments
Blog: Does this square with what others have noticed?
Looking at rental houses, I've seen 6 month old 3 bed town houses in the Slough area for sale for £250k. In the same development, houses of almost identical spec are up for rent for £1,250.
So, as an investment, in perfect circumstances, £1250 x 12 = 15k pa / 250k = 6% pa.
To expect zero voids just isn't realistic so 10 months pa rental or 12,500 pa seems more likely to me. That's 5% pa.
Added to this you have the agent's percentage at say 10% so we're down to 4.5%.
Plus - Buy to let mortgage rates are generally higher and there's always some maintenance costs even on a brand new property.
I've seen 90 day notice accounts offering 4.5% paid monthly.
Why does anyone buy to let new build properties?
Blog Reply: This is not an isolated case. In most areas that I've seen now the relationship between rental income and capital value yields around the same.
Blog Reply: As you no doubt have read, the Buy To Let market has mushroomed and everyone and their aunt has piled in. In many areas there is a surplus of Buy To Let properties and despite cheap money, yields have fallen.
Blog Reply: I understand that many seasoned Buy To Let investors have switched their attention 'oop north' where yields are healthier, even though the diet might not be (white bread etc).
Blog Reply: Actually old son we save all the white bread for the ferrets and have a diet of ovis.
Blog Reply: You are right. Two years or so ago, you could buy a house, rent it and expect to get a max return in the region of 10-12%. Furthermore you were looking at a capital growth of about 10% p.a. as well. Of course all the financial experts pooh poohed the idea at the time declaring it to be terribly risky e.t.c. The reason being was that THEY wanted to do it with your money and pay you a total return of about 5% p.a. on your investment, pocketing the other 15% for themselves! Many normal, sensible people believed these experts and invested in the stockmarket as advised. Oops!
These days the ease of getting Buy To Let mortgages has enabled many sensible people to jump on the property bandwagon. This has aided house price inflation, but the large number of rental premises now on the market has kept the rental return to the same level as it was two years ago. People getting in then are still getting that return of 10% on their original investment so they are O.K. and looking at a very substantial capital gain, but for those wanting to enter the market now, the facts are as stated and there is little viable return at today's prices. What we now need it a market condition which will cause rentals to rise, but it isn't going to happen for some time.
I don't know what others think about this latter point.
Bvlog Reply: I agree yields generally are plummeting, except apparently on 3-bed DSS terraces in the North.
However:
>I've seen 90 day notice accounts offering 4.5% >paid monthly. Why does anyone buy to let new >build properties?
*if* you can fill it at market rent, a new build with a gross yield of 4.5% will heinously outperform a 90 day notice account because no one will lend you 5 times your deposit to put in a 90 day notice account - you can't leverage it.
My 2 cents
Blog Reply: Just want to make the point that when interest rates are at their current level, leverage or gearing is like making love to a beautiful woman but as soon as interest rates start rising its like.....HELP!
What's the point in having your cake if you can't eat it?
Blog Reply: If you get a rental yield of 6%, you can probably just about cover your monthly costs. Sure this isn't as exciting as higher yields of the past.
It is however, generally better than just using a deposit account etc. The main reason is gearing (or leverage). ie. If you buy a £100K property with a £10K deposit, then if the property value goes up by 10% in 3 years, you've made £10K on the £100K. Alternatively, you'd only have made £1K on your £10K if it was invested elsewhere.
Other benefit is that if rentals go up (or interest rates go down, then you make a monthly profit). And it's all compounded over the years.
Of course, there is a flipside (ie. prices could go down) but this is historically unlikely.
Even if you bought at the height of the 80's boom, sure you would have gone through negative equity in the early 90's but now prices are typically 2.5 times the purchase price of the 80's- big money indeed!
The bottom line is: do your research, analyse your figures, get the best advice you can, and then do it. Worked for me!
Good luck.
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