Rents On The Rise? Or Maybe Not...

[MrsMole]

A small ex rental flat for sale. There's nothing wrong with the flat, but I thought that the "Agents note" was very amusing:

http://www.rightmove.co.uk/viewdetails-530...pa_n=1&tr_t=buy

"Agents Note

The property is offered as an ex-rental apartment and will be vacant from 31st December 2005. It generates an income of approximately £330.00 per month increasing to £380.00 per month from December 2005."

[laurejon]

Good Find

Just shows you there are still some bargains out their where the figures stack up for renting.

In this particular case the yeild is 13% ROCE and that is just right.

An interest only mortgage on this would set you back 232pcm with a rental return of 380pcm its money for old rope.

[MrsMole]

Good Find

Just shows you there are still some bargains out their where the figures stack up for renting.

In this particular case the yeild is 13% ROCE and that is just right.

An interest only mortgage on this would set you back 232pcm with a rental return of 380pcm its money for old rope.

Hi Laurejon,

But the property is actually offered vacant. So there's no guarantee that the purchaser will be able to find a tenant willing to pay £380 per month (which is a £50 per month rise.)

I also think that the yield would be a bit lower because of maintenance (including maintenance charge), vacancies.

Thanks for giving us your thoughts though...you add much needed balance to this site!

Mrs Mole

[johnnyw]

Good Find

Just shows you there are still some bargains out their where the figures stack up for renting.

In this particular case the yeild is 13% ROCE and that is just right.

An interest only mortgage on this would set you back 232pcm with a rental return of 380pcm its money for old rope.

I think you missed the £50 a month service charge for a start, so thats £280 ignoring repairs, contents insurance, agents fees voids.

But even if you ignore these forever at £100 a month profit, is that 51 years to pay back the loan?

[CrashConnoisseur]

Service Charges payable at £145.00 per quarter inclusive of buildings insurance and water rates.

Ground Rent payable at £100.00 per annum.

[pauluk]

I have just renewed my rent for the fourth year. The rent has remained the same for four years now. Flat would cost £185,000 to buy today and I am paying £7,800 a year in rent. House prices are static here. Why purchase and pay £10,000 a year in interest and maintenance when you can rent for less?

[laurejon]

Lets not forget in this example an investor will be having this property purchased for them by someone else. Where in the world could you find someone to buy a nice flat for you for free!!!.

Some people are just born to make money, unfortunately I'm not one of them I'm far too sensible. But for anyone who likes a risk this flat would be a good start. And lets not forget if it all goes pear shaped you can go under and be out of jail inside 12 months these days due to changes in Bankruptcy legislation.

[paradox]

I think the idea is that you never pay back the loan.

You sell for a capital gain at some future date.

You use the 100 pound a month to reduce your living expenses, or if you have a whole portfolio it goes into the pot to pay for voids, maintainance, service charges, mortgage payments and deposits on other properties.

The whole thing works very well if you don't over commit and / or if property prices are rising well (they need to rise fast and not just stagnate)

If these factors are not present then you could be in trouble. But I am sure that laurejon has it all worked out.

[Killer Bunny]

Lets not forget in this example an investor will be having this property purchased for them by someone else. Where in the world could you find someone to buy a nice flat for you for free!!!.

You do make me grimace almost every time.

Yes of course any idiot can see that £60k is a good deal if you can let it

[johnnyw]

It doesnt fit my criteria - i insist on a kitchen more than 5 feet wide! They appreciate faster.

[laurejon]

I have just renewed my rent for the fourth year. The rent has remained the same for four years now. Flat would cost £185,000 to buy today and I am paying £7,800 a year in rent. House prices are static here. Why purchase and pay £10,000 a year in interest and maintenance when you can rent for less?

Your rent at 7,800 is in fact paying all the interest on a loan of 185000 interest only at 4.2%.

Given that the Landlord most likely paid nothing like 185,000 for it he is for sure on a winner.

Unless interest rates rise significanltly soon then I would suggest you are on a loser as your rent money is dead money. If prices rise 5% next year then thats a whopping £9,250 you stand to lose out on, more than your rent alone.

However that said, you would sure be losing if you did not knock it out early 2007 as I think that is the end of the roller coaster.

[johnnyw]

Laurejon Where do you get 4.2% from - what strings are on this?

[Pablo-silver or lead?]

In a falling market you dont get appreciation, even if the kitchen is 12' x 12'!

Pablo Silver or Lead

[MarkG]

Yes of course any idiot can see that £60k is a good deal if you can let it

Why? I make that a 5.2% return if it can be let, after the charges on the flat and before maintenance, voids, etc. Who in their right mind would stick 60k into a flat for a return that would be less than sticking it in a deposit account once all the costs are included?

It would only make sense if prices were going up: even a 1k a year drop in prices would make it less profitable than an Ing account (with their new crappy interest rates). Personally I'll be surprised if the place sells for more than 25k at the bottom of the crash.

And, let's face it: if it's such a great deal, _WHY IS THE CURRENT OWNER SELLING_?

Given that the Landlord most likely paid nothing like 185,000 for it he is for sure on a winner.

Only if you consider making a return of less than you'd get by sticking the money into a deposit account to be 'a winner'.

Edited December 31, 2005 by MarkG

[johnnyw]

Why? I make that a 5.2% return if it can be let, after the charges on the flat and before maintenance, voids, etc. Who in their right mind would stick 60k into a flat for a return that would be less than sticking it in a deposit account once all the costs are included?

It would only make sense if prices were going up: even a 1k a year drop in prices would make it less profitable than an Ing account (with their new crappy interest rates). Personally I'll be surprised if the place sells for more than 25k at the bottom of the crash.

And, let's face it: if it's such a great deal, _WHY IS THE CURRENT OWNER SELLING_?

I agree. If you allow a month a year for voids its down to 4.7% before repairs. It doesnt stack up unless prices are going to rise.

Anyway I think there may be something wrong with it - the price its offered at is out of sync with the other properties on the site. Maybe its hard to let. Maybe theres a structural or legal problem with it - perhaps fire precautions?

[Mikael_Gorbachev]

Rents won't rise till wages rise.

[johnnyw]

Rents won't rise till wages rise.

Rents seem to have been static where we are for about 4 years DESPITE wage rises.

[pauluk]

Laurjon

I am not sure how I am a loser? The price of this flat has not risen in 3 years due to a large increase in new builds in the area.

In three years I have paid £23,400 in rent, the landlord has paid interest and maintenance of £30,000.

The Landlord is down by £6,600. I am happy being a tenant.

In the past I have also been a Landlord but on balance if you are young and without a family you are generally better off renting these days. Buying is money down the drain.

[johnnyw]

Laurjon

I am not sure how I am a loser? The price of this flat has not risen in 3 years due to a large increase in new builds in the area.

In three years I have paid £23,400 in rent, the landlord has paid interest and maintenance of £30,000.

The Landlord is down by £6,600. I am happy being a tenant.

In the past I have also been a Landlord but on balance if you are young and without a family you are generally better off renting these days. Buying is money down the drain.

You seem certainly to be better off as you are.

But it doesnt follow the landlord must be worse off. It depends where the £180000 would be if it wasnt invested in the flat. On deposit he'd be getting about 3.5% so if thats the alternative he is better off too.

The relationship of Landlord and Tenant doesnt always meen that one is worse off and the other better off.

[MarkG]

On deposit he'd be getting about 3.5% so if thats the alternative he is better off too.

Even if you assume they'd make that little (and that the rent wouldn't be taxed), is an extra 0.7% per year really worth all the hassle of being a landlord and the risk of price depreciation? Even a 1% annual drop in house prices and the landlord is worse off.

Plus, of course, they could have stuck the money in the stock market and made 16% in the last year.

I just don't understand why anyone would want to be a landlord for less than a 10-15% retun, house price inflation included. Making 4% a year in rent is for losers.

Edited December 31, 2005 by MarkG

[laurejon]

Portman BS 4.30% to 31.1.08 95% £499 Advances up to 90%, no higher lending charge To 31.1.08

And no extended tie in.

Cheap as chips!!!!.

[Mikael_Gorbachev]

I just don't understand why anyone would want to be a landlord for less than a 10-15% retun, house price inflation included. Making 4% a year in rent is for losers.

Couldn't agree more. The risk (wee bit of price fluctuation) of ownership on this margin doesn't make sense.

[johnnyw]

Portman BS 4.30% to 31.1.08 95% £499 Advances up to 90%, no higher lending charge To 31.1.08

And no extended tie in.

Cheap as chips!!!!.

On £60000 the arrangement fee makes it about 4.75% for 2 and a bit years.

Still good. .25% over current base.

Something tells me interest rates may be on the way down.

Im on base + 0.5%

[laurejon]

I just don't understand why anyone would want to be a landlord for less than a 10-15% retun, house price inflation included. Making 4% a year in rent is for losers

But they are on 10-15% return.

People often make the mistake of working out the figures based on what they borrowed.

Work out the figures on what you yourself put in it.

Say you put down 20K deposit on a property and that property rose 3% that would often equate to around 10k on the average property. You therefore have made yourself a healthy 50% return on your investment in a single year. Dont include the mortgage look upon it as a service cost to keep the thing going but paid for by the tenant.

[paradox]

With my modest STR fund I could put down three 20k deposits and buy three properties whilst I rent the home I am currently in.

3 years ago I might have done that (if I had been alive to the situation then).

Now I just don't think it makes sense. Why?

1) The experience I had selling my flat tells me that something is up.

2) The experience I had when I was a landlord tells me what hassle it was.

3) I could look upon the mortgage, charges and all the hassle as "expenses to keep the thing going" as you put it. But then the so called "profit" would be reduced to two parts. Firstly the minimal surplus from the costs of keeping the thing going and secondly the supposed capital gains which would be pure guesswork untested in the real world until I choose to cash in.

Conclusion - right now it just does not add up