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skimpy

Need Advise, Buying Flat In East London

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Hi All,

I’m looking at buying a flat in East London, near the DLR and Tube and need your advice to see if I missed something out.

Below is based on a lot of assumptions….

If I bought a one bed flat, say in London for 125,000 with deposit of 18,750. Cash!( LTV 15%)

Principle loan is: 106,250.

Repayment mortgage 3.99% over 15 years (variable) 3.49 above base rate. (Big assumption rates don’t change for 3 years)

Monthly payments are 785.00 per month. Ish

Now if rent out the place in London for the same amount 785.00 Covering my principle loan amount and interest… (So no cost to me whatsoever, unlikely assumption, but stay with me and assuming I get 785 per month rent)

I’ve calculated that assuming house prices do not go up or down within three years, I would have double my 18,750 Deposit ( give or take a few quid) if I sold the house for the same price I bought it at, three years later.

The principle paid after 36 months would have been 16,496. Meaning monies own to bank after 3 years is 89,753 (assuming no early termination penalty)

Sell property for 125,000 – 89,753 = 35,247 (not taken into account solicitors fees, stamp duty if any and estate agents fees)

Or have I missed something, Inflation , cost of money etc. need advise. thanks.

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Not looked at your numbers closely but a few things jump out

You do know don't you that you have to pay income tax on any rent you take over the interest amount? I see no calculation for tax in your numbers.

Where can you get a flat in London next to DLR and tube for 125k? Your projected rental yield seems too high, rare to see something sell with a higher than equivalent 5% rental yield in London these days unless it is in an ex Council block where you get tenants on LHA and probably service charge bills of several grand every few years when the council commissions expensive work and the private owners in the block have to suck it up and pay their percentage.

A BTL loan demands a larger deposit and 125% rental cover these days as far as I know.

You have not factored any money in for maintenance, voids, agency fees, insurance etc..

Rates not changing for 3 years = very risky assumption.

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Thanks Bear.

Hand't thought about TAX to be honest...Dur!!... The property was / is in East London, 1 bed flat around 125K ish, rental income for that area is around 700 +.

This would be my only home at the moment as I'm living overseas and have no real tie back in the UK, no property etc. I was thinking of buying as first time buyer, then renting it out to cover the mortgage and cost, covering what difference from here. I.e service charge, repairs and maintenance. I'm getting a bit old now, so thought 15 year mortgage would be ideal as it pays off the principle loan quicker.

I will no doubt return home at some point where I would consider selling it. Since you mentioned tax, would you know what the implications would be on above scenario? i,e living overseas and having just one property back home which would be considered as my primary residence?

I have two properties in America which have healthy returns at the moment, but din;t fancy putting all my eggs in one basket. Any thoughts, or should I stay out on the UK for a while?

Thanks again.

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I don't know about the tax implications for income or CGT when you live aboard, you'll need to get specialist advice on that.

However, the general advice on investment is of course to spread one's assets over different classes, if you are already heavily into property, do you really want to put all your eggs into one basket?

Friend of mine's work colleague has just lost a load of money on his BTL flat in Essex. Rented it out via an agency to a nice seeming couple who came around to view it, him in a suit, her in a pretty dress with polite, quiet children. Turned out they were professional rent scammers. Didn't pay, knew he had to go through courts to evict them and it would take months, treated the place like shite and left it in a terrible state. He nearly went down for assault because even when he had the bailiffs and police there on the day of eviction the guy wound him him up, probably to actually get an assault charge so he could claim compo. Luckily for him the police held him back. Crazy thing is, this guy is well out of pocket, but just like a gambler, he thinks the best way to recoup his losses is to get another BTL as he thinks lightening won't strike twice. He can't get one though because he can't raise enough deposit or rental cover for a 2nd BTL.

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.......Crazy thing is, this guy is well out of pocket, but just like a gambler, he thinks the best way to recoup his losses is to get another BTL as he thinks lightening won't strike twice.......

That says it all really. A lot of people have blind faith in property as an investment and are in for some very nasty shocks. The few, who have found this site and heed the warnings, will be grateful when the shit really hits the fan ;).

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